The cause of our problem is simple, as is the solution.

This was caused by over-leverage. Home Prices went up because loans were easy to get. As prices rose, but incomes failed to keep pace, more "creative" methods of finance were created in order to let a $50k wage earner buy a 1800 sq ft home for $1mm. We had the "flip that house" channel on cable, and infomercials telling everyone how they could make millions with no money down. As home proces rose, even people who SHOULDN'T have been able to make their house payments COULD... which just perpetuated the myth. Property tax rates didn't need to go up because valuations were going up so fast... Now that they're declining, the problem has spread to our municipalities.

Because defaults were so low, we allowed FHLMC and FNMA, not to mention banks to hold less capital against their loans... and private mortgage securities were assumed to have 4% default rates or less.

All we need to do is to de-lever the portfolios, and we don't have to fix the entire problem "today". Losses will need to be taken, but we're talking about an INCREDIBLY small portion of the economy.

Remember that MOST of the loans in this country finance people's primary homes. MOST people can afford their payments, and even those that can't can afford SOME house payment, and have to live SOMEWHERE. of the +/- 12 trillion dollar mortgage market... If you assume an incredible 25% default rate... and a 50% devaluation rate across the board (both of those numbers are insanely high for the entire economy) you're talking about a 12.5% actual loss rate... and THAT assumes zero equity in those loans to begin with. this is s significant number... but given that only 1% of FHLMC and FNMAs loans are even late, much less in default... and recoveries are historically 93%, yet have been in the 70's recently, I'm betting the ACTUAL numbers are more like 3-5% worst case... not anywhere NEAR double digits.

Banks/Municipalities etc. need to become or hire property managers... and while I doubt you can sue a guy who got a bonus for doing his job, we need to find a way to make the companies who paid these people stupid amounts of money for creating the problem pay for and taxpayer losses. Certainly that will put some of them out of business, but without the bubble, they probably wouldn't have existed in the first place.

Hambone, this is more your field than mine, so I'll defer to your thinking.

One thing that does touch on my expertise, and I'd be interested in your thoughts. One problem is that you have all these storefront mortgage companies just trying to write paper that they turn around and resell overnight. One proposal that I find interesting is requiring the originator to keep at least 25% of any loan he/she/it sells. That would force them to do at least SOME due diligence in the underwriting process. What is your take on that approach?

Hambone10 Wrote:The cause of our problem is simple, as is the solution.

This was caused by over-leverage. Home Prices went up because loans were easy to get. As prices rose, but incomes failed to keep pace, more "creative" methods of finance were created in order to let a $50k wage earner buy a 1800 sq ft home for $1mm. We had the "flip that house" channel on cable, and infomercials telling everyone how they could make millions with no money down. As home proces rose, even people who SHOULDN'T have been able to make their house payments COULD... which just perpetuated the myth. Property tax rates didn't need to go up because valuations were going up so fast... Now that they're declining, the problem has spread to our municipalities.

Because defaults were so low, we allowed FHLMC and FNMA, not to mention banks to hold less capital against their loans... and private mortgage securities were assumed to have 4% default rates or less.

All we need to do is to de-lever the portfolios, and we don't have to fix the entire problem "today". Losses will need to be taken, but we're talking about an INCREDIBLY small portion of the economy.

Remember that MOST of the loans in this country finance people's primary homes. MOST people can afford their payments, and even those that can't can afford SOME house payment, and have to live SOMEWHERE. of the +/- 12 trillion dollar mortgage market... If you assume an incredible 25% default rate... and a 50% devaluation rate across the board (both of those numbers are insanely high for the entire economy) you're talking about a 12.5% actual loss rate... and THAT assumes zero equity in those loans to begin with. this is s significant number... but given that only 1% of FHLMC and FNMAs loans are even late, much less in default... and recoveries are historically 93%, yet have been in the 70's recently, I'm betting the ACTUAL numbers are more like 3-5% worst case... not anywhere NEAR double digits.

Banks/Municipalities etc. need to become or hire property managers... and while I doubt you can sue a guy who got a bonus for doing his job, we need to find a way to make the companies who paid these people stupid amounts of money for creating the problem pay for and taxpayer losses. Certainly that will put some of them out of business, but without the bubble, they probably wouldn't have existed in the first place.

