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Ed Huntress Ed Huntress is offline
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Default OT - The Affluent, Too, Couldn't Resist Adjustable Rates


"Wes" wrote in message
...
"Ed Huntress" wrote:

Sure, on a car. Not on a house. You could have asked any broker or banker,
a
year ago, what the chances were you'd get in trouble that way. They'd
laugh
you out of the place.

First, they would tell you what I said above. They they'd tell you that
once
you'd made two or three years of payments, you'd qualify for a fixed-rate
mortgage before the balloon came due on (what they might call) your
"bridge"
loan. Then you could look at all the statistics and see that they're dead
right. Only they weren't, for the first time ever.



Okay, try this. You buy a new house, the overall market does not go down
but when you go to refinance the banks appraiser notices a crack house
next
door and doesn't think your house's market value is high enough to secure
the loan. By your logic, the bank should forgive principle since the
house
is not worth far less than when it was originally purchased.


First off, I haven't said what banks should do, or what the government
should do. It's beyond my knowledge and I'm studying the subject right now .
I do (or did) know how mortgages work, though, and the basic situation is
not that hard to figure out.

Secondly, every day you walk out of your door you're taking a chance that
something really bad won't happen. That's true about your investments, your
chances of getting hit by a truck, and so on. House buyers can't buy without
some risk of some kind, and some go under and lose their houses all the
time.

But that doesn't cause the credit markets to dry up, nor does it cause
average house prices to drop throughout the country (curiously, not in my
town; prices took a one-month hiatus but now they're going up, but that's
another story). Even if a few people get it all wrong and come up losers,
the market usually isn't much affected by that. This time, we have a perfect
storm: just as those people are getting in a bind, new mortgages are drying
up, and prices have dropped enough that they're upside down on their
mortgages.

Nobody anticipated that. Not the experts, not the banks, and not the
government. It's a crisis because there's no way out -- except that some of
these crap mortgages were written in such a way that a home owner can just
walk out of an upside-down situation and turn the keys over to the bank,
with no further repurcussions. That amazes me, but that's what the papers
say. The brokers are calling it "key mail." You open the bank's mail, and
there are house keys in the envelopes. d8-)


The bank loans money, the borrower agrees to pay based on the terms of the
contract. Doesn't matter what the market is doing, you borrowed, you owe.


Sure. Unless you can't, which is something that people and businesses
sometimes face. It's what happens afterwards that's causing all the trouble.
In a normal market, even during a downturn, most of those people would have
been able to get out by selling their houses. Now there aren't enough buyers
because the buyers can't get mortgages; prices are dropping, and the buyers
who *can* get a mortgage are waiting it out. I would, too.

This wouldn't have happened in the first place if the mortgage lenders
hadn't fallen all over each other to give mortgages with practically no
money down. That's bad banking. It's NOT necessarily bad borrowing.

--
Ed Huntress