Reginald P. Smithers III, Esq. wrote:
Eisboch wrote:
Help me out here.

I hear the economy is frozen. Banks won't lend. No mortgages.
Hoarding their bailout money.

Yet, virtually every commercial break on MSNBC or CNN features at
least one pitch from a major bank or a mortgage company (Ditech comes
to mind, which is a GMAC subsidiary) offering low interests
mortgages, loans and "we have money to lend" announcements.

So, why aren't they lending? Seems to me that this would be an ideal
time for people to re-finance for lower rates, etc.

Economics confuses me.

Eisboch




Loans are available for anyone with good credit. They are being
selective on who they make loans to. The problem we had with Fanny Mae
was making loans for more than the home was worth, to people with bad
credit, and who were not putting any money down. It was a govt. plan to
allow everyone to own a home. The problem is, without a down payment,
the homeowner had no more invested in the home than when he was renting
an apartment.


The "problem" with the home loans is just a teeny bitty bit deeper than
that, and had mostly to do with the packaging of loans into investment
instruments for resale to others.

Boater wrote:
Reginald P. Smithers III, Esq. wrote:
Eisboch wrote:
Help me out here.

I hear the economy is frozen. Banks won't lend. No mortgages.
Hoarding their bailout money.

Yet, virtually every commercial break on MSNBC or CNN features at
least one pitch from a major bank or a mortgage company (Ditech comes
to mind, which is a GMAC subsidiary) offering low interests
mortgages, loans and "we have money to lend" announcements.

So, why aren't they lending? Seems to me that this would be an
ideal time for people to re-finance for lower rates, etc.

Economics confuses me.

Eisboch




Loans are available for anyone with good credit. They are being
selective on who they make loans to. The problem we had with Fanny
Mae was making loans for more than the home was worth, to people with
bad credit, and who were not putting any money down. It was a govt.
plan to allow everyone to own a home. The problem is, without a down
payment, the homeowner had no more invested in the home than when he
was renting an apartment.


The "problem" with the home loans is just a teeny bitty bit deeper than
that, and had mostly to do with the packaging of loans into investment
instruments for resale to others.

Yes, it had to do with packaging bad loans with a high probability of
default, the loans I mentioned above. Those investment instruments
would be a great investment, if the loans were going to be paid, or they
could recoup the money in foreclosure. neither can be done, when there
is no down payment, and the mortgage was for more than the home was
worth. Home loans have been packaged as investments for over 50 yrs,
and probably much longer, and were considered a fairly safe investment,
when we used reasonable criteria for determining who would get the loan.
Once Fannie Mae said, guaranteed that they would buy and resell the
loan, regardless of risk, it opened the flood gates for all banks and
mortgage companies to disregard the ability of the person to repay the
loan.

On Fri, 05 Dec 2008 13:10:55 -0500, Reginald P. Smithers III, Esq. wrote:


Yes, it had to do with packaging bad loans with a high probability of
default, the loans I mentioned above. Those investment instruments
would be a great investment, if the loans were going to be paid, or they
could recoup the money in foreclosure. neither can be done, when there
is no down payment, and the mortgage was for more than the home was
worth. Home loans have been packaged as investments for over 50 yrs,
and probably much longer, and were considered a fairly safe investment,
when we used reasonable criteria for determining who would get the loan.
Once Fannie Mae said, guaranteed that they would buy and resell the
loan, regardless of risk, it opened the flood gates for all banks and
mortgage companies to disregard the ability of the person to repay the
loan.

I would argue a healthy bank should be able to withstand the present
default rates. It wasn't the default rates that brought banks down, it
was leverage. 33 to 1 in Lehman's case.

I would also point out, when you lose 1/2 million jobs, as we did in
November, it isn't only the subprime loans that go into foreclosure.

On Fri, 05 Dec 2008 12:34:31 -0600, wrote:

On Fri, 05 Dec 2008 13:10:55 -0500, Reginald P. Smithers III, Esq. wrote:


Yes, it had to do with packaging bad loans with a high probability of
default, the loans I mentioned above. Those investment instruments
would be a great investment, if the loans were going to be paid, or they
could recoup the money in foreclosure. neither can be done, when there
is no down payment, and the mortgage was for more than the home was
worth. Home loans have been packaged as investments for over 50 yrs,
and probably much longer, and were considered a fairly safe investment,
when we used reasonable criteria for determining who would get the loan.
Once Fannie Mae said, guaranteed that they would buy and resell the
loan, regardless of risk, it opened the flood gates for all banks and
mortgage companies to disregard the ability of the person to repay the
loan.

I would argue a healthy bank should be able to withstand the present
default rates. It wasn't the default rates that brought banks down, it
was leverage. 33 to 1 in Lehman's case.

I would also point out, when you lose 1/2 million jobs, as we did in
November, it isn't only the subprime loans that go into foreclosure.

Thunder, thunder, thunder road....the subprime problem started the
downslide a couple years back -- not in November!
--
John H.

