Cracks appear in Alt-A...

[Dantilla]

Why do lenders do this to themselves?

[djmcmath]

Originally posted by Dantilla
Why do lenders do this to themselves?

Greed.

[turbo6bar]

The lenders aren't the only stupid party.

I recall one subprime exec saying (paraphrased) "why should I originate a fixed rate 80/20 paying 102, when I can sell an Option ARM for 105?"

Investment banks, hedge funds, etc were paying lenders MORE money to originate crappy loans.

The mortgage broker is grinning nicely as he sells the sucker--I mean borrower-- on the advantages of the Option ARM, Stated job, Stated asset, Stated IQ, Stated Signature, Stated ID product. Course the borrower thinks,"This is so easy, a caveman could do it." Borrowers sells title to his 98 Buick to the local title pawn store and uses the $1400 as earnest money on 17 flip houses portfolio focused in a Sacramento suburban neighborhood (Vista la bovine) and a new luxury underground zero lot line community 184 miles outside Las Vegas (they aren't building any more land, ya know). Replay 1M times and viola...

Oh, and short answer: greed.

[The Gaijin]

"Delinquency rates are rising for so-called "Alt-A" home mortgages held by U.S. borrowers..."

Orwell would laugh. How did the letter "A" creap into this rating system???

[einreb]

Originally posted by The Gaijin
"Delinquency rates are rising for so-called "Alt-A" home mortgages held by U.S. borrowers..."

Orwell would laugh. How did the letter "A" creap into this rating system???

I get a chuckle out of the term 'sub prime'. As if the rate will always be associated with being below the prime rate.

[Tobra]

Originally posted by djmcmath
Greed.

because they can get bailed out by the feds, and if the people default on the loan, the bank keeps the house and all the money they have been paid. They just had an auction of over 100 homes in this area that were bank repo's. My buddy's brother in law is about to lose a house because he was sold a house by a realtor/finance guy who did the inspection, acted as realtor and lined up the financing(some crazy ARM, interest only deal)

Lot of shady characters got rich on real property in the last 10 years

[Dantilla]

To put people into a loan they cannot afford is very short-sighted. To do it hundreds of times is downright silly. I don't feel sorry for the lenders who are being forced to shut their doors because of high default rates of their clients.

I feel sorry for the people who are simple enough to get suckered into these loans, and quickly have their lives seriously messed up.

"We're helping more people live the American dream- to own their own home" the brokers claim when giving unqualified people loans. No they're not. They are simply setting them up for failure.

The "old" system requiring 20% down was difficult for first timers, but it insured a certain level of financial savvy to achieve, and assured greater level of successful loans.

[Rearden]

Originally posted by Dantilla
Why do lenders do this to themselves?

There's an old saying in finance: "It's better to have loaned and lost than never to have loaned at all."

[Porsche-O-Phile]

Everyone had dreams of endless double-digit appreciation, lies fueled in no small part by brokers, realtors, etc. Not excusing their stupidity (we really DO need to apply "caveat emptor" here), but there was a lot of sleazy lending over the last few years. Very frustrating for people that want to honestly get a roof over their heads in a classic/conventional/traditional sense, since you've had to compete with throngs of vapidly-stupid morons with dollar signs in their starry eyes.

[Rick Lee]

Lenders don't invent these products. Investors do. Lenders only make loan products which they can then turn around and sell to investors once funded. They make their money right away and the investors carry the risk. I can't believe any investors would invent some of the products out there now, but I assure you they are not doing so in the hopes of a federal bailout. Any bailout would not pay them a penny on their losses, but rather just refi the deadbeats into Fannie/Freddie or FHA products.

Tobra, your buddy's brother in-law should learn to understand and be ressponsbile for the docs he signs. Option ARM's and interest only loans are not difficult to understand at all. If you're old enough to own a house, you should be old enough to understand the financing.

[GDSOB]

Originally posted by Tobra
My buddy's brother in law is about to lose a house because he was sold a house by a realtor/finance guy who did the inspection, acted as realtor and lined up the financing(some crazy ARM, interest only deal)

Lot of shady characters got rich on real property in the last 10 years

Many of those types are going to jail for fraud. Agents, Mortgage brokers, Appraisers, and Title agents who participate in fradulent deals are getting caught and prosecuted. It's amazing how reckless so many have been so often. There always will be some shady characters in RE since there is big money to be had in the complicated transactions. The states really need to raise the bar on licensing (especially in CA) and enforce the rules already on the books.

[the]

Greenspan isn't going to go to jail for fraud, is he? He was the biggest driver of the bubble, and willingly looked the other way.

