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Old 04-04-2013, 11:20 AM   #31
KevinNYC
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by longhornfan1234
The banks has responsibility to the depositors.
Two points.
First, when someone says "bank" today, it doesn't necessarily mean a bank that takes deposits. This is especially true when you are talking about mortgages. See Wikipedia's definition of a Mortgage Bank.
Quote:
A mortgage bank is not regulated as a federal or state bank and does not take deposits from consumers or businesses.

Second, you don't seem to understand the issue discussed in the article. The whole purpose of the program under discussion is to "insure home loans against default." That is, it's an insurance program that PROTECTS banks against default. So where exactly is the risk to depositors? The FHA also just took steps this month to strengthen that insurance program so the FHA is also taking steps to minimize risk.


Quote:
Originally Posted by longhornfan1234
The reason we had crash in banking was federal gov pushing banks to lend to those who had little or no credit.
This has been pointed out to you several times. No matter how many times you repeat it, it stays absolutely untrue.

The "banks" that made the majority of subprime loans were mortgage originators of the type defined above. They took no deposits and because of this did not have the government telling them who to lend to. They lend to subprime borrowers because it was extremely profitably for them to do so. Because they charged higher fees on those loans and if those home buyers got in trouble, (say when their adjustable rate mortgage adjusted and their payment ballooned), they were happy to step in and lend to them again and collect another round of high fees. The government didn't tell them to weaken their underwriting standards....they did this because they ran out of people to make subprime loans too...that is they weakened their standards in chase of profits.

That also doesn't describe why Wall Street investment houses like Bear Strearns or Lehman Brothers failed. Especially since they were not subject to "the government pushing" them into mortgages at all. It doesn't explain why their failure led to a worldwide crisis.

Here's something that actually did cause the financial crisis. Wall Street's risk management sucked. They embraced a way of assessing risk that was faulty. Worked pretty well 98-99% of the time, but that one percent when it failed the losses would be gigantic and would wipe out all the previous profits made. Because of this faulty risk management, Wall Street took fantastic risks in a very short period of time and starting issues CDSs and CDOs like gangbusters.
Quote:
At the end of 2001, there was $920 billion in credit default swaps outstanding. By the end of 2007, that number had skyrocketed to more than $62 trillion. The CDO market, which stood at $275 billion in 2000, grew to $4.7 trillion by 2006.
These CDSs and CDOs were later called toxic waste and they were the reason and downturn in real estate hit the economy so hard, the multiplied the losses in real estate many times over. The article I linked to talks about the mathematical formula that Wall Street used and why it was flawed. Without the use of the flawed formula the credit default swap market wouldn't have increased by a factor of 62, collaterized debt obligation market wouldn't have increased by a factor of 25. None of this had to do with government pressure, it was because of profits and it worked. For a while.


You also may want to look into what it takes to actually qualify for an FHA loan and see how that differs from the crazy mortgages given by private mortgage lenders in 2006. There are substantial differences. FHA is no where close to the loans invented by the private sector like NINJA loan with negative amortization during the subprime mess. To be a conforming mortgage for FHA, there are limits that are built in to ensure you are buying a home you can afford. This goes beyond what your credit score is. During the subprime mess, the lenders didn't care if you could afford your mortgage. In most of the cases, they knew you could not. But they didn't care, because if you had to refinance in two year, they made more money. Also they weren't holding the risk, because Wall Street was so eager to buy their loans, they didn't have to conform to any standards.

Last edited by KevinNYC : 04-04-2013 at 11:32 AM.
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Old 04-04-2013, 12:10 PM   #32
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by KevinNYC



This is absolutely untrue. This has been pointed out to you several times. No matter how many times you repeat it, it stays absolutely untrue.