That is a BIT of the talk on these "covered bonds" that were spoken about today. FNMA already has a program like that for commercial loans it guarantees (usually multifamily housing) the issuer in DUS paper is on the hook for a portion of the losses, which encourages better underwriting.

as for these fly-by-night shops. Basically, the large mortgage bankers, including freddie and fannie sent their "box" out to the broker public... and if your loan fit in their box, they would buy it. The box usually consisted of standard paperwork and financial numbers like LTV, Debt to income... etc. If the guy flat out lied, then you have a problem. The guy who has to keep the loans on his books might have lied just as much and simply planned on filing bankruptcy if things went bad... but if the bank who bought the loan had to assume some risk, they might have been more careful.

Of course, being careful means more expensive... and that flies in the face of making home ownership 'affordable"... which is why FH and FN were created, and what they have continually been told to do by Congress... including I suspect... making them buy paper from companies with weak (or no) financials because they meet some "social" purpose.

So to directly respond to your position... Yes, I think that would be a great idea... but FHLMC and FNMA were set up by Congress to create greater access to mortgage money than "the market" would otherwise rationally do.

Hambone10 Wrote:So to directly respond to your position... Yes, I think that would be a great idea... but FHLMC and FNMA were set up by Congress to create greater access to mortgage money than "the market" would otherwise rationally do.

That's the real problem, isn't it.

For years and years we've heard over and over about the greedy mortgage lenders who wouldn't make housing "affordable." The mortgage lenders always defended their practices saying that such loans were too risky.

So, we fixed it so they could make those loans. They did turn out to be too risky. The default rate is too high. And it's the mortgage lenders' fault?

Not defending the mortgage lenders so much as attacking the hypocrisy.

Maybe it is the company I keep, but I don't know one person, nor do I know a person who knows a person, who is in any way, shape or form in any mortgage crisis, and I work in real estate. I know the exception doesn't make the rule, but I agree and add this = overblown on who it effects as well.

Isn't there some famous saying from a liberal NYC reporter or socialite or someone stating "How could Nixon win the election, nobody she knew voted for him?"

Well I know a few people who are. One couple, relatives of mine, are not known for being very smart with money so I suspect they overbought. Not sure if they had an ARM or what. The other couple lost their home after having been in it quite a few years, had only 1 wage earner and 1 getting disability. The wage earner lost her job and the job market is very poor where they are.

Most of the people I know make enough money that they didn't have to resort to an ARM to get a house, and most of them have not been laid off, so they don't have a problem yet. But I can see there being a lot of people that were more "on the bubble" in being able to afford a house. Not sure it's overblown, just a matter of which people you know.

NIU007 Wrote:Not sure it's overblown, just a matter of which people you know.

i don't think he means it's overblown in terms of the amount of people it's affected. i think he means it's overblown in terms of the exaggerated difficulty in fixing the problem.

Hmm, I think I got that impression from the title of the thread and kind of skimmed through the post. I don't claim to know enough about it to argue that point. I think we're having more of an economic crisis than a mortgage crisis. Mortgages are just one piece of the problem.

Owl 69/70/75 Wrote:

Hambone10 Wrote:So to directly respond to your position... Yes, I think that would be a great idea... but FHLMC and FNMA were set up by Congress to create greater access to mortgage money than "the market" would otherwise rationally do.

That's the real problem, isn't it.

For years and years we've heard over and over about the greedy mortgage lenders who wouldn't make housing "affordable." The mortgage lenders always defended their practices saying that such loans were too risky.

So, we fixed it so they could make those loans. They did turn out to be too risky. The default rate is too high. And it's the mortgage lenders' fault?

Not defending the mortgage lenders so much as attacking the hypocrisy.

There are some "shady" lenders out there using dubious practices to make loans that should not be made.

Countrywide comes to mind right off the bat.

Countrywide has been caught filing fabricated and falsified documents in Section 362 Litigation (Motion for Relief from Stay) in Bankruptcy Courts.

I think the shocking thing is how such a low default percentage has wrought such widespread havoc.

