I think though if you look back at both periods you will see a totally different situation. Back in the 30’s bonds were sold to provide refinancing to lower interest and extend the payment period thus reducing payments. These were to people that otherwise had been able to handle the mortgages but due to the economic downturn were coming up short. I don’t think this was true today where many of the borrowers had no chance at all to pay the mortgages, regardless of whether the terms were rewritten. The fraud was that loans were given to people with no income or credit check, then the loans were quickly resold. A good portion of the mortgage holders had no ability at all to support the mortgage. So they couldn’t support the mortgage or sell because the downturn gutted the housing market.
I’m not saying some couldn’t have benefited and for sure some banks profited at the expense of the home owner by forcing them into foreclosure. But when you are looking at a quickly developing calamity on a national scale, you have to act quickly with a big hammer.
A little scary. I do agree though that somehow there needs to be some limit to what private equity groups and maybe even individuals can own. Too often they just buy up corporations in trouble, strip the assets, and resell the bones. The thing to remember though is that the upper 1, 10, 20% is always changing so that the folks that were there last year might not be the same ones this year. Then there are some that just want to spend their money to create chaos so they can reap the benefits.
No doubt about it @bing. There has always been a great potential for playing the market by trashing it but the CDOs to CDS took the game to new heights and the crooks won in the last debacle. What will be the next big scam I wonder.Whatever it is the regulators will totally support it up to and into the crash despite warnings from informed critics and Main St will pay the ultimate cost again.
HOLC didn’t save all or most foreclosees. I didn’t think it would in the '00s. There were a lot of people who bought at the top of the market and could have paid a fair price 2 years later. That’s what the lenders got at best: they booted the current owner, sold at a market price. Sometimes they let houses go to ruin because they weren’t worth the bother. That happened to one house in my neighborhood. An HOLC-similar program could have returned to lenders what they were going to get anyway but kept owners in the home. There were a lot of people who couldn’t have paid any price; no program could help them.
In the 90s and early 2000s the public was hammered from all directions with the notion that real estate was on a never ending rise in value and anyone not in the game would be one of the losers. And the banks offered 110% loan to value with loans written based on unsubstantiated ‘stated’ income with ARMs and in the first 36 months only interest was being paid. How could anyone have missed the growing catastrophe in that scenario? But when criticized for the wreckless lack of control the critics were hammered into submission. So look where we are now and the direction we are travelling and try to find a new heading that can move us to a more equitable and workable situation.
Washington will continue to kick the can down the road because everyone wants to avoid the crash coming on their watch. But whenever it comes it will be on OUR WATCH and WE will pay the bills again while the schemers and scammers rush off with the gold. In the mean time Bloomberg and Cramer are responsible for keeping the bull up and running regardless how insane the lies and so far so good.
And I suspect we’re gearing up for a similar crash with cars. Wasn’t too long ago that anyone taking out a 5 year car loan was considered a fool. Now 8 year loans are common, and the bewilderingly popular giant truck/SUV category often hovers around 50 grand and up, because no one buys the “starts at $39k” base model.
That isn’t going to be sustainable, especially since the non-rich generally still haven’t recovered from the housing crisis. And while I fully agree that anyone who goes into debt for 8 years to buy a $50,000 behemoth to drive to work and back is a moron, so is the bank that’s lending them the money. And I always hold the professional who knows the industry more to blame than the dumb amateur who does not.
The bank? Not necessarily. Many banks make loans, then package them and sell them, making money up front before the crash comes. They might get stuck in the middle of creating another bundle to sell, but they hope to have sold a bunch of loans before they get stuck holding the bag they lose money on. That’s the way it works in real estate, and certainly could work in auto loans. Long auto loans have terms equal to short home loans. Why not sell them? I agree it will cost all of us something in the end. I don’t like the practice. But I expect it to happen soon if it hasn’t started already.
Agree with the 8 year loans on $50k trucks being unsustainable. My dad has plenty of money, no debt, etc. He drives a 2001 F150 and would like a new truck. But he can’t bring himself to part with that kind of cash for just a truck. I can’t see it either. And if you’re spending over $35k anyway, who really wants to buy the base model fleet truck? If this balloon ever bursts, that could be big trouble for the domestic auto manufacturers, I’d think. Big trucks and Suv’s are probably their bread and butter.
As far as who’s more to blame for the crazy loans…I’d have to disagree there a bit. If it’s your money (or debt), you (the guy on the hook) better be responsible for it. I have no doubt the local Ford dealer would let me drive off the lot today in a new King Ranch F250 diesel truck at close to nothing down with a huge payment. And sure I “want” it. But I don’t “need” it. I think that’s the root of the problem. People feel like they deserve the big house or the new truck or the latest iPhone, etc. Whether they can actually afford it or truly need it is another story. A lot of Americans’ wants vs needs meter is out of whack and we want instant gratification (buy now, pay later).
Which is kind of like saying “it’s your liver, you’d better be responsible for it, and therefore you’re more to blame than the doctor if the doctor fails to diagnose your liver cancer.”
While I absolutely agree that people should be responsible with their money, it gets a little murkier when the banker, who is supposed to be the financial expert, is telling them they can afford this loan.
