Correct me if I'm wrong (the current finacial situation)

[chrisb]

"Mr. Dalton, we can rent you this apartment at the rate of $600 per month for the first six months"

"Oh, great!!"

"But then, after six months, your rent goes up to $1,500 per month"

"Oh, well that I can't do.  Sorry"

How hard is that?

Well, of course that's not hard, but that's because you're oversimplifying how the loans work.  Yes, borrower's were told that their interest rate would increase, but they were not told by how much, as the "how much" was an unknown dependent on the change of market indices.

A more accurate scenario would be:

"Mr. Dalton, we can rent you this apartment at the rate of $600 per month for the first six months"

"Oh, great!!"

"But then, after six months, your rent might go up to $700 per month (but between you and me, I see it being more like $650)"

"Oh, well that's not so bad, I can do that."

Some borrower's were not informed of the true risks of these loans, while some borrower's knew the risk and took a gamble.  But all of the lenders knew exactly what they were doing.

Deregulation returned us to a pre-Depression era, and this is where it got us.

[CrashlanderLOL]

I've just bought my second house.  I have GREAT credit and I put down a big down payment.  I could have easily got approved to buy a $800,000 house.  But I could barely manage the payments on the $600,000 house I bought.  Why didn't I buy the one for $800k?  Because I can't make those payments!!!

Good for you.

But we were talking about Subprime lending. That's clearly not your situation.

[Dobbin]

I bought a home during this whole time period, and was offered all manner of non-conventional mortgages to buy MORE home, etc.

There was NO way I was doing anything other than a 30 year fixed with an interest rate that was as low as we could find. We had spent the previous coupla years repairing our credit so we could get a better rate.

The idea of an interest-only loan seemed, even at the time, either like a SPECTACULAR gamble on both the house going up in value at ridiculous rates AND being able to sell/flip it before the hammer got lowered. I simply do not understand why anyone would take an interest only loan on a loan where ALL they could afford was the mortgage on the interest; where once the principle came in, they were unable to pay.

It makes sense if you are, like, a medical student doing your internship, and you KNOW in 3 years, you're going to be making, like, 3 times as much as you are now, and you want to lock in on a price that won't be the same in 3 years, etc.

But apart from that kind of scenario, they don't seem to make sense, other than "you can move in NOW!"

That said, banks and lending institutions are responsible for assessing the  risks of their loans. If they went nuts and gave loans to anyone with a heartbeat, figuring they could just sell the debt the next day anyway, then clearly, that's where the ultimate culpability lies.

[chrisb]

I've just bought my second house.  I have GREAT credit and I put down a big down payment.  I could have easily got approved to buy a $800,000 house.  But I could barely manage the payments on the $600,000 house I bought.  Why didn't I buy the one for $800k?  Because I can't make those payments!!!

People were mislead of the risk of an APR mortgage.  People were told "this is what you can afford, and don't worry about the interest rate going up that much", so even those who did the right thing and took a loan that they could afford, were screwed over by the AMR and the dishonesty of lenders.   See Raikus' comment above.

[JCEFalconi]

they are both at fault, both were reckless with their assets, yet one ended up losing their house and the other ended up fucking up their country's economy. One side can be lacking education, foresight, character, whatever, but economists and people who work in finance have NO excuse. I think I can tell who was more irresponsible.

"Mr. Dalton, we can rent you this apartment at the rate of $600 per month for the first six months"

"Oh, great!!"

"But then, after six months, your rent goes up to $1,500 per month"

"Oh, well that I can't do.  Sorry"

How hard is that?

 I did say both sides were at fault, and to summarize, one side gambled with their family's future and the other with the country's. I think it's pretty clear, and I agree with you and are baffled by the argument that borrowers were surprised businesses and institutions didn't look out for them! That's not really the way civilization works, you can't trust anyone to watch out for you, you have to watch out for yourself, it's your job to not be a fool.

[Luke Erik]

I bought a home during this whole time period, and was offered all manner of non-conventional mortgages to buy MORE home, etc.

There was NO way I was doing anything other than a 30 year fixed with an interest rate that was as low as we could find. We had spent the previous coupla years repairing our credit so we could get a better rate.

The idea of an interest-only loan seemed, even at the time, either like a SPECTACULAR gamble on both the house going up in value at ridiculous rates AND being able to sell/flip it before the hammer got lowered. I simply do not understand why anyone would take an interest only loan on a loan where ALL they could afford was the mortgage on the interest; where once the principle came in, they were unable to pay.

