ping
When you buy a home with a mortgage you can't afford...you really don't own the home. You are just renting it from the bank until you declare bankruptcy.
No down, no doc loans were rare even at the height of the easy money mortgage period, and required credit scores over 680. They were NOT being given to people that didn’t pay their bills.
There are two different forces at work here.
One are subprime loans. Some were “stated income” but they still had to have verifiable employment, even if not proving income. These were for borrowers with average to poor credit, and understandably became an issue, mainly for ARM loans that adjusted 3 points upwards after 24 or 36 months. Mainly they are a problem because the people could only barely afford the payment prior to adjustment.
Next are “no doc” Alt-A loans. A different animal. Here, credit has to be good, but there is generally NO proof even of employment, let alone income. Defaults on these have still not been as high as for the first type I explained.
If Bush wasn’t so busy steering hurricanes, he could be holding ‘common sense lending practices’ seminars for these mortgage lenders. He makes me so mad.
I hear opportunity bangin’ my door down...
No down etc isn’t the problem. People being given mortgages for more than they can afford are the problem. We had a mortgage but didn’t buy a house. We were priced out. HOWEVER, the mortgage company gave us a mortgage for more than we were comfortable spending. $100,000 more. AND they encouraged us to use it. How many people believe a lender that tells them they can afford “more”? The people that are now defaulting.
Excerpt:
The peak month for the resetting of mortgages will come this October, according to Credit Suisse, when more than $50 billion in mortgages will switch to a new rate for the first time. The level will remain above $30 billion a month through September 2008.In all, the interest rates on about $1 trillion worth of mortgages, or 12 percent of the U.S. total, will reset for the first time this year or next. A couple of years ago, by comparison, only a marginal amount of mortgage debt - a few billion dollars a month - was resetting each month.
So all the carnage in the mortgage market thus far has come even before the bulk of mortgages have reset. "The worst is not over in the subprime mortgage market," analysts at JPMorgan recently wrote to the firm's clients. "The reason for our pessimism is that loans originated in late 2005 and all of 2006, the period that saw peak origination volumes and sharply decreased underwriting quality, are only starting to reset in large numbers." * * *
This slow motion train wreck is just getting started.
Here's what we're seeing this week.
New 100% loans and even a 103% for over 700 FICO score.
Some lenders still closing.
C-Span last Saturday. Sub-prime foreclosures at 13% may or may not hit 20%.
No-doc very strictly applied to self-employed borrowers only.
Sub-prime full doc, verify everything.
Still buzz about more lenders disappearing.
Great, less options to buy inventory... let’s bring in congress to so we can all be slaves and have no choices at all.
They do that with car loans in my state too.