"Surprise, surprise!"
Posted on 08/04/2007 9:00:24 AM PDT by gpapa
The current troubles in the housing and mortgage markets virtually guarantee that some restructuring of the home-finance industry will occur under the next president. Already there are a number of legislative proposals on the table, with important implications for the ability of young men and women to purchase homes and existing homebuyers to sell. Oddly, in the various presidential debates, the candidates have not been asked about these plans, leaving both homeowners and financial markets in the dark.
One leading proposal is a bill called S. 1299, offered by Sen. Chuck Schumer of New York. Mr. Schumer is a senior Democrat on the Banking Committee and the third-ranking member of his party in the entire Senate, so any proposal he makes should be taken seriously. His proposal represents a regulatory and litigious approach to mortgage-market reform.
The bill requires that each mortgage originator act with "reasonable skill, care, and diligence" and in "good faith and fair dealing." It also requires that all loans are "reasonably advantageous to the consumer." Surely these are noble sentiments. But they are also vague and ill-defined legal requirements that open up the mortgage industry to endless litigation in an environment where juries comprised of homeowners must decide between families in the process of losing their homes and mortgage brokers, investment bankers and other financial intermediaries.
(Excerpt) Read more at aei.org ...
We don’t have any problem getting everyone into a car they can afford, why housing? Because the government isn’t, much, in the car and auto loan, and auto repo business, but it huge in land and housing and housing finance industry.
What ever industry the government is involved with, then you can be assured it is screwed up. Defense, health care, learning....
It's really a binary thing. You CAN afford it _OR_ you CAN'T Afford it.
When people in script based lives are told, "You CAN afford to live in Luxury Shores Executive Estates...if you pay just the interest", of course they can't. This is where the wheels come off.
I mean homeowners, not someone who is going to flip the property.
God, just wish they’d leave us alone.... Those SOBs in DC are going to destroy every chance at making a buck. They are the most arrogant/ignorant bunch of A-holes.
The "problem" is self-correcting. The same people who are having their houses foreclosed on are also having their jetskis, their travel trailers their big screens and everything else they were able to buy because of their ridiculously low (but temporary) house payments.
Now stay out of the way Chuckie Schemer. Home prices are stabilizing.
The problem can be summed up any clearer. If more people would buy only what they could afford their financial problems would stop. I know people that are less than 5 years before retirement and buy new very expensive houses with long mortgages. I think they are crazy. Yes, they are nice houses but in just a few years they will have a fraction of their current income. I am sure most will lose their houses or will seriously impact their retirement.
The author of this article is Lawrence Lindsey, Fred Thompson’s economic adviser.
ANYTHING that Chuck the Schmuck is FOR I would be AGAINST!
The key to getting America out of its current housing and mortgage market mess is to do everything possible to maximize the availability of credit. Credit is crucial to making sure there are buyers. Buyers maintain home prices. Sustainable home prices are key to minimizing foreclosures.Lindsey also cites the advantages of variable rate mortgages, which should enrage some of the knee jerk, holier than thou types here on FR. Up to now I haven't cared for Lindsey, but this is a pretty good article. The one thing he didn't do was suggest that the Fed lower interest rates to be in line with the rest of the market.
Do you know their entire financial strategy or are you making a judgment based on assumptions?
It's said that hard cases make bad law, and if we enact really stupid legislation during the current crisis, it will stay with us during the eventual recovery, and thereafter. I don't want to see any bailouts, but neither do I want to see things enacted to "punish" the guilty which have the effect of making things tougher on honest people in the industry.
Go back to the old regs on mortgages that had certain income, and debt ratio requirements. Unfortunately the banking industry lobbied to loosened the requirements claiming that they needed flexiblility and the mortgage business has changed substantially and the government regs reflected conditions of the 1930’s. Turns out private industry was wrong and the old time government regs were correct. Free market looser reg experiment failed, just go back to the old regs. Schumers approach will make things worst because it is legally vague and will cause more law suits.
If a banker knows that the mortage product has loose debt ratios, minimum docs and much higher risks, why are they enticing people with low incomes to buy high end homes? Legally the burrower is responsible, but ethically the banks need to review their own practices. What the banks have done with loose mortgage requirements is no different from their practice of giving credit cards to college students who have no income just to get them into debt knowing that the parents ultimately will bail them out. But in that time the bank made tons of money off the irresponsible student on interest in a very short time and in the end will also get all their principle back when the parent intervenes into the mess.
The guy lost his credibility with me when he made this statement. Most of us need to borrow in order to own a home, but we also need to learn to save so that we do less overall borrowing. We need to learn to delay our gratification of some purchase desires in order to keep more cash available to make important purchases. The key to Americans getting out of most of their financial messes is in making wiser choices.
While the writer lost his credibility, I agree that Schumer's bill seems wrong. If the description that this guy gives is correct, this change would take more responsibility from individual citizens and try to spread that responsibility onto finance companies. That step is also in the wrong direction.
