Dreams Of Noise

Interesting read, but he lost me at The press has swallowed Wall Street’s line that millions of US families are about to lose their homes because they bought homes they couldn’t afford or took loans too big for their wallets. Ba-LON-ey. That’s blaming the victim.

People who want to blame one side entirely are blind to their own politics. While the banks are partially at fault, too many people in this country do borrow more and more money and spend more than they make. That is their fault and when it comes home to kick them in the ass .. well ... stupid is supposed to be painful. For both the banks and the borrowers. Unfortunately they're both going to be bailed out with my money, your money, and the money of everyone else who was smart enough not to borrow too much. I hear now that people are cashing in their 401K's to make ends meet. How much you want to bet it's not to pay their mortgage but to maintain their "lifestyle?"

Self control is a problem in this country (he says as he looks down at his oversized waistline). Hell, my household income was cut in half recently when it was cut to a single income. Did I lose my house? Did I panic? No. Beth and I had our finances structured so that if one of us came home and said "Uh .. I just lost my job" it would be a matter of "Aw, that sucks. No eating out for a while" instead of "Ohcrapohcrapohcrap! How are we gonna pay the mortgage and keep the lights on?" We qualified for about triple the house we ended up buying. Oddly enough we weren't stupid enough to go for one that expensive. In short, we didn't manage it by being rich, we managed it by not spending more than we could afford.

As for Spitzer, meh. Personally I think prostitution should be legalized (along with many other things), but I don't have a lot of respect for guys who run around on their wives. If you can't live monogamously then don't make the promise. And no, I don't he was the victim of some conspiracy, anymore than I think Larry Craig was a conspiracy. He's a politician which means he gets watched more closely than the average guy. If he doesn't realize that then he deserves what he gets.

Damn I woke up grumpy. I hate having to get up and go to work on Sunday. Stupid server maintenance.

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Small problem.

I was in the mortgage industry, remember? And not selling -- I was working on the documents for loans covering basically half the country, almost every state east of the Mississippi. Large numbers especially in Michigan, Illinois, Indiana, Missouri, Ohio, Kentucky, Tennessee, Florida, Georgia. Decent amount of New England and the East Coast. Our company saw exactly what kind of loans were being sold. And they were insane. We used to jokingly say "Whew! Thank goodness!" when a straightforward fixed-rate loan came in.

Yeah, more people should've had their bullshit detectors up and running... but there was an entire industry, along with the feel-good news reports about how just gosh wow gangbusters great everything was, telling them that [a] other people had it better than them and [b] they could get it too. The emphasis was on selling loans, with no hint of the perils of them.

I used to do anti-redlining reports for the bank I worked at. All they really checked was whether low-income (read: African-American) neighborhoods were given the same approximate number of loan applications as other neighborhoods. But the ability to repay those loans wasn't checked. That was supposed to be taken care of in the application process, but it was a one-size-fits-all hard number. If, according to their criteria, you looked like you could repay the loan, you got the loan. Which makes sense on one level, but doesn't account for the vast range of new products which started cropping up about ten years ago.

Seriously. Who wants a balloon loan? Five or seven or ten years of regular payments, and then the rest of the loan is due now.

Or a two-year ARM. The first 24 payments are fixed, and then it can start going up. Never seems to go down....

For that matter, ARM loans which start at the minimum rate, so they can't go down.

These are not "smart" loans. These are inclusive loans, products designed to provide technicalities allowing people who really shouldn't be able to get the loan to do so... or, more precisely, allowing lenders to justify giving people those loans. Because, hey. Now the risks are on them.

And they knew the risks. Except they really didn't. Because being told the risks might make them not take the loans.

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I didn't say the banks are blameless. I just don't agree with people who want to lump all the blame on one side or the other. Whether it be people who want to blame it all on the borrowers or the lenders, it's a mutual cluster****.

Don't misunderstand me. The lenders are culpable. But I don't care what they tell you, if you borrow that much money without reading and at least basically understanding what you're signing and what you're getting yourself into then you're at fault too.

