Post by thomasallencummins on Aug 18, 2008 15:11:04 GMT -5
'Liar loans' threaten to prolong mortgage mess
From MSN.com
www.msnbc.msn.com/id/26270434
It is absolutely staggering to me how something like this could be allowed to happen. I foolishly assumed, like many others, that the Mortgage Industry had sets of guidelines, rules, laws, checks and balances that would make this kind of financial disaster impossible. Every day we discover more and more that there was a drunken free for all to practically give away loans to just about anyone that asked for one. It's patently absurd.
We've seen this kind of thing pop up from time to time. The so called prosperity of the 1990s was a farce house of cards built upon artificially inflated profits Big Business exaggerating their profit reports (ENRON). Upon that flimsy foundation we saw the Tech Stocks bubble burst causing a global financial crisis. Did we learn anything from the 90s? No. We're repeating ourselves over and over again and ending up with the same results. If there is a financial bubble of any kind (OIL) it's going to burst and cause us nothing but trouble.
What really annoys me about all this is that I was/am a willing participant in the mortgage scam. I am one of the many who took advantage of the situation to try to better myself and my family. We're holding steady but we could just as easily end up as a statistic if we're not very very very careful.
My hope is that we, as a people/country somehow manage to avoid these situations in the future.
From MSN.com
www.msnbc.msn.com/id/26270434
In the mortgage industry, they are called "liar loans" — mortgages approved without requiring proof of the borrower's income or assets. The worst of them earn the nickname "ninja loans," short for "no income, no job, and (no) assets."
The nation's struggling housing market, already awash in subprime foreclosures, is now getting hit with a second wave of losses as homeowners with liar loans default in record numbers. In some parts of the country, the loans are threatening to drag out the mortgage crisis for another two years.
"Those loans are going to perform very badly," said Thomas Lawler, a Virginia housing economist. "They're heavily concentrated in states where home prices are plummeting" such as California, Florida, Nevada and Arizona.
Many homeowners with liar loans are stuck. They can't refinance because housing prices in those markets have nose-dived, and lenders are now demanding full documentation of income and assets.
Losses on liar loans could total $100 billion, according to Moody's Economy.com. That's on top of the $400 billion in expected losses from subprime loans.
Fannie Mae and Freddie Mac, the nation's largest buyers and backers of mortgages, lost a combined $3.1 billion between April and June. Half of their credit losses came from sour liar loans, which are officially called Alternative-A loans (Alt-A for short) because they are seen as a step below A-credit, or prime, borrowers.
Many of the lenders that specialized in such loans are now defunct — banks such as American Home Mortgage, Bear Stearns and IndyMac Bank. More lenders may follow.
The mortgage bankers and brokers who survived were more cautious, but acknowledge they too were swept up in the housing hysteria to some extent.
"Everybody drank the Kool-Aid" said David Zugheri, co-founder of Texas-based lender First Houston Mortgage. They knew if they didn't give the borrower the loan they wanted, the borrower "could go down the street and get that loan somewhere else."
The nation's struggling housing market, already awash in subprime foreclosures, is now getting hit with a second wave of losses as homeowners with liar loans default in record numbers. In some parts of the country, the loans are threatening to drag out the mortgage crisis for another two years.
"Those loans are going to perform very badly," said Thomas Lawler, a Virginia housing economist. "They're heavily concentrated in states where home prices are plummeting" such as California, Florida, Nevada and Arizona.
Many homeowners with liar loans are stuck. They can't refinance because housing prices in those markets have nose-dived, and lenders are now demanding full documentation of income and assets.
Losses on liar loans could total $100 billion, according to Moody's Economy.com. That's on top of the $400 billion in expected losses from subprime loans.
Fannie Mae and Freddie Mac, the nation's largest buyers and backers of mortgages, lost a combined $3.1 billion between April and June. Half of their credit losses came from sour liar loans, which are officially called Alternative-A loans (Alt-A for short) because they are seen as a step below A-credit, or prime, borrowers.
Many of the lenders that specialized in such loans are now defunct — banks such as American Home Mortgage, Bear Stearns and IndyMac Bank. More lenders may follow.
The mortgage bankers and brokers who survived were more cautious, but acknowledge they too were swept up in the housing hysteria to some extent.
"Everybody drank the Kool-Aid" said David Zugheri, co-founder of Texas-based lender First Houston Mortgage. They knew if they didn't give the borrower the loan they wanted, the borrower "could go down the street and get that loan somewhere else."
It is absolutely staggering to me how something like this could be allowed to happen. I foolishly assumed, like many others, that the Mortgage Industry had sets of guidelines, rules, laws, checks and balances that would make this kind of financial disaster impossible. Every day we discover more and more that there was a drunken free for all to practically give away loans to just about anyone that asked for one. It's patently absurd.
We've seen this kind of thing pop up from time to time. The so called prosperity of the 1990s was a farce house of cards built upon artificially inflated profits Big Business exaggerating their profit reports (ENRON). Upon that flimsy foundation we saw the Tech Stocks bubble burst causing a global financial crisis. Did we learn anything from the 90s? No. We're repeating ourselves over and over again and ending up with the same results. If there is a financial bubble of any kind (OIL) it's going to burst and cause us nothing but trouble.
What really annoys me about all this is that I was/am a willing participant in the mortgage scam. I am one of the many who took advantage of the situation to try to better myself and my family. We're holding steady but we could just as easily end up as a statistic if we're not very very very careful.
My hope is that we, as a people/country somehow manage to avoid these situations in the future.
