Subprime Crisis Explained!

[911Rob]

Thanks Wayne, that was a great cartoon IMO.

I've shared that with some of my business associates.
Really cuts to the chase of the whole matter.

"Unbelievable!"

[Hugh R]

Ok, so who here on the board is being foreclosed on because you didn't understand the terms of your ARM and what it meant when it readjusted? Anyone? Actually, this is a useless post, cause I'll bet no one would admit to it.

[kach22i]

Now I get it, I understand cartoons.

[the]

Amazing how much of this was predicted in the More Bad RE News thread, years ago.

[hytem]

Subprime = ARM = adjustable rate mortgages which start out below the prime.

The whole problem was caused by Greenspan, as the media is beginning to admit. He dropped rates too low when Bush took office in 2000--after raising them too high in the year before elections. Remember "Irrational exuberance" ? When the stock market took off due to the balanced budget--and then collapsed along with business investment when Greenspan raised interest rates. There have been books written about it.

1% CDs meant 2% ARMs. But 2% ARMs became 4-5% ARMs after a few years when interest rates went up again. And some people couldn't afford the doubling of their monthly payments.

The smart people took fixed rate mortgages at 5.-5.5%. Which are now available again, by the way. The same smart people are buying real estate right now. When you hear about it, it will be too late.

That's what "sub-prime" is all about. Never mind the baloney about "unethical" mortgage companies. You always have those.

Inflation, by the way, which is always mentioned as a reason for adjusting interest rates, has been a constant through all this. No correlation whatsoever with interest rates since Clinton.

Low interest rates are necessary for business growth. But not too low.

[Rick Lee]

Originally Posted by hytem

Subprime = ARM = adjustable rate mortgages which start out below the prime.

The whole problem was caused by Greenspan, as the media is beginning to admit. He dropped rates too low when Bush took office in 2000--after raising them too high in the year before elections. Remember "Irrational exuberance" ? When the stock market took off due to the balanced budget--and then collapsed along with business investment when Greenspan raised interest rates. There have been books written about it.

1% CDs meant 2% ARMs. But 2% ARMs became 4-5% ARMs after a few years when interest rates went up again. And some people couldn't afford the doubling of their monthly payments.

The smart people took fixed rate mortgages at 5.-5.5%. Which are now available again, by the way. The same smart people are buying real estate right now. When you hear about it, it will be too late.

That's what "sub-prime" is all about. Never mind the baloney about "unethical" mortgage companies. You always have those.

Inflation, by the way, which is always mentioned as a reason for adjusting interest rates, has been a constant through all this. No correlation whatsoever with interest rates since Clinton.

Low interest rates are necessary for business growth. But not too low.

Subprime=ARM? Are you kidding me? I put 20% down, have a mid-700 FICO and have an ARM. I'm about as A-paper as it gets. Greenspan also did not cause this, as the Fed does not set mortgage interest rates. In fact most ARM's you're talking about are tied to benchmarks that have almost nothing to do with what the Fed does. How many times must it be explained here how mortgage interest rates are determined? Greenspan doesn't decide them. BTW, rumor has it that Greenspan has or had an MTA or Option ARM on his own house.

[the]

The best part of Greenspan, to me, was when at the height of a VERY obvious housing bubble (pretty clear it was going to be the biggest in human history), he flatly said "There is no housing bubble."

When he said that, he lost all credibility to me. It demonstrated that he is either a clueless idiot, or just another politician playing a political role.

[the]

Originally Posted by Rick Lee

In fact most ARM's you're talking about are tied to benchmarks that have almost nothing to do with what the Fed does. How many times must it be explained here how mortgage interest rates are determined? Greenspan doesn't decide them.

It is true that the Fed doesn't directly determine mortgage rates, and in fact the Fed rate can go down and mortgage rates go up (and vice versa), depending on conditions and other variables.

But in general, mortgage rates *tend* to move with the Fed interest rate.

[Britwrench]

My brother, in the jolly old UK is going to be hit by this soon, he has a ARM and in June the rate goes up. He still believes that because his house value has increased that he is better off...... not much I can do.

My own story is I lived in the middle east for 5 years and came back to the UK for a holiday, saw with my now ex-wife a condo we could buy. Mortgage agent asked me my income.... "in the UK nothing"..."no, problem"
An ARM was signed by me that day, we came back and stayed in the place 8 months or so, saw the increasing payments, sold (for a profit) and now with two incomes in the UK got a better rate on the next condo. After that, of course, it went downhill till the eventual divorce.