[quote=eavesdropper]BG, agree with you completely, and admire your diligence in mapping out the byzantine details of the “boom/bust”. This was a massive meltdown, of enormous breadth, depth and complexity. There were so many players, some with major causal roles, and some that were responsible by failing to act; and there was a multitude of contributing actions and factors. . . . [/quote]
eavesdropper, the biggest contributing culprit I see to this mess is NOT talking heads or congressional members attempting to tunnel themselves through brown paper with a flashlight but (no disrespect here to Pigg mortgage brokers) yield-spread premiums. I do not believe in them. This “hidden-to-the-consumer back-room payment” by CW and other huge lenders ENCOURAGED independent mortgage brokers to push HIGH INTEREST loans with built-in EXPLODING devices in them to unsuspecting, unsophisticated borrowers, at the expense of more reasonable loan products or just rejecting the applicant outright. These mortgage brokers WERE PAID HANDSOMELY by lenders for these loans upon origination (on both the front and back ends), ALL THE WHILE KNOWING what effect the loan would eventually have on the borrower. From borrowers’ documents I have personally examined, their average closing costs ranged from 8%-20% of the loan amount. The 2 – 6 pts. upon origination that these “mortgage brokers” pocketed did NOT INCLUDE any additional “cash-out” of the applicant’s property that they were able to seduce out of them OR the yield spread premium they later collected from the lender.
In the “large thrift employee mortgage officer” model I previously discussed, these employees didn’t have any overhead. They came to work every morning to the bank, where they were provided a cublicle and receptionist. They worked on salary and benefits + maybe $200-$300 bonus for originating say a one-yr. T-bill product (or whatever the flavor of the month was at the time). They made their living on doing volume lending and small monthly and larger end-of-year bonuses based upon volume and customer satisfaction surveys. Sadly, many banks do not want to pay salary and benefits to this function anymore and farm it out to “independent contractors.”
Only very recently has the amount of YSP’s (paid to a mtg. broker) had to be disclosed to the borrower.
[quote=eavesdropper]. . . So many of the banks were left with the “kids” as customers.
My stepdaughter and her boyfriend have been approved to purchase a 2 BR, 2 BA home in a depressed semi-rural area. House is a foreclosure, and recently had its price lowered to $225K. I love my daughter, but she and her BF have no business buying a home, and no resources to keep it. She’s 22 years old, and is currently working high-end retail (5 mos on job), and her BF (28) works a minimum wage job in a mall kiosk (3 mos). She’s entitled to financial assistance with the down payment, with the closing costs, and with the mortgage rate (I swear, I’m waiting for them to tell her that there’s a government program that will pay her a stipend for buying a house!). Even with all that, I truly worry that they will lose this house inside of two years. Not only will that be a bad experience for her, I fail to see how this type of government-funded home buying activity is helping the economy. Maybe I’m just shortsighted.[/quote]
eavesdropper, maybe you can run the comps in the
“depressed rural area” that your stepdaughter is wanting to make an offer on and present it to her, showing that $225K (or thereabouts) is too much $$ to offer, emphasizing all the work that needs to be done to the property to make it livable. Try to see if you can talk to her about what it’s like to feel trapped due to being overmortgaged and how that will take away her future choices in life when/if her credit is affected in the future . . . anything to get her and the boyfriend to rethink purchasing right now.
Based on your post, I agree that this couple is too financially unstable to deal with the commitment of a mortgage right now. An unexpected pregnancy could completely blow them out of the water and cause them to go on public assistance.