Its overblown in terms of how much it will cost to fix, and by doing so, we actually CREATE the problem. There are websites telling you HOW to take our good credit and enough income to justify your payment on the home you bought for 500,000 in one of the hot areas (Cali, Florida and Ariz) tha is now worth only 350,000... buy a NEW home that WAS worth 750k, but now selling for 500k, plus 2 new cars... then WALK on your original 500k loan. You screw up your credit, but that will be okay in 2-3 years and you traded up in homes and have new cars. Of course, you're putting a home on the market that didn't need to be on the market... and getting a "deal" on the new home (costing SOMEONE money)

The politicians get up on their soapboxes and cry about a multi-trillion dollar problem that they need o have hearings on to justify their existence... and they scare the average joe... so speculators come in and trash the market... so liquidity dries up (remember, all of this was leveraged and required financing) and margin calls force liquidations at prices WELL below their economic value... so more margin calls... more headlines... its a domino effect... and yes... all caused by the government trying to make business do things they don't want to do for a "social" purpose.

Mortgages were overblown in the 90's creating false wealth, and NOW we're paying the price... and individuals are suffering, but in the aggregate, its not that big a deal. If you bought a home in 2000 for 250k and it grew to be worth 400k, but is now only worth 275, are you going to sell it?? Are you in financial distress?? Only if you borrowed 400k against it, or took money out of your 401k thinking that you could live on your home value.

The very people who caused the problem and told you what a great job they were doing are now telling you that they are your onl hope in fixing the problem.

Owl 69/70/75 Wrote:I think the shocking thing is how such a low default percentage has wrought such widespread havoc.

IMF says the totall loss because of the "housing crisis" is around a TRILLION....

http://www.bloomberg.com/apps/news?pid=2...=worldwide

Yes... but how much of that $1 trillion is in forced liquidations... meaning that if you didn't have the loss of confidence creating forced sellers... the loss would have been even smaller.

and when they say $1 trillion, they are talking not about as compared to the $12 trillion dollar mortgage market, but as compared to the domestic investment universe which is MANY times larger.

Hambone10 Wrote:Yes... but how much of that $1 trillion is in forced liquidations... meaning that if you didn't have the loss of confidence creating forced sellers... the loss would have been even smaller.

and when they say $1 trillion, they are talking not about as compared to the $12 trillion dollar mortgage market, but as compared to the domestic investment universe which is MANY times larger.

In Atlanta, many of the foreclosures are the result of HELOC's (home Equity Lines of Credit) where the property devaluation is forcing the loans to be "called"...

the real problem is that we are bailing out stupid lenders and increasing the national debt! Moral Hazard anyone?

/facepalm

That's it. I'm just going George Carlin. This country and probably the human species is f***ed. There are simply too many stupid people out there, and the problem is only getting exponentially worse. Yea, I'll vote. But it will be knowing that my vote is worthless, and ultimately not even reliably tallied.

Death, disease, filth, poverty, incest, necrophilia, cannibalism, religious extremeists, organized religion in general, war, plague, homeless (especially since the majority of which are veterans), big government, the death of privacy, the end of the Constituition and Bill of Rights, ignorance, private banks controlling the wealth of the world, bigotry, hatred, police brutality, racism, gender discrimination, rapists, robbers, murders, suicide bombers, jihadists, facists, genocide, socialists, "ethnic cleansing", N*Sync, The Ice Capades, and Georgia fans. George Carlin is right.... humanity is best experienced with a sense of detachment and humor. A few of his more relevant quotes:

"I sort of gave up on this whole human adventure a long time ago, divorced myself from it emotionally. It gives me an artistic detachment that I find valuable. I think the human race has squandered its gift, and I think this country has squandered its promise, for the sake of cell phones and Jet Skis."

"Religion easily has the best bull**** story of all time. Think about it. Religion has convinced people that there's an invisible man . . . living in the sky. Who watches everything you do every minute of every day. And the invisible man has a list of 10 specific things he doesn't want you to do. And if you do any of these things, he will send you to a special place, of burning and fire and smoke and torture and anguish for you to live forever, and suffer, and burn, and scream, until the end of time. But he loves you. He loves you. He loves you and he needs money."

