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What I don’t get is why banks and mortgage companies continued funding jumbo loans, interest-only loans, backloaded loans with massive balloon payments and the like when they could see this coming as well as anyone.
Mortgage originators I understand: they make money by the mortgage, and rarely service more than a fraction of the mortgages they create. But the servicers were just foolish. And now they’ll be stuck trying to offload overpriced properties in a sinking market.
If banks can be this foolish on their own turf, imagine what they’ll do in businesses they don’t understand really well. It’s just one more reason why letting them move into insurance and mutual funds was a really, really bad idea.
Ah c’mon Joe. If anybody with an ARM didn’t refinance to a fixed mortgage (which, apparently, many didn’t) it’s their own damn fault. The Fed has been raising rates and warning of more for two years now, but most people who think they are financial geniuses when they get a good rate, suddenly look for others to blame when they get caught in a credit crunch.
Sean:
You make a good point, and this is part of the business that tends to lag behind because, much like the general public, managers tend to think that the current situ will last forever. However, banks tend to hedge their risk, so while these defaults will hurt, we won’t likely see it go straight to the bottom line. That said, a few failed banks would be bracing.
Daniel, You are making a few assumptions there. You are assuming someone on an interest only loan could actually afford a home at a 6% rate. They probably couldn’t but hoped they would be able to. Same w/ ARMs. A buyer got an arm they could afford at 3% then when it jumped up a few times, they couldn’t afford it. I’m in agreement w/ one thing you said tho..it is definitely their own damn fault. They are idiots for getting in over their heads and trying to keep up w/ the jones’. We’re seeing consistently higher foreclosures here in North of Dallas as well. My mother in law works for a large financial firm, and they refused to do the interest only loan stuff because they knew it was bad news. Maybe this means you and I and Joe can get a mcmansion on the cheap tho!
Actually jim, I thought that I was making the opposite assumptions, e.g. that the low rates were around to stay. Maybe I didn’t make myself clear.
I’m seeing this same thing play out with businesses that tapped floating lines of credit when the Fed Funds rate was close to nada and are now scrambling to refinance.
Oh, and I failed to mention that a lot of these bad loans have probably already been factored (sold). It will be interesting to see what the impact is on GSOs like Fannie Mae and Freddie Mac.
And jim, this is exactly why I have been holding off buying a house. In my neck of the woods, prices are very high (in a sea of low) and I knew that I would just be paying for the market.
The economy is great….for the corporations. They moved their manufacturing offshore, thereby increasing their profits (as well as laying off Americans). The stock-market has responded. Big bucks being made there. And if all you do for a living is invest, you don’t have to pay taxes! As far as the rest of us; we’re fucked!
It’s not like we didn’t see that coming.
What I don’t get is why banks and mortgage companies continued funding jumbo loans, interest-only loans, backloaded loans with massive balloon payments and the like when they could see this coming as well as anyone.
Mortgage originators I understand: they make money by the mortgage, and rarely service more than a fraction of the mortgages they create. But the servicers were just foolish. And now they’ll be stuck trying to offload overpriced properties in a sinking market.
If banks can be this foolish on their own turf, imagine what they’ll do in businesses they don’t understand really well. It’s just one more reason why letting them move into insurance and mutual funds was a really, really bad idea.
Ah c’mon Joe. If anybody with an ARM didn’t refinance to a fixed mortgage (which, apparently, many didn’t) it’s their own damn fault. The Fed has been raising rates and warning of more for two years now, but most people who think they are financial geniuses when they get a good rate, suddenly look for others to blame when they get caught in a credit crunch.
Sean:
You make a good point, and this is part of the business that tends to lag behind because, much like the general public, managers tend to think that the current situ will last forever. However, banks tend to hedge their risk, so while these defaults will hurt, we won’t likely see it go straight to the bottom line. That said, a few failed banks would be bracing.
Daniel, You are making a few assumptions there. You are assuming someone on an interest only loan could actually afford a home at a 6% rate. They probably couldn’t but hoped they would be able to. Same w/ ARMs. A buyer got an arm they could afford at 3% then when it jumped up a few times, they couldn’t afford it. I’m in agreement w/ one thing you said tho..it is definitely their own damn fault. They are idiots for getting in over their heads and trying to keep up w/ the jones’. We’re seeing consistently higher foreclosures here in North of Dallas as well. My mother in law works for a large financial firm, and they refused to do the interest only loan stuff because they knew it was bad news. Maybe this means you and I and Joe can get a mcmansion on the cheap tho!
Actually jim, I thought that I was making the opposite assumptions, e.g. that the low rates were around to stay. Maybe I didn’t make myself clear.
I’m seeing this same thing play out with businesses that tapped floating lines of credit when the Fed Funds rate was close to nada and are now scrambling to refinance.
Oh, and I failed to mention that a lot of these bad loans have probably already been factored (sold). It will be interesting to see what the impact is on GSOs like Fannie Mae and Freddie Mac.
And jim, this is exactly why I have been holding off buying a house. In my neck of the woods, prices are very high (in a sea of low) and I knew that I would just be paying for the market.
The economy is great….for the corporations. They moved their manufacturing offshore, thereby increasing their profits (as well as laying off Americans). The stock-market has responded. Big bucks being made there. And if all you do for a living is invest, you don’t have to pay taxes! As far as the rest of us; we’re fucked!
Check out the economic indicators.
The old adage, “A recession is when you’re out of a job; a depression is when I’m out of a job,” seems to fit.
BTW, kitebro, are you suggesting that we allow drilling in ANWR or in the Rockies? That would bring the corporations back on shore.
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