And we're going to pay for it. It's coming home to roost in many ways. Look at news stories about prices. "Gosh," they exclaim breathily, "Everything's going up! Wheat futures are up. Gold is up. Oil is up. The Euro is up. Everything's going up, up, up!" What a splendid display of things being relative to the viewpoint of the observer: Standing on the deck of the U.S.S. Dollar and exclaiming "Captain! Look! Sea level is going up!"

It's about to get a lot worse too. A friend of mine who owns a farm (yes, I know, he lives in the south and he knows a farmer, ha ha stereotype joke time, that's okay - he's fannish and you know him too though you may not know he owns a farm) is telling me that the price of fertilizer and hay, two of the basic staples he needs to stay in business, are shooting through the roof. He's busily figuring out which fields he can get away without fertilizing this year without affecting them too badly.

And yes, I know you worked in the mortgage industry and do defer to your inside knowledge of how it works. I believe you about the fixed rate mortgage. I sometimes wonder if we were in the minority when we insisted on a fixed rate 15 year mortgage with a payment that was less than 25% of our take home pay.

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You damn sure were. And you're not wrong -- I'm not trying to absolve borrowers of blame. But, honestly, many of them were not equipped to make reasonable decisions about their loans... and the lenders, determined to sell, didn't help much. Besides, it all looked so rosy, no really. Lots of credit, lots of ways to get it. What could possibly go wrong...?

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Well, you can be sure that some Sarbanes-Oxleyesque legislation aimed at the mortgage industry will be forthcoming. If nothing else they'll do it just to show that they're Doing Something About This.

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kestrels-nest.livejournal.com

I sometimes wonder if we were in the minority when we insisted on a fixed rate 15 year mortgage with a payment that was less than 25% of our take home pay.

Absolutely you were. My side of Tom's experience was in doing consumer bankruptcies after one of those blew up. Time and time again, I asked "Why did you take that mortgage?" to be told "We weren't given any other option" or "We didn't know anything about mortgages and our agent insisted this was best" or even "We asked for one and were told they weren't done that way anymore." These were reasonably well educated middle class folks, with incomes that should certainly have supported a standard mortgage and little to no prior credit problems. Like most people, they found the calculations for mortgages too arcane to follow and let their agent calculate what they could "qualify" for.

I think the only reason my husband and I didn't run into the same issues was that we not only walked in saying "We are going to do it this way, and we will borrow "x" and no more" (a figure that was roughly half what they were trying to tell us we could afford), and we were both attorneys and everyone involved knew it, and knew we would spot the poison on the shiny apple.

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It sounds like you and your husband did the same thing as my wife and I. While we had no experience with mortgages the way you and Tom do, we did a little reading and little asking around. I would still be considered rather ignorant on the subject compared to you or Tom, but at we did make an attempt to learn a bit before we spent that much money.

In the end, with the restrictions we set, we ended up in what is considered by most to be a starter home. With no kids it's a perfectly nice house for a couple.

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aylinn.livejournal.com

Chiming in on the "you were smart & so was I" crowd.

They started building a new development near us. I saw the plot and knew which one I wanted. I asked the developer how much it would be for that specific house and what I needed to put down to avoid PMI. I then sat down with my folks (who had LAUGHED at their mortgage banker all through the '70's & 80's begging them to re-fi) and said "Okay. I know I want fixed rate & as low a rate as possible. is that right?" they concurred. I worked out all the costs at what arcane maths I knew, including expense & furniture and added an extra 10 grand. My parents provided that money to me as my share of my grandfather's estate.

so when my section of the development opened up, my husband and I were there on that day to sign the papers. (there was competition for "our house") We plunked down a downpayment of 20% of sale price and insisted on a 30 year fixed no points mortgage. we ended up with a quoted interest rate of 8% instead of the 6 or 7% one because we were so determined on what we wanted.

The lenders STILL screwed us over. after 9 months to build, when we went to closing, all of a sudden we had to pay 2 points (which we found out about AT THE TABLE) to hold onto our fixed rate mortgage. Hence we dropped under that magic 20% downpayment to avoid PMI. SO that was an extra monthly cost on us.
and did I mention that the mortgage got sold within 30 days of closing?

(oh, they'd have re-negotiated the rate to remove the points. which would have taken 3 weeks. and we would have lost our house to those other folks who had re-appeared after losing out to us 9 months earlier.)