"When you're born, you get a ticket to the freak show. When you're born in America, you get a front-row seat."

"The IQ and the life expectancy of the average American recently passed each other in opposite directions."

"What's all this stuff about motivation? I say, if you need motivation, you probably need more than motivation. You probably need chemical intervention or brain surgery. Actually, if you ask me, this country could do with a little less motivation. The people who are causing all the trouble seem highly motivated to me."

"Consumption. This is the new national pastime. **** baseball, it's consumption, the only true, lasting American value that's left . . . buying things . . . People spending money they don't have on things they don't need . . . So they can max out their credit cards and spend the rest of their lives paying 18 percent interest on something that cost $12.50. And they didn't like it when they got it home anyway. Not too bright, folks, not too fuckin' bright."

"We're so self-important. So arrogant. Everybody's going to save something now. Save the trees, save the bees, save the whales, save the snails. And the supreme arrogance? Save the planet! Are these people kidding? Save the planet? We don't even know how to take care of ourselves; we haven't learned how to care for one another. We're gonna save the fuckin' planet? . . . And, by the way, there's nothing wrong with the planet in the first place. The planet is fine. The people are ******! Compared with the people, the planet is doin' great. It's been here over four billion years . . . The planet isn't goin' anywhere, folks. We are! We're goin' away. Pack your ****, we're goin' away. And we won't leave much of a trace. Thank God for that. Nothing left. Maybe a little Styrofoam. The planet will be here, and we'll be gone. Another failed mutation; another closed-end biological mistake."

"Forget the politicians. The politicians are put there to give you the idea that you have freedom of choice . . . you don't. You have no choice. You have owners. They own you. They own everything. They own all the important land. They own, and control the corporations. They've long since bought, and paid for the Senate, the Congress, the state houses, the city halls, they got the judges in their back pockets and they own all the big media companies, so they control just about all of the news and information you get to hear. They got you by the balls. They spend billions of dollars every year lobbying . . . lobbying, to get what they want . . . Well, we know what they want. They want more for themselves and less for everybody else, but I'll tell you what they don't want . . . they don't want a population of citizens capable of critical thinking. They don't want well informed, well educated people capable of critical thinking. They're not interested in that . . . that doesn't help them. That's against their interests. That's right. They don't want people who are smart enough to sit around a kitchen table and think about how badly they're getting ****** by a system that threw them overboard 30 fuckin' years ago. They don't want that. You know what they want? They want obedient workers . . . Obedient workers, people who are just smart enough to run the machines and do the paperwork. And just dumb enough to passively accept all these increasingly shittier jobs with the lower pay, the longer hours, the reduced benefits, the end of overtime and vanishing pension that disappears the minute you go to collect it, and now they're coming for your Social Security money. They want your fuckin' retirement money. They want it back so they can give it to their criminal friends on Wall Street, and you know something? They'll get it . . . they'll get it all from you sooner or later cause they own this fuckin' place. It's a big club and you ain't in it. You and I are not in The big club. By the way, it's the same big club they use to beat you over the head with all day long when they tell you what to believe. All day long beating you over the head with their media telling you what to believe, what to think and what to buy. The table has tilted folks. The game is rigged and nobody seems to notice. Nobody seems to care. Good honest hard-working people . . . white collar, blue collar it doesn't matter what color shirt you have on. Good honest hard-working people continue, these are people of modest means . . . continue to elect these rich *********** who don't give a **** about you. They don't give a **** about you . . . they don't give a **** about you. They don't care about you at all . . . at all . . . at all, and nobody seems to notice. Nobody seems to care. That's what the owners count on. The fact that Americans will probably remain willfully ignorant of the big red, white and blue dick that's being jammed up their ******** everyday, because the owners of this country know the truth. It's called the American Dream cause you have to be asleep to believe it . . ."

georgia_tech_swagger Wrote:And the invisible man has a list of 10 specific things he doesn't want you to do. And if you do any of these things, he will send you to a special place, of burning and fire and smoke and torture and anguish for you to live forever, and suffer, and burn, and scream, until the end of time.