Bill
Proposed by Chuckie Schumer? You just know it has got to be bad.
The relative says that FICO scores are capricious, senseless and a poor indicator of who will make timely payments. A graduating student with one credit card and a virtually non- existent credit history can have a higher score than a person with a paid off mortgage and, what is deemed, “too many credit cards".
No Federal bailout of the mortgage industry!
“The relative says that FICO scores are capricious, senseless and a poor indicator of who will make timely payments.”
Well..the FICO score thing really goofed US up for about a year..
My husband’s father died.
We bought his house from his father’s estate.
The house needed a TON of work.
We used credit cards to charge the money needed for the work, knowing that we would pay the money back within 1-2 months. We knew that we could do this because we were getting money from the sale of the home we were moving from.
Anyway, we previously had a FICO score in the high 700’s low 800’s (VERY good).
We don’t make very much money but we have NEVER been late on anything.
So...we do exactly what we planned to do.
Charge a bunch of $$$..then pay it off.
Well..our credit score went down by over 100 points.
We were lucky that our loans were locked in (we had 2...a temporary construction loan and a regular 30 year fixed).
But...my CAR INSURANCE went up by almost 400 per YEAR because of it! (WE HAVE NEVER HAD A TICKET OR AN ACCIDENT OR BEEN LATE ON ANY KIND OF PAYMENT TO ANYTHING!)
We are on a SUPER, SUPER tight budget..and the extra $30+ per month just made me NUTSO..
Soo..sorry this is off topic..but the FICO scores are becoming more closely tied to other things as well.
And, although they may be a properly good indicator of how most people manage their money, we were really screwed by it.
(and unjustly in my opinion)
Why does anyone with multiple brain cells think for one minute that the clowns in Washington have a clue how to fix anything? Why do we always look to Washington to solve problems when, in fact, they cause most of them? Geez, people, fix your problems yourself. Each piece of legislation that becomes law restricts your freedoms in some way. If mortgage bankers loaned money to people who shouldn't have had mortgages, those companies will ultimately close. It's the market equivalent to thinning the herd. If you invested in those fly-by-night companies, you did so because they promised you a higher return. Well, with a higher return comes higher risk. You gambled...you lost. Not my problem. Not my gov'ts problem. Nuff said.
All I need to know about that bill is underlined in the quote.
Why have the government involved at all ? If the borrower has problems, the lender forecloses. Simple and self-regulating.
Not interested. It's fixing itself. Stupid borrowers are losing the houses they can't afford, and stupid lenders and investors are taking a bath. It will all work out. The only thing government can do is perpetuate the stupidity by artifically mitigating the outcomes.
It is extremely simple.
In most states, Realtors have fiduciary relationships with their clients. The same should also be true for loan officers.
Problem solved.
The change could happen in one day at the state level if legislators get off their butts.
There are a lot of greedy loan officers out there. Many good ones too.
If you need a good one in the Houston Metro area, send me a private note and I will put you in contact with one of the best and most honest in town.
Once you pay off the cards, try to close some of the accounts. Write to one of the scoring companies and tell them which cards are closed and have them removed from your account.
That will bring your score back up.
I now have one credit card, one car loan and a home equity line of credit for emergencies. Expunging all the old accounts, that I no longer use, upped my score about 75 points.
Uh-Oh...
Your local bank probably sold the vast majority of the mortgages it received to Wall Street where they were packaged/sold as bonds to investors all over the world seeking high returns in what was normally a pretty safe US real estate market.
The old adage of bulls & bears make money while pigs eventually get slaughtered is proved once again.
I HEAR ya...
We actually had 3 cards at the time (no balances)....NO car payments..no 2nd or equity line...
It was insane!
We got rid of 1 of the cards.....Hubby has one..and I have one...for emergencies only...we don’t carry a balance..
And..I did what you did and contacted one of the companies (Equifax I think) and they were good...but it was clear that had I NOT contacted them, even when we paid off the FULL balance within 2 months (almost $25,000), my score would not have gone “back up” as quickly.
So infuriating...
And what the HECK does it have to do with my INSURANCE!!!
(yes, they explained it to me...but it still ticks me off!)
Are you sure closing a card with a long, satisfactory pay history improves the credit score?
Why does anyone with multiple brain cells think for one minute that the clowns in Washington have a clue how to fix anything? Why do we always look to Washington to solve problems when, in fact, they cause most of them?
>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>>
A question I often ask myself and others! Maybe it is the same impulse that makes a staggering drunk think that what he needs is another drink. Or maybe it is just easier to live in cloud cuckoo land than to deal with reality, until the roof falls in anyway.