The smart guys knew when to get out! Is this guy still pimpin for the NAR?




When people like that start heading for the door, you'd better watch out.

[Rick Lee]

How did Greenspan drive the bubble? The FED has nothing to do with mortgage interest rates or loan products. I've even heard that he himself has an MTA or Option ARM on his own house.

[the]

Stuff like this helped fuel it:

Housing Groups Refute Housing 'Bubble,' Laud Greenspan Testimony

WASHINGTON (July 19, 2002)—Federal Reserve Board Chairman Alan Greenspan’s testimony before Congress last week refutes, once and for all, the existence of an alleged housing market “bubble,” said chief economists of the NATIONAL ASSOCIATION OF REALTORS® and the National Association of Home Builders, two trade groups that collectively represent more than 1 million professionals from all walks of the housing industry.

“The time has come to put this issue to rest,” said NAHB Chief Economist David Seiders. “The nation’s home builders have said it, the Realtors have said it, and now Alan Greenspan has said it once again, in no uncertain terms: There is no such thing as a current or impending house price bubble.”

Asked about the issue during his testimony, Greenspan said, “We’ve looked at the bubble question and we’ve concluded that it is most unlikely.” He attributed recent “sizeable gains” in home prices to “the effects on demand of low mortgage rates, immigration and shortages of buildable land.”

Given the local nature of real estate, NAR Chief Economist David Lereah said, it’s possible for prices to deflate on a local basis, but a “pop” simply isn’t in the cards. He noted that, even during recessions and periods of declining home sales, the national home price has risen every year. “Over time, the typical home value appreciates at the general rate of inflation, plus one- to two-percentage points,” he said.

Greenspan: Housing Market Admirable
Acknowledging the “stabilizing force for the overall economy” that residential construction and related consumer outlays provided during last year’s downturn, Greenspan noted in his testimony that the U.S. housing market continues to perform admirably in the evolving recovery period.

Echoing the Greenspan’s apparent confidence in the industry when he predicted “reasonably strong housing demand,” Seiders and Lereah affirmed, “The housing market is fundamentally sound: we have a lean inventory of homes, historically low interest rates, good consumer confidence and strong demand from a growing population. The supply/demand situation means we can expect healthy price appreciation to continue.”

The housing groups applauded Greenspan’s leadership of national monetary policy and his wisdom in lowering interest rates, which has unquestionably helped housing support the economy during the recession and the early stages of recovery.

[Rick Lee]

I don't see anything he said there that was untrue. There hasn't been a collapse of real estate prices. They don't skyrocket anymore, but I don't know of a nationwide trend of 50% or otherwise huge drops in values. A 10% drop may sound like a lot of cash, but it's not a huge percentage.

The subprime industry has pretty much collapsed though. But that was due to liquidity problems from loan repurchases, caused by fraud and first payment defaults (fpd's). That has had an effect on real estate prices (not everywhere though), but only to the extent that such borrowers now can't get sweetheart deals on loans or bet on sudden appreciation to pay off the negative equity they build up with Option ARM's.

[the]

If you think major areas from California, to Florida, to Boston, are only going to go down 10% before this is over, umm, ok.

BTW, aren't you the same guy who said that it was impossible for NoVa housing to ever go down at all, because it is so "unique?"

[Rick Lee]

No, I don't mean 10% overall or over some long period of time. I mean since this "bubble burst", which didn't even happen that long ago. Plenty of way overvalued places are in need of a correction. My house is still worth 20% more than I paid for it three yrs. ago. It was worth more and went down a little. But I'm pretty far from having my bubble burst.

[the]

Originally posted by Rick Lee
My house is still worth 20% more than I paid for it three yrs. ago. It was worth more and went down a little. But I'm pretty far from having my bubble burst.

Good thing your not like these current people in VA trying to sell, for example. Their bubbles burst pretty good. Your neighborhood must be different.

6302 SUNSET TER
SPRINGFIELD, VA 22153
List Price: $267,900
Prior Sale: $360,000 07/14/2005
Listing Date: 06/23/07
-25.6%

1301 BAYSHIRE LN
HERNDON, VA 20170
List Price: $400,000
Prior Sale: $525,999 07/05/2006
Listing Date: 03/28/07
-24.0%

4927 CASIMIR ST
ANNANDALE, VA 22003
List Price: $374,900
Prior Sale: $480,000 06/13/2006
Listing Date: 06/14/07
-21.9%

2176 MAGER DR
HERNDON, VA 20170
List Price: $284,000
Prior Sale: $359,500 07/29/2005
Listing Date: 04/27/07
-21.0%


613 CONCORD CT S
STERLING, VA 20164
List Price: $200,000
Prior Sale: $325,000 09/27/2005
Listing Date: 06/17/07
-38.5%

203 GRAYSON PL
STERLING, VA 20164
List Price: $300,000
Prior Sale: $485,000 10/04/2005
Listing Date: 05/22/07
-38.1%

18174 CAMDENHURST DR
GAINESVILLE, VA 20155
List Price: $450,900
Prior Sale: $703,000 5/17/2006
Listing Date: 04/24/07
-35.9%