On Fri, 05 Dec 2008 13:10:55 -0500, "Reginald P. Smithers III, Esq."
wrote:

Yes, it had to do with packaging bad loans with a high probability of
default, the loans I mentioned above. Those investment instruments
would be a great investment, if the loans were going to be paid, or they
could recoup the money in foreclosure. neither can be done, when there
is no down payment, and the mortgage was for more than the home was
worth. Home loans have been packaged as investments for over 50 yrs,
and probably much longer, and were considered a fairly safe investment,
when we used reasonable criteria for determining who would get the loan.
Once Fannie Mae said, guaranteed that they would buy and resell the
loan, regardless of risk, it opened the flood gates for all banks and
mortgage companies to disregard the ability of the person to repay the
loan.

The problem was that the demand for packaged loans became almost
infinite as people discovered the so called "carry trade" which used
inexpensive borrowed money from Japan to buy high yielding bonds. It
was almost a license to steal limited only by the supply of bonds to
invest in. Packaging and selling these bonds was also highly
profitable to the investment bankers. Mortgage brokers sprang up on
every corner to help meet the demand, and the money was flowing like
water to anyone who wanted to buy a house or speculate in the housing
market. That pushed up real estate prices across the country
creating the bubble which eventually broke as all bubbles must.

The rest is becoming history.

"Wayne.B" wrote in message
...
On Fri, 05 Dec 2008 13:10:55 -0500, "Reginald P. Smithers III, Esq."
wrote:

Yes, it had to do with packaging bad loans with a high probability of
default, the loans I mentioned above. Those investment instruments
would be a great investment, if the loans were going to be paid, or they
could recoup the money in foreclosure. neither can be done, when there
is no down payment, and the mortgage was for more than the home was
worth. Home loans have been packaged as investments for over 50 yrs,
and probably much longer, and were considered a fairly safe investment,
when we used reasonable criteria for determining who would get the loan.
Once Fannie Mae said, guaranteed that they would buy and resell the
loan, regardless of risk, it opened the flood gates for all banks and
mortgage companies to disregard the ability of the person to repay the
loan.

The problem was that the demand for packaged loans became almost
infinite as people discovered the so called "carry trade" which used
inexpensive borrowed money from Japan to buy high yielding bonds. It
was almost a license to steal limited only by the supply of bonds to
invest in. Packaging and selling these bonds was also highly
profitable to the investment bankers. Mortgage brokers sprang up on
every corner to help meet the demand, and the money was flowing like
water to anyone who wanted to buy a house or speculate in the housing
market. That pushed up real estate prices across the country
creating the bubble which eventually broke as all bubbles must.

The rest is becoming history.

Well put. But I might add a blurb on how because the the government
controls interest rates there is no counter balance towards infinite debt.
When the market ran it, if borrowers exceeded savers, the rates went up
encourgaing savings. If borrowers paid debts down then rates would go down
for savers and allow inexpensive debt. Eventually finding a long term
stable rate that encurges more equity savings, real wealth that is.

Government, was it Carter? Broke this mechanism some years ago.

On Fri, 05 Dec 2008 12:49:55 -0500, "Reginald P. Smithers III, Esq."
wrote:

Loans are available for anyone with good credit. They are being
selective on who they make loans to.

Really?

Go get a car loan from a bank with a 720 credit score.

Go ahead - I'll wait.

--

"An idealist is one who, on noticing that
a rose smells better than a cabbage, concludes
that it will also make better soup."

H.L. Mencken

Tom Francis - SWSports wrote:
On Fri, 05 Dec 2008 12:49:55 -0500, "Reginald P. Smithers III, Esq."
wrote:

Loans are available for anyone with good credit. They are being
selective on who they make loans to.

Really?

Go get a car loan from a bank with a 720 credit score.

Go ahead - I'll wait.

--

"An idealist is one who, on noticing that
a rose smells better than a cabbage, concludes
that it will also make better soup."

H.L. Mencken

My credit score is over 800, so it would be hard for me to do that. If
I was looking for a car loan, I would do it at a credit union, and they
are still making them way below market. I haven't check, but since 720
is still considered a excellent rating, I would guess they are still
making them.

While I have not check what the car/home loan rates are based upon FICO
score, Forbes did and in a Dec. 3 rd article, they said:

"If you do qualify for a loan, the higher your score is, the lower your
interest rate will probably be. According to Fair Isaac, the interest
you will be charged for a 30-year fixed interest rate mortgage on a
$300,000 loan could be as low as 5.67% if your credit score is 760 to
850, while it might be as high as 6.99% if your credit score is 620 to
659. A three-year auto loan would be 6.68% if you have a credit score of
720 to 850, but if your credit score is 620 to 689, you will be charged
as much as 12% for that same loan. "

http://www.forbes.com/finance/2008/1...score_inl.html

On Fri, 05 Dec 2008 15:00:18 -0500, Tom Francis - SWSports
wrote:

Go get a car loan from a bank with a 720 credit score.

Go ahead - I'll wait.

Might depend on who made the car.

"Wayne.B" wrote in message
...
On Fri, 05 Dec 2008 15:00:18 -0500, Tom Francis - SWSports
wrote:

Go get a car loan from a bank with a 720 credit score.

Go ahead - I'll wait.

Might depend on who made the car.

Hahaha. Quite true. 4 year loan, warranty and union issues, GM goes under
and tranny is fried....not good news.

Good point. Back to the good old days where risk is factored in. The way
it should be.