Posted on 04/12/2008 4:41:25 PM PDT by Lorianne
IT was the nation’s lending institutions and mortgage originators that got us into this credit mess, but it is consumers, taxpayers and those companies’ shareholders who will end up shouldering most of the costs.
The latest example of this is in the mass freezing of home equity lines of credit going on across the country. Reeling from losses on their wretched loan decisions of recent years, lenders are preventing borrowers with pristine credit and significant equity in their homes from tapping into credit lines that they paid dearly to secure.
In the last 30 days, lenders have sent several hundred thousand letters advising borrowers that their home equity lines of credit are frozen, estimated Michael A. Kratzer, president of FeeDisclosure.com, a Web site intended to help consumers reduce fees on home loans.
Major lenders — including Washington Mutual, IndyMac Bank and the Greenpoint Mortgage Unit of Capital One — say that declining property values are prompting the decisions to cut off credit.
Banks have the right, of course, to rescind these credit lines at any time under the terms of the contracts they struck with borrowers. And as home prices have tumbled in many parts of the country, banks are undoubtedly trying to protect themselves from exposure to additional losses.
One especially exasperating aspect of now-you-see-them, now-you-don’t equity lines is that borrowers are not receiving refunds for fees they paid to secure the credit in the first place.
These fees can be significant, Mr. Kratzer said: on a $50,000 line, for example, fees of $1,500 are common. If the line is being frozen at, say, $25,000, why shouldn’t the borrower be entitled to receive a refund of $750?
(Excerpt) Read more at nytimes.com ...
"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
Blaming everyone else but those RESPONSIBLE for their BAD DECISIONS:
“IT was the nation’s lending institutions and mortgage originators that got us into this credit mess, but it is consumers, taxpayers and those companies’ shareholders who will end up shouldering most of the costs. “
It is the CONSUMER that is responsible for their decisions.
It should be the INDIVIDUAL CONSUMER that made the bad decision held responsible for the CONSEQUENCES.
I never understood why anyone would jeopardize their home to pay off credit cards and to pay for things which have no lasting value. What’s up with paying for a car, a plasma TV or a vacation for the next 15 to 30 years? I don’t get it.
It looks like when a home is foreclosed, only the most senior lein holds the title. All of the subsequent HELOCs, if they are from another lender, will get wiped out, except on the books of the banks that issued them. In this environment, I’d shut down the lines of credit too.
"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
Already moves are in place to have Fannie Mae and Freddie pick up some of the bad debt. You'll be paying for it - if you're “compassionate”.
Till Bush Jr. came along, I'd never seen “compassion” associated with irresponsibility as he routinely redefines it. Bush is a disgrace. Now I understand what HE means by “compassionate conservatism”.
I'm so sick of being legally robbed each and every payday by the government to pay for incredibly irresponsible people. I'm ready for the much vaunted balkanization of this country. It's beginning to look like the only way to fix it. I have ZERO hope in McCain and even less if that's possible for the dumbocrats.
Who do you believe is responsible for the credit mess, if not the consumer?
The default rate on subprime loans is between ten and twenty percent. The default rate on all loans is two percent. I wouldn't say that's wretched.
What's your source for that?
FOX
Give me a sec maybe I can find the link.
If not a search on FR should bring it up.
Bush is behind this ... you know ... the “compassionate conservative” crap ... .
So the effort to keep the economy going by continuing the expansion of credit (which is the goal of FED monetary policy when it lowers interest rates way below the rate of inflation)has come to a crashing halt.
It is the inevitable end to a credit driven financial boom.
What is the government doing to help?
A. The housing mess will take a while to unwind. But given that this is a presidential election year, pressure to help homeowners is growing.
The Senate, by a 82-12 vote last week, approved business tax breaks and a $7,000 tax credit for buyers of foreclosed homes. The House is hammering out its on proposal.
The administration has taken steps to help struggling home owners, such as expanded federal mortgage assistance.
The Federal Reserve has made deep cuts in interest rates and may cut again this month. That should ease some of the financial pain as adjustable loans reset.