13203 KEYSTONE DR
WOODBRIDGE, VA 22193
List Price: $266,500
Prior Sale: $413,455 2/20/2007
Listing Date: 02/11/07
-35.5%

2540 PORT POTOMAC AVE
WOODBRIDGE, VA 22191
List Price: $479,900
Prior Sale: $740,000 9/5/2006
Listing Date: 04/16/07
-35.1%

3820 LIGHTFOOT ST #318
CHANTILLY, VA 20151
List Price: $280,000
Prior Sale: $430,000 11/22/2005
Listing Date: 05/20/07
-34.9%

6529 ATKINS WAY
GAINESVILLE, VA 20155
List Price: $459,900
Prior Sale: $698,190 10/18/2005
Listing Date: 06/15/07
-34.1%

122 ASPEN AVE N
STERLING, VA 20164
List Price: $309,500
Prior Sale: $469,000 05/19/2006
Listing Date: 05/24/07
-34.0%

700 BIRCH CT
HERNDON, VA 20170
List Price: $279,900
Prior Sale: $417,000 06/09/2006
Listing Date: 04/10/07
-32.9%

8407 AUBREY DR
MANASSAS, VA 20111
List Price: $319,900
Prior Sale: $475,000 11/1/2005
Listing Date: 04/19/07
-32.7%

15235 VALLEY STREAM DR
WOODBRIDGE, VA 22191
List Price: $199,900
Prior Sale: $296,000 1/20/2006
Listing Date: 06/22/07
-32.5%

101 HERNDON MILL CIR
HERNDON, VA 20170
List Price: $530,000
Prior Sale: $775,000 12/06/2005
Listing Date: 03/22/07
-31.6%

6103 OMEGA LN
MANASSAS, VA 20112
List Price: $397,500
Prior Sale: $579,000 8/26/2005
Listing Date: 05/04/06
-31.3%

114 WOODGATE CT
STERLING, VA 20164
List Price: $219,900
Prior Sale: $320,000 4/15/2005
Listing Date: 04/17/07
-31.3%

43231 CANAL CREEK PL
LEESBURG, VA 20176
List Price: $699,900
Prior Sale: $1,017,860 12/29/2005
Listing Date: 06/02/07
-31.2%

1800 AMELIA ST N
STERLING, VA 20164
List Price: $299,900
Prior Sale: $435,000 09/01/2005
Listing Date: 03/15/07
-31.1%

21779 LADYSLIPPER SQ
ASHBURN, VA 20147
List Price: $419,000
Prior Sale: $605,000 07/05/2006
Listing Date: 03/28/07
-30.7%

120 ASPEN AVE
STERLING, VA 20164
List Price: $329,900
Prior Sale: $470,000 01/03/2006
Listing Date: 02/12/07
-29.8%

1750 ANN SCARLET CT
WOODBRIDGE, VA 22191
List Price: $455,000
Prior Sale: $645,000 10/24/2006
Listing Date: 03/27/07
-29.5%

12501 ERROLL LN
BRISTOW, VA 20136
List Price: $459,990
Prior Sale: $651,890 1/3/2006
Listing Date: 05/30/07
-29.4%

18186 CAMDENHURST DR
GAINESVILLE, VA 20155
List Price: $492,900
Prior Sale: $695,000 4/18/2006
Listing Date: 02/07/07
-29.1%

[Rick Lee]

I'm not familiar with any of those street names, but all those places except for Annandale, which is pretty much a foreign country, are considerably farther away from DC than where I live. You couldn't give me one of those houses to make that kind of commute. I'm a little more in the insulated area, walking distance from a new Wegmans and less than a mile from I-66. Location, location, location.

Furthermore, all those prior sales were during the peak. I got my current one in Oct. '04. It was appreciating crazily from the day I closed until a good year or so later. After that, I would never have bought anything in the area other than a foreclosure.

[Dantilla]

The news here in the Seattle area is that although there are more houses on the market, and they are taking longer to sell, prices have not dropped at all. Prices are still moving up. Very slowly, but they are still a tiny bit higher than during the "Bubble".