The "banks" that made the majority of subprime loans were mortgage originators of the type defined above. They took no deposits and because of this did not have the government telling them who to lend to. They lend to subprime borrowers because it was extremely profitably for them to do so. Because they charged higher fees on those loans and if those home buyers got in trouble, (say when their adjustable rate mortgage adjusted and their payment ballooned), they were happy to step in and lend to them again and collect another round of high fees. The government didn't tell them to weaken their underwriting standards....they did this because they ran out of people to make subprime loans too...that is they weakened their standards in chase of profits.

That also doesn't describe why Wall Street investment houses like Bear Strearns or Lehman Brothers failed. Especially since they were not subject to "the government pushing" them into mortgages at all. It doesn't explain why their failure led to a worldwide crisis.


The government didn't have to specifically tell the banks who to lend to, all they had to do was to encourage it. Nobody in the treasury department or the federal reserve even cared if banks were going to exploit their extreme generosity. How is it profitable to lend to extremely poor people (no capital) with the knowledge they are not going to pay back the loans? Sure they can charge them higher fees but what's the point when they weren't going to pay it back in the first place? The banks were risky because they knew the government would bail them out, and the government admitted it was their fault *fact* (due to a lack of home loan rules) that encourage those banks to give out high risk loans in the first place.

The banks might of acted on their own but the government did everything to encourage it.
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Old 04-04-2013, 01:31 PM   #33
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by longhornfan1234
Please elaborate... I want to read your lib professor's talking points.


First you tell me how trying to minimize home foreclosures is bad for the economy...


EDIT: Wow i just read from longhorn fan "the reason we had a crash in banking was because the FEDERAL GOVERNMENT pushed mortgage companies to make these loans" Quote of the year.
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Old 04-04-2013, 01:52 PM   #34
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Anybody with any knowledge of the mortgage industry can tell that only 2 or 3 of the people posting in this thread have any idea about what the hell they are talking about. Thanks for the comedy.

Quote:
Originally Posted by DukeDelonte13
some other conservative wanna be political smarty tried pointing this out as an Obama failure. I want somebody to please explain on how allowing more people to refinance when they are under water on their orignal shit mortgages to better mortgage deals will harm the housing industry.

So getting somebody out of a terrible financing situation where they are likely to foreclose and stiff the bank into a more stable situation where they can actually pay back the bank is a bad thing now?

I don't think people really understand what happened with the housing bubble...

HAMP was a good effort; but it had 2 major problems that have really hindered it from being as effective as it could have been:
  1. The application process is so cumbersome that most people applying for the program are removed based on not providing sufficient documents instead of having a decision actually rendered and
  2. Lowering payments to whats considered an "affordable" point generally requires "forbearing" a significant portion of the mortgage. That means if you pay the min payment on time every time all 40 years to complete the terms of your mortgage you will need to produce a large lump sum to finishing paying off your mortgage or get another loan.
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Old 04-04-2013, 02:23 PM   #35
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by 2LeTTeRS
Anybody with any knowledge of the mortgage industry can tell that only 2 or 3 of the people posting in this thread have any idea about what the hell they are talking about. Thanks for the comedy.



HAMP was a good effort; but it had 2 major problems that have really hindered it from being as effective as it could have been:
  1. The application process is so cumbersome that most people applying for the program are removed based on not providing sufficient documents instead of having a decision actually rendered and
  2. Lowering payments to whats considered an "affordable" point generally requires "forbearing" a significant portion of the mortgage. That means if you pay the min payment on time every time all 40 years to complete the terms of your mortgage you will need to produce a large lump sum to finishing paying off your mortgage or get another loan.

i wasn't even talking about HAMP. And just for reference, you can believe me or not, i don't really care, i do do a lot of work on the foreclosure side of things.

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Old 04-04-2013, 02:43 PM   #36
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by KevinNYC
Two points.
First, when someone says "bank" today, it doesn't necessarily mean a bank that takes deposits. This is especially true when you are talking about mortgages. See Wikipedia's definition of a Mortgage Bank.