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
"Show me just what Mohammed brought that was new, and there you will find things only evil and inhuman, such as his command to spread by the sword the faith he preached." - Manuel II Palelologus
Awhile back I didn’t have any credit cards, no car payment, no mortgage and paid cash for everything. I had NO credit rating or score. I have a good job and I’m in my 40’s. I applied for a credit card for car rental purposes and was denied due to a lack of accounts. LOL
Yes it does. I cleaned out my credit tally last month with TransUnion.
Keep in mind that your over all credit score is effected negatively when you have numerous open credit lines. Even if you pay them on time or haven't used them in years.
http://www.myfico.com/CreditEducation/ImproveYourScore.aspx?fire=5
Don't close unused credit cards as a short-term strategy to raise your score.
Have credit cards - but manage them responsibly. In general, having credit cards and installment loans (and paying timely payments) will raise your score. Someone with no credit cards, for example, tends to be higher risk than someone who has managed credit cards responsibly.
I find this passage to be purposely vague. The credit score companies don't want to bite the hand that feeds them by advising people to avoid credit cards. You can only get a high credit score if you have a history of credit use. A lengthy history can help, but they will ding you if you have a lot of open credit lines. On top of that if you have a card with say, a limit of $6000 and you use close to the limit every month, you are penalized for using your credit in that manner even if you pay it on time.
What can I say? I got rid of everything except one card, one car installment loan and a home equity line of credit.
I had a lot of credit cards that I hadn’t used for years just idling on my credit history and it was negatively effecting my credit score.
I went from the 600’s (even though I had paid off 2 homes and 4 cars) up to the mid 700’s. I used a Suzi Orman software kit I purchased from QVC.
I didn’t mean get rid of everything, just get rid of anything that you don’t need or don’t use.
Nah, the juries would have to consist of apartment dwellers whose families are all apartment dwellers
But you can then get dinged by your insurance company
The wrath might better be directed at credit card companies who will offer cards to a cat or a dog.
There’s a form of reverse mortgage financing called, I think, a viatical, which covers that kind of situation. You get a wad of money, you keep the house till you die then the house becomes the bank’s.
"Surprise, surprise!"
???
How on earth would a banker "entice" anybody to buy a home, "high end" or otherwise?
Normally, people go to banks and apply for financing AFTER they have signed a contract to purchase a house. And in most cases, a competent real estate professional will "qualify" potential purchasers of real estate in order to ascertain what their price range is. The process of "qualifying" purchasers amounts to pre-underwriting an application based on the loan-to-value ratios, income-to-debt ratios, and credit scores that various lending institutions require.
During the course of the application and processing of a mortgage loan application, half-a-zillion "Truth-in-Lending" and "Good Faith Estimates" are delivered to applicants.
Schumer is just another scumbag hack who wants to legislate the stupidity out of people.
It can't be done and it shouldn't be done.
It’s a kind of balancing act, I think.
They look at the relative ratio of credit limit to actual balance, i.e. someone with three cards and they are all maxed out, slow pays, etc is gonna get dinged. On the other hand, someone with three cards at zero balance could at least theoretically run up all three in very short order.
Unsecured credit lines are called “near money” by economists, since it doesn’t really exist until they are exercised.
When I was buying a house about 19 years ago, the realtor insisted that we buy a house much more expensive that both my ex and I knew we could afford. She claimed we “qualified” for houses that were nearly double what the house we bought. Had we done what the realtor recommended I would have lost the house in the first year.
Good article. Great discussion. BTTT!
Someone I work with did this. I hear her complain they have no money nearly every day so I assume they are a bit tight on funds. I could be wrong. Maybe I am too frugal.
If you can buy a new house and figure out a way to reduce your future monthly financial burden that is a good thing. However, listening over the walk I also hear her mortgage almost doubled and now has a new 30 year mortgage with 29-ish years left. To me, this sounds like a recipe for the poor house.
I suspect this legislation will add another 100 pages to the closing table pile of documents.
Same situation when I bought my house late last year. I knew our after-tax / 401k income, tallied all nondiscretionary expenses per month, and determined what would be left to pay the mortgage/taxes/insurance. Sure enough, I was preapproved for significantly more.
But the moral of the story is that as a purchaser I needed to be responsible for understanding what I could afford. I did the calculations, and as a result we're in a position where we can even live on one salary.
They just got done explaning to you that when the interest rate goes down you can borrow more and afford a larger house. Or what part of this don't you understand?
The problem is that it is not individual borrowers who created $50 Trillion or so of mortgage backed swaps and CDO's, CDO squareds, cubed, etc. That is the federal reserve and the investment banks that they, so it is alleged anyway, supervise. As you watch the financial markets tank, you should focus your anger on them.
Let us talk about rational decisions. Who is the idiot? The guy who lends a million dollars, without recourse, that is likely not to be repaid, or the guy who borrows it? Hint, unlike your previous choice, this one is binary.
Excellent! Personal financial responsibility at it’s best. Too bad it’s something that isn’t spread more easily. You should have no doubts about your financial security unless something very bad happen.
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