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Answer Upon - The Real Casualties of Subprime Lending
It's silly, but some people are embarrassed to admit that they don't write winning copy.In fact, my best friend is one of them. Every time she calls me for help with a letter or her web page copy, she apologizes for needing help. She, like many others, seems to think that since she's an intelligent person, she should be able to write great copy.Why? I'm not embarrassed to admit I need her help figuring out debits and credits. I'm also not embarrassed to hire a mechanic for my car or a professional to cut my hair. I didn't study those things and have no talent for them. So what?Unf
Overlooked by lenders was the fact that
We have heard so many times before that death, like taxes, is certain in life. No matter how morbid you might feel about it, death is an inevitable subject one way or another. If, for instance, you have somebody depending on you and you ask yourself this question: "Will that somebody have financial problems if I suddenly die?", you may actually be thinking about getting a personal insurance and have unwittingly based your concern on the sad prospect of passing away prematurely. Since, again, death is certain, you may want to seriously address this concern just the same (if it does cross your mind).
The housing demand was so strong that lenders started to compete for the insatiable mortgage demand by making qualifying very easy. One example was the creation of the "stated income" loan, or the "liar's loan". In the loan application, the borrower only had to "state" his income without showing any proof of that that income. Unfortunately about 60% of borrowers over-stated their income on their loan applications to qualify for their loans. A review of lending practices showed racial disparities in African-American and Hispanic low-income neighborhoods which had 1 ? times as many subprime loans at higher interest rates and closing costs as compared to low-income white neighborhoods.
The lenders planned to compensate for higher default rates by charging higher interest rates and closing costs. But to make payments as low as possible for the borrowers, lenders developed low-initial interest rate loans (teaser rates) or negative amortization (Neg Am) mortgages. With a Neg Am loan, a borrower would actually owe more than he originally borrowed when he went to sell.
The teaser rates combined with adjustable interest rates caused borrowers to be hit with huge mortgage payment increases. Most borrowers couldn't afford huge monthly payment increases and foreclosure rates began to rise. Lenders gave the loans on the assumption that the homeowner would do whatever necessary to make the payments, or the lender would get the property back in foreclosure and re-sell it for a profit in “hot real estate" markets.
Overlooked by lenders was the fact that
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The lenders planned to compensate for higher default rates by charging higher interest rates and closing costs. But to make payments as low as possible for the borrowers, lenders developed low-initial interest rate loans (teaser rates) or negative amortization (Neg Am) mortgages. With a Neg Am loan, a borrower would actually owe more than he originally borrowed when he went to sell.
The teaser rates combined with adjustable interest rates caused borrowers to be hit with huge mortgage payment increases. Most borrowers couldn't afford huge monthly payment increases and foreclosure rates began to rise. Lenders gave the loans on the assumption that the homeowner would do whatever necessary to make the payments, or the lender would get the property back in foreclosure and re-sell it for a profit in “hot real estate" markets.
Overlooked by lenders was the fact that
What's the difference between death and taxes?Death doesn't change every time Congress meets. But taxes certainly did in 1997, and the Taxpayer Relief Act of that year made a dramatic difference in the tax liability of those who sell their own homes. As it stands today, almost no one will owe any federal tax on profit made from the sale of a principal residence (defined by the IRS simply as the place you live most of the time.). To qualify, you must have owned and occupied the house as your main home for at least two of the five years before you sell.And that's about it..It won't m
The lenders planned to compensate for higher default rates by charging higher interest rates and closing costs. But to make payments as low as possible for the borrowers, lenders developed low-initial interest rate loans (teaser rates) or negative amortization (Neg Am) mortgages. With a Neg Am loan, a borrower would actually owe more than he originally borrowed when he went to sell.
The teaser rates combined with adjustable interest rates caused borrowers to be hit with huge mortgage payment increases. Most borrowers couldn't afford huge monthly payment increases and foreclosure rates began to rise. Lenders gave the loans on the assumption that the homeowner would do whatever necessary to make the payments, or the lender would get the property back in foreclosure and re-sell it for a profit in “hot real estate" markets.
Overlooked by lenders was the fact that
This ratio represents how much the stock costs versus how much money the company is making. Because you know much investors are willing to pay for a stock based on its earnings, you can learn how much growth people expect from this stock. Effectively it tells you if the stock is cheap, too expensive, or just about fair value, and therefore whether it is more likely appreciate or depreciate.You should generally look for companies with low P/E ratios. During the dot-com bubble, many companies achieved outrageous P/E ratios because people had wild expectations for the success of these companies and
The teaser rates combined with adjustable interest rates caused borrowers to be hit with huge mortgage payment increases. Most borrowers couldn't afford huge monthly payment increases and foreclosure rates began to rise. Lenders gave the loans on the assumption that the homeowner would do whatever necessary to make the payments, or the lender would get the property back in foreclosure and re-sell it for a profit in “hot real estate" markets.
Overlooked by lenders was the fact that
Once you became unemployed, did your bills begin to suffer? Maybe you were able to continue paying your bills for a month of two. But the third or fourth month, you began getting behind a little bit more. You were late in paying one or two of you bills. You are sure the next month this will not happen. You will be prepared when the bills come.The next month comes along and instead of being behind only on one bill, now you are behind on two bills. Your creditors began calling because this is not your normal pattern. What can you do? Do you ignore the calls out of embarrassment or do you take the
Overlooked by lenders was the fact that real estate investors had become a major factor in the real estate market that had previously been dominated by the “retail buyers" or single family homeowners. The actual statistics went from investors owning about 2% of all single family homes in 1990 to almost 28% in 2006. This huge increase in investor ownership caused the "tail to wag the dog" and sent the real estate market into price advances that exceeded historical stock market gains.
Lenders were not discouraged, and to make loans even more affordable, developed 100% financing loans designed to eliminate "PMI" or Principal Mortgage Insurance by using an 80% first and a 20% second mortgage. This 80/20 program was so successful that it became the standard loan for most new homeowners for an 18 month period in 2003 – 2005. Now the borrower had two mortgages, the first at a traditional interest depending on the borrower's credit rating and a second mortgage with a higher interest rate of 3% to 5% above the first mortgage rate.
We are now seeing huge default rates among 80/20 financings because the borrowers saw an opportunity to refinance their properties, cash out an equity profit without having to sell their homes, and just walk away without making any mortgage payments.
Who are the losers? Unfortunately, anyone with an adjustable rate mortgage who can't convert it to a fixed rate, investors who own mortgaged properties, new homeowners with challenged credit or minimal down payments, the support personnel for the real est
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