Second, you don't seem to understand the issue discussed in the article. The whole purpose of the program under discussion is to "insure home loans against default." That is, it's an insurance program that PROTECTS banks against default. So where exactly is the risk to depositors? The FHA also just took steps this month to strengthen that insurance program so the FHA is also taking steps to minimize risk.



This has been pointed out to you several times. No matter how many times you repeat it, it stays absolutely untrue.

The "banks" that made the majority of subprime loans were mortgage originators of the type defined above. They took no deposits and because of this did not have the government telling them who to lend to. They lend to subprime borrowers because it was extremely profitably for them to do so. Because they charged higher fees on those loans and if those home buyers got in trouble, (say when their adjustable rate mortgage adjusted and their payment ballooned), they were happy to step in and lend to them again and collect another round of high fees. The government didn't tell them to weaken their underwriting standards....they did this because they ran out of people to make subprime loans too...that is they weakened their standards in chase of profits.

That also doesn't describe why Wall Street investment houses like Bear Strearns or Lehman Brothers failed. Especially since they were not subject to "the government pushing" them into mortgages at all. It doesn't explain why their failure led to a worldwide crisis.

Here's something that actually did cause the financial crisis. Wall Street's risk management sucked. They embraced a way of assessing risk that was faulty. Worked pretty well 98-99% of the time, but that one percent when it failed the losses would be gigantic and would wipe out all the previous profits made. Because of this faulty risk management, Wall Street took fantastic risks in a very short period of time and starting issues CDSs and CDOs like gangbusters. These CDSs and CDOs were later called toxic waste and they were the reason and downturn in real estate hit the economy so hard, the multiplied the losses in real estate many times over. The article I linked to talks about the mathematical formula that Wall Street used and why it was flawed. Without the use of the flawed formula the credit default swap market wouldn't have increased by a factor of 62, collaterized debt obligation market wouldn't have increased by a factor of 25. None of this had to do with government pressure, it was because of profits and it worked. For a while.


You also may want to look into what it takes to actually qualify for an FHA loan and see how that differs from the crazy mortgages given by private mortgage lenders in 2006. There are substantial differences. FHA is no where close to the loans invented by the private sector like NINJA loan with negative amortization during the subprime mess. To be a conforming mortgage for FHA, there are limits that are built in to ensure you are buying a home you can afford. This goes beyond what your credit score is. During the subprime mess, the lenders didn't care if you could afford your mortgage. In most of the cases, they knew you could not. But they didn't care, because if you had to refinance in two year, they made more money. Also they weren't holding the risk, because Wall Street was so eager to buy their loans, they didn't have to conform to any standards.

The banks had no right to lend to people who couldn't pay back the loans. In a properly run society you can only borrow money if you don't need it and then against your capital worth. The banks were selling on the bad debts they had to other banks in parcels of no value.. It was musical chairs time and then the music stopped.



Those loans were backed by the fed through Fannie Mae. Congress talked about reigning in lending back in 2003 and the Democrats blocked all reform. They insisted that everything was fine. I'll give you that hearing for you you... In their own words. Combined with Republican refusal to regulate those deals. Both sides are to blame and anyone who thinks their side was better is a fool.

http://taxfoundation.org/blog/barney...eddie-mac-2003
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Old 04-04-2013, 02:49 PM   #37
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by DukeDelonte13
First you tell me how trying to minimize home foreclosures is bad for the economy...


EDIT: Wow i just read from longhorn fan "the reason we had a crash in banking was because the FEDERAL GOVERNMENT pushed mortgage companies to make these loans" Quote of the year.


I'd say the degree of "bad" involved depends on the method used.

Just handing money to people who cannot afford their homes, is not only a gigantic waste of taxpayer money.... it does nothing but delay the inevitable. So if there is going to be an inevitable economic loss for SOMEONE.... better to simply get it over with and start the repair process than to waste money delaying the inevitable (which is certainly a form of economic waste.... there is no upside.)