Yeah, no love lost for mortgage companies over here. I'm just bloody glad that we didn't get sold to countrywide but got a reputable firm like chase.

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dan-ad-nauseam.livejournal.com

That sounds like fraud, or at least a possible violation of the consumer protection statutes. And there are strong indications that steering to disadvantageous loans was the norm.

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baphnedia.livejournal.com

When uttering the term 'disadvantageous' one must consider who gets the advantage.

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dan-ad-nauseam.livejournal.com

I mean less advantageous to the borrower than possible under the circumstances.

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starcat-jewel.livejournal.com

Datapoint: it didn't matter how much I "insisted" on a fixed-rate mortgage, there was simply not one to be had except at usurious rates. The best deal I could get on that condo was an ARM with a 1% cap on the rate-change. Yes, it still went up every year, but at least it went up about commensurately with our income.

It's all well and good to talk about people making poor choices, but sometimes the better choices just aren't there to be made at all.

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tropism.livejournal.com

Technically, he was caught by the IRS. This is the incredibly stupidity of Spitzer:

When you transfer, deposit, etc amounts of more than $9.999.99 at a bank, they're supposed to fill out some papers to report the transaction and file these with the IRS. Spitzer made a series of transfers of less than this amount to get around the reporting law. Then he freaked out, went to the bank, and asked if there was any way to remove his name from the transactions. This caused the bank to look into it, decide the transactions where related, were of sufficient amount, and they reported it to the IRS.

Seriously, I can't help but think that the man had to be literally out of his mind -- either high or clinically depressed or something to act like such a retard when he damned well knew better.

If this had -just- been prostitution, I wouldn't care as much, and I think he might've managed to save his career. But, no, he was so egregiously stupid that he's gonna get punished for it.

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This is why so many people were shouting "conspiracy," because given Spitzer's professional background, how could he be so stupid to do it that way? Also considering the people he's been prosecuting, and the politicians those people have bought, it's not hard to imagine them arranging something like this to get Spitzer out of office.

However, people _can_ be that stupid! History is full of examples of big time players who's egos are so over-inflated they pull stunts like this and make the most glaring mistakes that even a first time amateur wouldn't do.

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No, Spitzer or his people never said anything about conspiracies or entrapment or such like. Other people did (bloggers, conspiracy fans, watchdogs of political malfeasance, etc.), or at least raised the possibility due to the superficial aspects. And you've got to admit, according to the initial news reports it did seem a little suspicious that someone who spent his career prosecuting people would get caught doing the exact same thing. But as the story developed and more details emerged the conspiracy advocates became very quiet on the matter ;-)

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Edited Date: 2008-03-18 05:23 am (UTC)

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That goes without saying. Just compare this story with _any_ republican scandal of the last year and you can't escape the desperate tones the mainstream media is using to urge people to believe that this is the world's biggest sex scandal of all time. And try to count the number of times they work in the word "Democrat," you'd think his name was hyphenated.

On the plus side of things, it seems people are getting tired of this, especially after the mainstream news media tried to downplay the numerous sex and money scandals of the republicans. I've heard more than a few people comment that the Larry Craig story barely got a mention in "headline news" but Spitzer is all they seem able to talk about. There will come a time when people will get fed up with it all (like they have with the music recording industry, I know people who two years ago would never have even thought about downloading a song, now they do it regularly just for spite). I don't know when, or how it will shape up, but there's definitely a rebellious spirit growing over how the news is handled.

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tropism.livejournal.com

As for Spitzer, meh. Personally I think prostitution should be legalized (along with many other things)

You know, the prostitution doesn't bother me one bit. It's his sheer idiocy of using a shell corporation and moving money around trying to hide it when he goddamned well should have fucking known better.

If he'd just done cash transactions he'd've been in a lot less trouble.

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If he'd just done cash transactions he'd've been in a lot less trouble.

No, if he'd just not cheated on his wife he'd have been in a lot less trouble. I'll say it again: if you can't limit yourself to a monogamous relationship then don't make the promise. It's that simple.

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baphnedia.livejournal.com

I need to make a point on this; there are other cultures out there that are polygamous in nature (as well as andregenous - or whatever it is where one female can have many males).