In the old days, you applied to the bank for a loan, and if you couldn’t afford it, the bank said no. These days, the bank bends over backwards to say yes even when they know you can’t afford it. That’s not OK.
Because banks make money off of interest. Right? So they make loans. It’s kinda what they do. I don’t see it being the banks responsibility to do a person’s budget for them. I imagine, theoretically, most (I’d think all) loans banks make are capable of being paid back. In theory. Surely they’re not making loans that the payment is above the person’s monthly income? (I could be wrong). But it’s up to me to know that I can’t live off of 10% of my total income and use 90% of it to pay off a mortgage (or whatever amount the monthly payment is vs my total income). I don’t see it being the lending institution’s responsibility to know I’ll need x% to eat, y% for gas, z% for utilities, etc. That’s on me.
Maybe there should be (or maybe there is for all I know) a cap on how much someone’s monthly payment can be as a percentage of their income. But then people would complain about that, I’d think.
Only if they also get the principal back. Doesn’t do much good to collect $1,000 in interest before they default when you’ve lent out 50 grand. Better hope you can repossess that thing before they declare bankruptcy.
And, back to the doctor analogy, doctors make money off of administering treatment, which means they have a financial incentive to let you get good and sick before they treat anything, so that they can treat you longer and make more money. But any doctor that pulled that would lose his license and probably go to jail.
Banks are there to make money, yes, but there’s a difference between making money and financially screwing people.
You may know more about it than I do. I’d have to see some examples of monthly payments vs monthly income. What should the cap be where they draw the line?
It used to drive me nuts. The last thing the banker would ask is if I could afford it. I guess it was their policy but still we didn’t like borrowing money anyway but then to have the banker sow some doubts was a little unsettling. We shouldn’t though throw all banks and bankers into the same basket though.
3 out of 4 of my friends, acquaintances, co-workers and former co-workers when though a foreclosure during the “mortgage crisis”. In each case it was their own fault but it easy for them to blame the bank.
One example; a married couple bought a small house in the late 1990’s for $100,000. The first thing they did was to have an in ground pool installed “for the kids”. Next the wife needs a new diesel truck to drive the kids around plus at least one other new vehicle.
15 years after buying the house it is foreclosed on, how close did they get to paying off the house? The remaining balance on the mortgage was $245,800.00. How could anyone owe so much on a $100,000 house? During the housing boom real estate values increased rapidly and people refinanced their homes taking money out for luxury items like new trucks, boats and vacations.
And as for me, I do blame the banks, individually and collectively for the situation. Home equity accounts seem to be the most successful tool local banks have found to extract future wealth from current honest, hard working people. Far too many families open those money pits and find it all too convenient to give themselves the big vacation while the kids are young, then buy the boat because it’s a bargain and then when a catastrophe strikes there’s still some equity to fall back on. And then one day the results of the ‘easy money’ come crashing down. Of those whose personal financial situations I am aware of, all of whom are 60+, generosity to children and grandchildren financed with a home equity line of credit is the greatest problem they face. Several have found themselves realizing that they have 15 to 30 year loans to pay off several cars and homes full of furniture and college educations, etc., with their home as equity.
In 1975 we wanted to build a house and it would be our first house and mortgage. Back then the banks were not making home loans. I did talk to one bank that would make a loan but they required 50% down. We didn’t have that but by the following year they were only asking for 20% down at 8.75 interest.
So over the past 30 years something obviously changed in the banking system? What was it? You didn’t lose much money with a 20% down payment and proof of income. I suspect as usual, the do good government had something to do with it and Fannie and Freddie trying to make home ownership universal which was unwise.
I don’t like banks. The less I have to do with a bank, the happier I am. My last encounter was with the bank that held our mortgage. We had about two years to go on our mortgage when I got a call from a bank officer saying that they needed proof that our house was insured. When I told him that I had given the bank the necessary paperwork from the insurance company, he responded that they couldn’t find the papers. I gave him the name of our insurance company and said he could call them. He then, not too politely, that I had to go to my insurance company. I said I would handle it after I taught my last class for the day. I calculated what I owed on the mortgage, went to another institution where I had a money market account, had a draft made out for the amount of the mortgage, and took it to the bank. I went right to the official that called me, presented the check and said “We’re through”.
Almost as much as I dislike banks, I don’t like working on my own car. It takes me at least three times as long as it takes a “real” mechanic. However, I drove used cars and did a lot of my own work because there is no way that I would finance a new vehicle.
Blaming the banks for lending money to folks who get in over their heads is akin to blaming the liquor store owner who sold to an alcoholic who managed to drink himself to death.
Banks make money by originating the mortgage. They then sell it to FNMA or FHLMC or some other loan purchaser. The loan purchaser sells bonds to raise the money to buy mortgages. The originator loses no money on a mortgage it re-sells. The bubble happened because investors accepted misrepresentations of the value of bonds backed by mortgages made to people who couldn’t pay them. None of this would have happened if banks had had to hold the mortgages they issued - of course there’d be a lot fewer mortgages, fewer homeowners.