It's also a moral hazard. It encourages people to stay in homes they can't afford, and it encourages people to buy homes they can't afford since they know if they run into trouble they'll be help.
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Old 04-04-2013, 03:13 PM   #38
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by DukeDelonte13
i wasn't even talking about HAMP. And just for reference, you can believe me or not, i don't really care, i do do a lot of work on the foreclosure side of things.

Sorry man I didn't get my point out clearly -- I actually meant you are one of the few people who seems to get it. Most of the other people seem to be sprouting out garbage second-hand.

That's why I quoted you, instead of going into the same old arguments with misinformed clowns.
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Old 04-04-2013, 05:54 PM   #39
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

I'm totally shocked to see longhornfan demonstrate a fundamental lack of understanding about the causes of the financial crisis.
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Old 04-04-2013, 07:13 PM   #40
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by longhornfan1234
The banks had no right to lend to people who couldn't pay back the loans. In a properly run society you can only borrow money if you don't need it and then against your capital worth. The banks were selling on the bad debts they had to other banks in parcels of no value.. It was musical chairs time and then the music stopped.
Ladies and Gentlemen, I give you the Senior Senator from the Great State of of Massachusetts, Senator Elizabeth Warren! Nice to see you coming around. So now that you agree that banks were out of line, do you support greater regulation of the financial industries?
Quote:
Those loans were backed by the fed through Fannie Mae.
No. They were not backed by the Fed. That happened afterwards. There was that quasi-government-sponsorship though, that is true.

No. Fannie and Freddie were not heavily into subprime loans and their loans did not cause the crisis. When the bubble started Fannie and Freddie's loans had to "conform" to certain standards or they wouldn't buy them. Thus most banks wouldn't only issue loans that were "conforming." The subprime guys sold their loans straight to Wall Street and didn't have to worry about conforming as long as Wall Street was eager to buy them and they were. For this reason Fannie and Freddie's loans were 1/3 as likely to run into problems as subprime loans. And their "conforming" loans were were 1/4 as likely


Fannie and Freddie lost market share to Wall Street during the crisis. It was because the GSE's wouldn't buy subprime loans at first and they lost 30% of the market because of this.. They did eventually buy some, but not all types of "non conforming loand" to try and gain back market share.

But they still didn't buy the insane type of loans that Wall Street was eager to buy. Even their riskier stuff had the same amount of trouble as the national average of all mortgages.

Fannie and Freddie did not run into trouble because they made bad loans, because they didn't. They ran into trouble because they too little capital to cushion any downfall. And Democrats fought on this issue. For the reason that if Congress enacted this rule, they should have enacted across the board to private companies too. It would have been a good rule, if Countrywide and Ameriquest and Bear Stearns and Lehman Brothers and AIG had to have more cash on hand to cushion any downturn in the real estate market. At the time, a lot of conservatives were going after Fannie and Freddie for NOT DOING SUBPRIME like Wall Street was.

Last edited by KevinNYC : 04-04-2013 at 07:21 PM.
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Old 04-04-2013, 07:31 PM   #41
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Banks lending money to people who may not be able to pay it back was only a catalyst for the financial crisis, but it was not the cause.

The cause of the crisis was entirely due to wall street shenanigans, firms like lehman brothers leveraging 40:1 on risky financial products.

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Old 04-08-2013, 04:34 PM   #42
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

I was trying to remember where I heard this story last week and I finally found it. NPR did a story on the financial crisis called "The Giant Pool of Money."
Audio here
Transcript

For anyone who doesn't understand why mortgage bankers loved subprime customers you should listen to the show. At one point during this show they talked about a guy who was a head of subprime mortgage sales team and making ridiculous money on subprime mortgages. Still in his 20's, he had five cars, two houses and routinely would get bottle service at NYC nightclubs.

Quote:
Glen Pizzolorusso
At the height, I was making between $75,000 and $100,000 a month.