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Of course there are. I have no problem with that. If that's the agreement you have with your spouse that's fine. Somehow I doubt that's the case here.

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jss

I think you want "polyandrous," multiple husbands/male partners.

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If love is a many splendored thing, then why do so many people make it out to be only black and white?

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jss

It could be any or all of the following:
(1) Rule number one: People are stooopidd(tm).
(2) Religious brainwashing.
(3) The conditional at the beginning of the sentence doesn't hold.

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bigbumble.livejournal.com

Bring back the 90% tax bracket.

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lemmozine.livejournal.com

Who was it said "The love of money is the root of all evil. A man needs roots."

My opinion: anyone goes to buy or sell anything and doesn't expect to be conned, to some degree, is just plain stupid and deserves what they get. The larger the dollar amount, the bigger the con. Some cons are legal, some are illegal, but they are all cons. Profit is a con, and our economy is based on profit. Does this mean our government is conning the citizens and should be prosecuted and imprisoned? Probably.

Unfortunately, our government is in charge of the laws, and the prisons. Crafty of them.

One of my favorite songs (after living in NYC for a time when I was in my 20s) is Larry Johnson's recording of "Pick Poor Robin Clean"

You got to pick poor robin clean, pick poor robin clean
Picked his head, picked his feet
Would've picked his body but it wasn't fit to eat
You got to pick poor robin clean, pick poor robin clean
And I'm satisfied with my family

What an excellent portrait of capitalism at its finest!

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capplor.livejournal.com

But the first TWO home loans, I didn't really look at the paper, and just signed where they told me to sign because that was how I'd get my home. Of those two purchases, I sold the second at a slight loss, and STILL can't sell the first, though I did manage to refinance it at a lower, and fixed rate. (And then the assessed value for taxes went sky high because it's not in CA, and it's STILL unsellable.)

Later, having learned from experience, I turned down a loan with bad terms, and made sure I understood what the papers were when I signed the next refinance.

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ericthemage.livejournal.com

I'm thinking that the bank industry wouldn't have made so many risky loans if they knew the government wouldn't bail them out. When people argue against welfare, many do so because they believe people tend not to be so careful with their decisions if they know the government is always there to bail them out. The same applies here, with corporate welfare.

This is why I'm against a lot of rules that on the surface appear to help the consumer, and yet really only help big business. This bail out will be spun as saving jobs, but the core reason is to protect executive assets.

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redaxe.livejournal.com

It's going to get worse before it gets better. See, for example, the Bear Stearns bailout; it's highly likely that there will be other investment banks needing the same sort of assistance. (I can't speculate on which, despite that I really don't have any information on them; I work in the industry in a position where I might well have seen something and not noted it consciously.)

Note that the Fed is damned if they do, and damned if they don't, in a case like Bear Stearns. If they bail it out, it's expensive, leads to the so-called "moral hazard" mentioned at the Bloomberg story, and still doesn't address the other side of the coin, which is the extent to which borrowers are and should be responsible. On the other hand, if they don't bail it out, it's a good bet that thousands of jobs will be lost (either when BS folds or gets bought for pennies on the dollar), which, while not now unusual (thanks, Preznit Chimpy!) doesn't help an economic recovery.

In short, the whole mess sucks. (And sucks for me, personally; I've been slowly rebuilding my credit for some years and am finally in the low-middle 600s. Which now isn't going to be good enough for a mortgage, dammit.)

Ah, well. January 2009. Eyes on the prize.

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bayushisan.livejournal.com

I'm in a bit of a quandry over the whole mortgage thing. One the one hand I do think that there were people who were taken advantage of, people who just wanted a better life for themselves and their families. There are also some honest home loan lenders who are just as floored as their clients and are in the uneviable position of possiblly having to forclose on someone's home.

On the other hand there are people who were trying to beat the system and got hosed with everyone else. As well as some lenders who were less than honest about the nature of the loans they were trying to sell.

I guess it comes down to who really deserves the help. Though to be honest I'm not sure what we can do at this point.

Am I wrong here Tom?

