"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 ...
"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.
Like all of Wall Street's eventually doomed get rich quick schemes. The problem is who benefits and who is injured. Too often the fraudsters who created the whole problem escape with a boodle, and the resulting market correction, damages the more or less innocent investor.
This time the problem is the explosion in real estate debt, and values (Question: what happens when more money is pursuing the same goods? - Even Allan Greenspan knew the answer to this one). The explosion was a deliberate act on the part of the Fed to counter the collapse of the collapse of its previous bubble - the stock market.
Sooner or later there will be a correction. The question is when, how big, and who gets holding the bag. You and I will because we are taxpayers who live in this economy. If you are debt free you will still be injured by the deflation in asset value or inflatin of costs relative to your income to pay for all of this.
Keep your wrath focused where it belongs - Alan Greenspan. This has been going on since 1982 when he took over from Volker, who was a good guy until he turned crook in the oil for food scandal investigation.
What they are looking for is not a free market, but a market where they get to do what they want, but everyone else is regulated against doing anything about it, and where, if there are any losses, there is no downside for them because the federal government will protect them.
It is rational - it is what all of us want, and only some of us can get. That the Federal government complies is, however, irrational unless there are crooks on the take. I don't know that Lindsay is one of them, but he sure is blowing a lot of smoke.
This situation is going to DOUBLE the foreclosure rate one year from now.
Almost immediately good reputable lenders pulled out of Montgomery County and Maryland in general.
Their leaving did influence the number of sales in the entry level market, which of course made it impossible for the move-up buyer.
It also requires that all loans are “reasonably advantageous to the consumer.”
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Ok I can understand how the mortgage industry has brought this on itself (Much as the a credit card company does when it set up a table on a college campus handing out card to kids with little or no income) but this language is down right scary.
The business transaction should not be advantageous for either party over the other.
Initial mortgage on a case by case basis, NOT with the intention of chasing a moving target "Later on". That one mortgage that one time, without playing games like, "when the interest rate goes down you can borrow more and afford a larger house.". The assumption is the person wants that house at that time for that rate.
when we get into things that might happen in the future, qualifying whether someone can afford a mortgage "If" something happens means that they probably do not qualify for the mortgage THEN, and that is what has gotten us into this current mess.
"If I sell the place in five years and IF the property appreciates, THEN I can pay interest only or bail out before the rates reset".
FICO should be outlawed.
My Dad's record has been spotless for 30 years. But then he closed all but an Amex card and one Visa. His score went down! FICO is idiotic.
In this last boom it there was a third attribute which was you can afford it long enought to sell it for a profit.
John
This is part of the Business-Uber-Alles crap that gives the GOP a bad name with working folks. Like Bush and DeLay killing the medical exemption to the draconian bankruptcy law--if your bankruptcy is provably caused solely by medical bills not being paid by insurance and taking all your income for example. The GOP killed it. Just sick whores to the credit card lobby. Why don't you have a-la-carte choice with your cable company, as first proposed 15 years ago? Because cable-whore John McCain killed it in committee. The GOP lets business screw people at every turn. This needs to stop cold.
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