It makes sense if you are, like, a medical student doing your internship, and you KNOW in 3 years, you're going to be making, like, 3 times as much as you are now, and you want to lock in on a price that won't be the same in 3 years, etc.

But apart from that kind of scenario, they don't seem to make sense, other than "you can move in NOW!"

That said, banks and lending institutions are responsible for assessing the  risks of their loans. If they went nuts and gave loans to anyone with a heartbeat, figuring they could just sell the debt the next day anyway, then clearly, that's where the ultimate culpability lies.

A little to add:

-20-30 year loans with fixed rates are exactly what to go for.  Most interest rates aren't bad considering that current inflation is about 2.3% (last time I checked).  Cars, houses, and emergencies aside, I save for what I want, and pay all at once.  That's my excuse for not having a 62" plasma television.  

-Make sure your payments are on the principle.  A lot of people are actually surprised that after they pay off their mortgage, they still don't own their house, their bank does.

-Don't panic.  I couldn't believe all the morons here in NC that freaked out about gas prices and filled up their tanks before Ike hit.  Gas prices go up, gas prices come back down.  It's not that hard to figure out.

-When in doubt, listen to Alan Greenspan.

[sean]

Why would you think you are "supposed to be able to trust" someone selling you something?

It seems to me like a misrepresentation of the truth to suggest that people view bankers in the same vein as used car salesmen.

And I don't just mean that because there is an obvious, fundamental difference between a sale and a loan.

[Steve B]

Why would you think you are "supposed to be able to trust" someone selling you something?

It seems to me like a misrepresentation of the truth to suggest that people view bankers in the same vein as used car salesmen.

And I don't just mean that because there is an obvious, fundamental difference between a sale and a loan.

While I don't necessarily agree with you on the banks, I was thinking more about Mortgage Brokers whom you should trust LESS then a used car salesmen.  Where there is NO difference between a sale and a loan, they are SELLING loans.*

*yes I know the bank shouldn't be approving the loans that they sell, but that's not what we are arguing here.

[sean]

I wouldn't say that they *should* trust mortgage brokers, certainly, but I think that mortgage brokers and bankers are lumped together in the average person's mind, and that people tend to trust them with their money more than they should and that, knowing of that trust, mortgage brokers pushed hard to get legislation passed to allow what has now happened to be legal (something people did not know about unless they were paying very, very close attention to the news).

I know what you mean about selling a loan, I just see a distinction between that -- which is really renting out a large sum of money that you are expecting to get back -- and selling a product.  A guy selling a loan is expecting to get a consistent amount of money back; that's why he's selling the loan.  If he *wanted* to get a bunch of houses, he could just take the money and buy the houses directly, so their end goal is clearly not foreclosure and repossession.  Which is all just to say, I'm not surprised that people would tend to believe the loaner when the loaner says, "You will be able to pay this back, we will make sure of it," because there's no real possible long-term benefit to a loaner to lie about that.

[BrianLynch]

I bought a house recently and it's easy.  Just find one you like and then move your shit in.  It's that easy.  Anyone who says differently is a puss.

[the k man]

Lets not forget all the people who jumped on the realtor bandwagon during the boom...most of them were just out to make a sale as well and didnt care how you were actually going to pay for the house as long as they got their fee.

[Steve B]

Well it seem that no matter what you think of the banks and their  responsibilities or liabilities regarding the matter, it seems everyone here agrees that the borrowers are also at fault (at least a little).  
So how come I haven't heard that even once by the media?  (and I've been following this story pretty closely).  Not even a hint or a mention of the borrowers.

[sean]

Putting aside the obvious answer -- the borrowers are the target audience for media, so they don't want to be criticized -- I would say that it's because it's NOT news that people with bad credit and low income aren't able to pay back their large loans.  that's dog bites man.  It's really just common sense -- if a guy borrows a few bucks from you every week because his paycheck runs out early, and rarely pays it back, and then suddenly says, "Hey, I want to buy a car, lend me a lot of money," a normal person would say no.  That's why nobody sympathizes with the banks, but everybody sympathizes with the borrowers -- because everybody has at least one good friend or family member that they can see getting caught up in this easily, but nobody can imagine the logic behind lending them the money.

man bites dog is "Banks decided they weren't making enough money off of good loans and decided to do a short-term high-risk scam, and then minimize their own risk" or "The government deliberately overturned key regulations to enable the banks to do this legally" (and let's not forget "One of the strongest advocates for this as an economic necessity is McCain's economic advisor").