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No, you're not wrong. As I pointed out above, a lot of loan officers are under enormous pressure to sell sell sell. That's how brokerage firms make their money -- they set up a mortgage, then sell it to one of the big lenders. And sometimes -- I suspect a lot of times -- they sold people way more house than they could really afford if anything went wrong. The tricky part of that particular aspect is that telling people how likely it was that something could go wrong, and how bad it could get how quickly, would get in the way of the sale.

There also were indeed people gaming the system. Sometimes it was by "flipping (http://en.wikipedia.org/wiki/Flipping)", which is one of those get-rich-quick schemes that just looks ugly when you examine it for more than fifteen seconds. I presume there are many similar schemes out there. I saw some people buying seven or eight investment properties at the same time. I also saw, more than a few times, people refinance their homes multiple times, trying to get the absolute best deal. One person did it within six weeks of the previous one.

And some people were careless. They thought they could just scrape by and make the current payments and that would be that. There is some blame to be laid at the feet of the victims, no question, but I don't think necessarily because they were any greedier than you'd expect after fifty years of having the American Dream shoved down our throats on TV.

My own solution would be pretty simple, really: If you've got a loan that isn't already boring fixed-rate, freeze the rate at one percentage point above whatever the start rate was, make it a straightforward fixed rate loan from that point, and give people two years to catch up. The borrowers do pay a penalty for going subprime, the banks still get their money but don't get a government bailout. If there's a terrible flaw with that, I'd seriously love to hear it.

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surakofb5.livejournal.com

If there's a terrible flaw with that, I'd seriously love to hear it.

I don't know if it's a terrible flaw, but there is one counter-argument that's been mentioned on Marketplace on NPR, which is center to slightly left as far as business news goes. Most of these mortgages are repackaged, securitized and sold off to investors, who bought the mortgages based on the interest rates in the original loan papers. Fixing the interest rates drops the value of these investments, possibly below what the investor paid.

On the other hand, getting a partial payment is better than getting nothing if the borrower defaults. And a lot of people think the investors deserve to share in some of the losses, especially given that securitized mortgages are very difficult to evaluate for risk.

Of course, as one Marketplace commentator pointed out, the people who deserve a big chunk of the blame but aren't sharing in the losses are the investment rating agencies, who aren't taking any kind of financial hit even though they gave these mortgage-backed securities far higher ratings than they deserved.

Personally, I like the idea of fixing the rates for a few years. I think Congress or a federal agency already put such a law into effect, or at least proposed it. But the entire credit market is such a mess right now that it may not help.

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nightmarewriter.livejournal.com

Actually John Aravosis at Americablog has been complaining about this aspect of what Atrios calls 'the big Sh!tpile" for months. Whatever else you think about him, he highlighted this problem.

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Yep. Lots of bloggers have been on it, and I check AmericaBlog regularly; I just happened to catch this particular link from C&L this morning.

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bosswriter.livejournal.com

I would like to add my $.02 on why so many people end up with these mortgages or other types of bad contracts; people are not taught how to read these documents and what to look for.

Occasionally there is a news item or something about this but unless someone teaches you how are you to know? Common sense can only take you so far, and let's face it, common sense isn't.

Add to that the fact that if you dare to read a contract, the banker/broker/agent/salesmen looks at you like an appendage just sprouted from your forehead. They want you to sign quickly and get out before you realize what you did.

I worked as a bookkeepper at an auto dealer in the early 80's and these guys were pro's at sliding document after document under the waiting pen of the buyer who just signed away with infantile trust.

I think that everyone who buys a home should have to take a seminar about mortgages and the like. This is the biggest investment and financial commitment most people make and to jump in uneducated is suicide.

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Absolutely. That's why plain-English contracts should be the law, and why reading contracts (with specific seminars on buying a car, buying a home, getting credit cards, and getting or not getting insurance for all three) should be taught in every damn high school.

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dan-ad-nauseam.livejournal.com

Plain English, unfortunately, is impracticable. One of my profs related the story of how the Arizona courts managed to manufacture a distinction betweem "first lien" and "actual first lien," which meant that henceforth, all lenders in Arizona who wanted an enforceable first lien had to use the "actual first lien" language to tell a court that was what they meant.

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