Alex Blumberg
This is Glen Pizzolorusso, who was an area sales manager at an outfit called WMC Mortgage in upstate New York. And just to repeat, he said $75,000 to a $100,000 a month. That's over a $1 million a year. Glen was just out of college. His job was a lot like Mike Garner's. He's the same link in the chain. And Glen loved his job......
Glen Pizzolorusso
We would roll up to Marquee at midnight, with a line 500 people deep out front. Walk right up to the door. Give me my table. We're sitting next to Tara Reid and a couple of her friends. Christina Aguilera was doing a-- whatever, I'm Christina Aguilera. I'm going to get up and sing. So Christina Aguilera and all her people are there.

Who else was there? Cuba Gooding and that kid from Filthy Rich: Cattle Drive. What was that kid's name? Fabian [? Barabia. ?] We ordered, probably, three or four bottles of Cristal at $1,000 a bottle. They bring it out. They are walking through the crowd. They hold the bottles over their head. There is fire crackers and sparklers. The little cocktail waitresses, so you order four bottles of those, they're walking through the crowd of people. Everybody is like, whoa, who's the cool guys? Well, we were the cool guys. You know what I mean? They gave me a black card. This little card with my name on it. There's probably like 10 of them in existence. And that meant that I just spent way too much money there.

Alex Blumberg
Glen had five cars, a $1.5 million vacation house in Connecticut, and a penthouse that he rented in Manhattan. And he made all this money making very large loans to very poor people with bad credit.

Glen Pizzolorusso
We looked at loans, these people didn't have a pot to piss in. I mean, they could barely make the car payment, and now we're giving them a $300,000 to $400,000 house.


Alex Blumberg
But Glen didn't worry about whether these loans were good either. That was someone else's problem. And this way of thinking thrived at every step of this mortgage security chain. A guy like Mike Francis from Morgan Stanley, he told me he bought loans, lots of loans, from Glen's company. And he knew in his gut that they were bad loans, like these NINA loans.

They cover things like

Why the folks who originated the mortgage stopped caring about risk? Answer: they only had to hold the mortgages for 30 days before selling them to Wall Street.

Why Wall Street kept buying loans even when the loans were being made to people who didn't have show a w2 or a bank statement? Answer, they was still a giant demand to resell the mortgages and if their competitors starting buying that loan, they would too.
And
Also their risk management software said it was OK. The problem was the software was looking at historical data and didn't factor in what the new crops of mortgages and mortgage customers were. That is the data was really measuring the same thing.

Last edited by KevinNYC : 04-08-2013 at 05:20 PM.
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Old 04-08-2013, 04:52 PM   #43
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

don't forget to add a nice car or two to that house...
Obama

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Old 04-08-2013, 05:27 PM   #44
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

taking out a loan would it help the credit go up?
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Old 04-08-2013, 06:57 PM   #45
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Default Re: Obama admin pushes banks to make home loans to people with weaker credit.

Quote:
Originally Posted by netsfan549
taking out a loan would it help the credit go up?

Taking out a loan and successfully paying it off over a period of time would help your credit worthiness go up, but that is over the long term. In the short term, the amount of your current debt is a factor in a your credit score, so taking out of a loan would increase your debt which would most likely would make the next creditor less likely to lend to you.

If credit agencies think you can handle about $20,000 of credit and you take a loan out for $15, 000. Then you apply for a credit card, you're probably not going to get a $20,000 credit card, though you might have before you took out the loan. This is a simplification since loans and credit cards are probably treated differently, but days of quickly increasing your amount of credit are probably gone for a while. If you have good credit, you'll find some good rates right now, but I don't know if your amount of credit would change.

Anyway, what I think is going on is the Adminstration is telling banks that they have swung to far in the opposite direction in terms of mortgages and thus are shutting people out of the mortgage market who can handle reasonable mortgages, specifically that they have made the qualifications for an FHA loan too restrictive when they are insured against losses. One specific thing in the article mentions is people who are underwater in their homes could really benefit from the current interest rates in terms of refinancing. You could have made every single payment on your mortgage and still be affected by this.
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