I read a lot, and this is the one thing that has frightened me big time (housing)

[turbo6bar]

Fannie and Freddie are tightening guidelines and charging higher fees for mortgages they buy. They wouldn't be doing this if things were rosy ahead.

The figure I've seen for the upcoming bailout of FNM & FRE exceeds $1 trillion. Yes, we're talking a trillion dollars. Yeah, that smell; it's on your shoe and the shoe of every other hard-working taxpayer in America. We really screwed up big time letting this housing bubble go unchecked.

[Tobra]

WTF is the fed thnking lowering rates again?

[nostatic]

Originally Posted by Tobra

WTF is the fed thnking lowering rates again?

we need people to spend more money to prop up the false economy.

oh look, my cc limit got raised! I'm rich!!!

[pwd72s]

Fannie and Freddie...Wayne, if you read the fine print, neither is actually guaranteed by the Government...thus, although it might, the Government has no obligation to "bail out" either one of the two.

GNMAE, pronounce "Ginny May", IS guaranteed by the government, and is paying pretty good rates to investors.

I wouldn't invest a dime in Freddie or Fannie...

I guess this info makes your scenario even scarier, yes?

[HardDrive]

[turbo6bar]

The government had no obligation to bail out Bear Stearns, but it did. Believing the government would not bail out Fannie and Freddie is a bit crazy. These two giants make BSC look like two kids running a lemonade stand.

[RANDY P]

Fast and Easy does in fact require the LENDER to check and verify employment with a phone call to the employer or a written VOE. Employer has to be listed in phone book to count.

Fast and Easy isn't available to anyone who is self employed or less than two years in the biz. Of course you can declare it on the application but the problem is, it was fraudulent to begin with. At that point, you might as well make up fake paystubs, W2's so on and so on.

Another thing about fast and easy is that it's typically limited to 80% and below. The 2nd mortgage approval mentioned was based on whether or not the 1st mortgage approved the transaction with a 2nd - so if 1st lien was OK with the deal, so was 2nd lien. It would also take into account equity positions based on data it knew about the area.

It wasn't as easy to qualify for as this article makes it appear. If it was full on orchestrated professional level fraud anything is suspect.

rjp

[mjshira]

What everyone needs to understand, the real source of this problem, are two fold: rating agencies that did not have the ability to rate things that were securitized & excessive leverage of institutions.

Rating agencies use models to rate debt that is securitized. They did this (and do this...) based on statistical samples of debt pools which are bundled by financial institutions to either be sold as investments OR used to hedge other balance sheet positions. The dirty little secret is that the investment institutions PAY the rating agencies for the service!

That meant (and means) that if an institution presented a given rating agency with a pool of debt they wanted to sell as 'AAA' credit worthy securities, and that rating agency didn't give them the rating they wanted, they could re-submit that given pool after having modified it a little.

Since the underlying assets of all these pools that were sold and sold again, was relied upon to establish leverage for large institutions, that element of inaccurate rating WAS HUGE! There is not a plan yet established to address this...

Now, the other problem is that the financial institutions (and the rating agencies for that matter) rely, RELY, on modeling that is based on assumptions about economic history. But, we've never had a really global economy before! So those historical assumptions must be flawed as has been proven in the macro level.

Couple all this with the fact that companies are being asked to 'mark to market' balance sheet asset and liabilities which are changing value in dramatic fashion DAILY. Even though a given position might be worth X on day Y, and worth more or less later, companies are either providing false positive results or false negative results, which leads to investors being unsure which leads to people running too...

traditional safe havens like gold and oil.

while it is true that the American consumer has been excessive in spending the last 10 years or so, it is also true that there has been excessive money available 'chasing' being spent. All you have to do is look at all the builders that got easy financing and over built developments, etc.

This is just my little view based on my research, I share it here not has 'perfect' but just one guys view.

[mjshira]

http://www.nytimes.com/2008/04/27/magazine/27Credit-t.html?_r=1&oref=slogin

a good example...

[turbo6bar]

Originally Posted by mjshira

Now, the other problem is that the financial institutions (and the rating agencies for that matter) rely, RELY, on modeling that is based on assumptions about economic history. But, we've never had a really global economy before! So those historical assumptions must be flawed as has been proven in the macro level.

Housing is not rocket science. The financial institutions relied on a stupid model that assumed housing prices would continue to spiral upwards. When the magic carpet was yanked from the game, it all crashed. It has nothing to do with global economies, financial innovation or otherwise.

Quite simply, you can't run a piece of ***** into a nugget of gold. The ratings agencies and all other players were damn good at painting that turd. Eventually, the stink wore straight through the veneer and here we are.

[onewhippedpuppy]

We were offered one of these loans by Countrywide when loan shopping one year ago. As I am finishing college, the rep suggested putting my estimated wage upon graduation on the forms, even though I was one year away from graduating. He suggested an 80% fixed with 20% second in an ARM, zero down. Absolutely zero documentation required for any of it because my wife and I both have good credit. Scary, scary stuff, I could have told him anything and he would have gone for it.

We went with a local bank that we had a previous loan with, 20 year fixed and kept in house. Much better...........

[Porsche-O-Phile]

Fraud on the part of commissioned salespeople?