...
What specifically is the administration doing?
A. It expanded a Federal Housing Administration program so more homeowners who are having trouble making mortgage payments can refinance into more affordable government-insured loans. Some 2 million people are facing foreclosure this year. The administration also authorized the mortgage-finance companies Fannie Mae and Freddie Mac to buy more home loans and brokered help for homeowners through a private-sector mortgage industry group.
Some lenders have agreed to offer a five-year rate freeze for people who have not missed payments. Also, some have offered a 30-day foreclosure pause for those behind in their payments.
President Bush wants Congress to pass legislation that would lower the down payment requirements for FHA-insured loans. He wants to give a $168 billion economic aid plan adopted in February time to work and has argued against a second one, but without completely rejecting the idea. Rebate checks will be in the mail next month.
The Treasury Department has proposed a longer term overhaul of financial regulations, but that measure is not expected to be submitted to Congress this year.
...
And the Fed?
A. The central bank started reducing interest rates late last summer. It has taken the key short-term rate under its control _ the federal funds rate, which is the overnight lending rate between banks _ down to 2.5 percent from 5.25 percent. That should help lower the rate of adjustable rate mortgages that reset.
The Fed is expected to cut rates further when it meets later this month. It also has indicated it stands ready to do even more by adding money to the system, including making temporary loans totaling about $400 billion to banks.
Q. Won't housing markets eventually stabilize on their own?
A. As housing prices fall far enough to stimulate demand, the market will self-correct. But this could take some time. Recent housing-related statistics suggest things will get worse before getting better.
...
What are the presidential candidates, all members of the Senate, proposing?
A. Democrat Hillary Rodham Clinton has proposed a five-year freeze on interest rates and a $30 billion economic aid plan to help states and local communities fight foreclosures. She would impose a foreclosure freeze on subprime owner-occupied homes. She favors increased regulation of mortgage originators.
Democrat Barack Obama has called for tighter regulation of mortgage lenders, banks and financial houses and proposes $30 billion in aid that would include $10 billion to help people avoid foreclosure.
Both Clinton and Obama support the Frank-Dodd legislation, as well as proposals to amend bankruptcy laws to aid those facing housing foreclosure. Republicans and the administration opposed changing the bankruptcy laws. The Senate also has voted against it.
Republican Sen. John McCain, after first saying he favored only a limited federal role, last week sketched out a plan designed to help 200,000 to 400,000 from losing their homes. Under the plan, the government would help these homeowners finance and get federally guaranteed fixed mortgages. Aides said the plan could cost the government from $3 billion to $10 billion. McCain did not specify who would be eligible for help. He was expected to lay out more details in a speech on Tuesday.
McCain has proposed raising the minimum down payment levels for home mortgages, even the 3 percent minimum now required by the FHA. This puts him at odds with the administration and congressional Democratic leaders, who want to lower the threshold.
http://www.foxnews.com/wires/2008Apr12/0,4670,HousingQampA,00.html
Just lovely!
Promoting IRRESPONSIBILITY at YOUR EXPENSE!
Yep. Here’s another example I expect to see at US Banks soon:
Interbank Market Fails to Respond to UK Interest Rate Cut
http://www.marketoracle.co.uk/index.php?name=News&file=article&sid=4313
This means that the banks are extremely reluctant to pass on Thursdays rate cut to customers. Some of the tactics deployed by banks to confuse customers, is to raise interest rates before the interest rate decision and then cut by the same amount following the rate cut, thus no net change.
However the continuing credit crisis has eroded banks balance sheets to such an extent that some banks even went so far as raising interest rates on some mortgage products following the rate cut.
Doesn’t some of the blame rest on those who wrote loans to people who should not have them in the first place?
Exactly! But, instead the taxpayer's get to bail them out!
At this point it doesn’t matter who is responsible, at least not in the bigger picture. The problem is so big that perfectly innocent folks will get dragged under if something significant isn’t done.
Blame and consequences are fine and dandy, but they are not always the deciding factors in making the right policy decision.
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