Say it ain't so!

[onewhippedpuppy]

Shocker, huh? This was the same guy that didn't know how to output an amortization schedule, or give me the total present value of the loan. I'm sure he was previously selling used cars.

[pwd72s]

An article from the May 1 edition:

Builder, his firms file for bankruptcy
Slow sales - Tony Marnella unveiled townhomes in Happy Valley just as the mortgage crisis further slowed the market Thursday, May 01, 2008JEFF MANNING The Oregonian Staff
The real estate bust has claimed another developer.

Clackamas County homebuilder Tony Marnella and three of his companies filed for Chapter 11 bankruptcy earlier this month.

Landing Development LLC, 550 Investments LLC, Tony Marnella Inc. and Marnella collectively owe about $24 million, the bulk of it to two lenders -- Sterling Savings Bank and MW Housing Partners III LP, an affiliate of timber giant Weyerhaeuser.


Susan Ford, Marnella's bankruptcy attorney, said slow sales at a Happy Valley townhome development were primarily responsible for the bankruptcy. Marnella unveiled his Volare at Eagles Crest, a 115-lot development, last July, just as the mortgage crisis worsened the already slowing real estate market.

Landing Development has built more than 25 homes at Volare. The rest remain empty lots.

Happy Valley is generally recognized as one of the most overbuilt communities in the metro area, along with parts of Clark County, Wash. The Clackamas County town has proven difficult territory for more than one developer because of super-heated growth in recent years.

Ford said she will attempt to negotiate some sort of agreement with Marnella's two lenders to give Marnella and his Volare development additional breathing room.

"He remains totally committed to the project," Ford said.

Marnella has been an active residential builder for two decades, with projects in Milwaukie, Canby and elsewhere in Clackamas County, as well as Portland's St. Johns district. He also blogs, at times taking the media to task for being overly negative on the real estate market.

"One of my biggest frustrations right now is the amount of FUD (Fear, Uncertainty and Doubt) being generated by the media about the state of the current real estate market and the local economy," Marnella said in a March 20 post.

"In my opinion, there is a lot of misinformation and a failure to acknowledge the positives about our local real estate market."

It's true that the Portland area remains vigorous relative to the weakness in much of the rest of the country. But the market in the area has slowed, as Marnella's own numbers show.

Marnella's various companies brought in $4.3 million in revenue in 2006 and $1.1 million in 2007, according to the bankruptcy filing. So far in 2008, the companies have generated revenue of $10,000.

Jeff Manning: 503-294-7606; jmanning@news.oregonian.com

[onewhippedpuppy]

People made money hand over fist during the housing boom, and now when they get caught with their pants down, we're supposed to pity them? Please......

[RANDY P]

Originally Posted by onewhippedpuppy

We were offered one of these loans by Countrywide when loan shopping one year ago. As I am finishing college, the rep suggested putting my estimated wage upon graduation on the forms, even though I was one year away from graduating. He suggested an 80% fixed with 20% second in an ARM, zero down. Absolutely zero documentation required for any of it because my wife and I both have good credit. Scary, scary stuff, I could have told him anything and he would have gone for it.

We went with a local bank that we had a previous loan with, 20 year fixed and kept in house. Much better...........

if you able to qualify for a 20 year fixed payment straight up, then there was no need to fabricate income for the 80/20 suggested by CW, there wouldn't have been anyone lying about the income. The difference in payments would've been almost double.

2nd thing, CW being a direct lender pays the least-they get the kids it's like being flown to HI in a 747 piloted by a trainee with no supervisor.

rjp

[onewhippedpuppy]

Randy, the pay used for the Countrywide estimate was almost double what I was making at that time. I was one year from graduation, yet they used my approximate pay upon graduation. The 80/20 was used because we didn't have the full 20%, but didn't want to pay PMI. Countrywide also offered us several fixed rate loans, but with PMI. Also, they offered to loan us MUCH more than we asked for. Very reckless practices.

Our current loan is with a small KS bank (3 branches) that loans to very few people, and keeps them all in-house. My in-laws do their personal and business banking there. They held the mortgage on the first house we owned, and we were never late or missed a payment. We dealt directly with the bank president, so I think we did better than someone off of the street.

[pwd72s]

I heard this being explained as "Mortgage Brokers run amok" on a financial talk show...but, plenty of blame to go around. Nobody asks me, but if they did? I'd say go back to the old style 20% down, fixed rate, on home loans...

[RANDY P]

that was an awfully stupid thing for the LO at CW to do - why would someone have to state income if there was enough showing to qualify someone at a 20 year term? Doesn't make sense at all. Unless there was more money down somewhere. The payment (or a derivative of) is what's used to qualify for the ratios - naturally a 20 year loan is more restrictive than a 30 year due to that reason alone.

The guy is an idiot- didn't need to inflate anything. If you hear of someone actually mulling over 15 / 20 year options you know there's income showing.

rjp

[onewhippedpuppy]

Honestly Randy, I'm by no means wealthy or high income. I just hate debt. If I can pay it off quicker, I'll pay it off quicker.

I think he would have liked to get me into a much larger loan, and push for an IO or ARM for the bulk of the principal. No thanks.