Exotic loans alive and kicking

[Alex_angel]

I recently spoke with a lender from a major investment firm about mortgage rates. I explained to him the price I am looking at and what the rates would be based on my income and credit score. Now I know for a fact that a 30 year fixed would be anywhere from $3000-$3500 a month. This scam artists starts promoting ARMS, now seriously, after all this crap about resets they are still pumping arms, then goes on about other plans that can get me a payment of about $2200 a month. What? What type of plan is this? He explained and I had no clue what the hell he was talking about, on and on and on he went on about plans that can do this and do that etc… It basically was the crap that started this whole lending fisaco. Now I am not subprime because I have a really high credit score, but still, come one man. I wasn’t born yesterday. Any fool that watches the news or reads the paper knows that these loans will only end up bad. What a schmuck.

[JerseyGrl]

Well, how in heck can anyone afford a home in San Diego without these goofy loans? Isn’t that what kept the party going? What do you suppose will happen if/when lenders require 20% down and fixed rated for any purchase? How many San Diegans have 200 thousands dollars for a downpayment?

I don’t see asking prices coming down in my South Park neighborhood, where the average cottage costs 650,000. Longer days on the market, but eventually somebody pays these exorbitant prices. I doubt they’re using much in the way of downpayment. One of my colleagues just made an offer on a 650, 000 dollar condo (doesn’t even have a garage). They only have about 5 grand to use as a down payment. OF COURSE they will use an adjustable. There’s no other way to afford it!

[JerseyGrl]

Well, how in heck can anyone afford a home in San Diego without these goofy loans? Isn’t that what kept the party going? What do you suppose will happen if/when lenders require 20% down and fixed rated for any purchase? How many San Diegans have 200 thousands dollars for a downpayment?

I don’t see asking prices coming down in my South Park neighborhood, where the average cottage costs 650,000. Longer days on the market, but eventually somebody pays these exorbitant prices. I doubt they’re using much in the way of downpayment. One of my colleagues just made an offer on a 650, 000 dollar condo (doesn’t even have a garage). They only have about 5 grand to use as a down payment. OF COURSE they will use an adjustable. There’s no other way to afford it!

[LA_Renter]

I think there is a difference of a mortgage broker trying to get you into one of these loans and have the loan go through. It sounds like in your case since you have good credit it wouldn’t be a problem. It’s my understanding that the underwriting of these loans are tightening up but I keep hearing the same stories that these products are still available. Can anybody shed some light on how this looks at the street level verses they 2004-06. Are 2/28’s still abundant?

Also, with the constant bad news about these products I think many people (not all) have wised up to the consequences of getting into these mortgages.

[LA_Renter]

I think there is a difference of a mortgage broker trying to get you into one of these loans and have the loan go through. It sounds like in your case since you have good credit it wouldn’t be a problem. It’s my understanding that the underwriting of these loans are tightening up but I keep hearing the same stories that these products are still available. Can anybody shed some light on how this looks at the street level verses they 2004-06. Are 2/28’s still abundant?

Also, with the constant bad news about these products I think many people (not all) have wised up to the consequences of getting into these mortgages.

[Ozzie]

Negative amortization loans have been around for a long time. They are pretty easy to understand. The lender will allow you to pay less than a fully amotized payment for a certain lenth of time as long as they feel you have enough equity in the home (via down payment, etc) and a stable or growing income.

The “exotic” loans that everyone has panned are those made to mostly subprime or to people who had no means to repay the loan once it reset. In most cases, they were 100% LTV so there was no equity to protect the lender. The brokers who pushed them in many cases lied on the credit app about the borrowers income and assets. Dumb business practices by the lenders and criminal behavior by the brokers lead to tons of losses and pain.

As with any investment or purchase, if you don’t understand the terms then don’t buy or invest.

[Ozzie]

Negative amortization loans have been around for a long time. They are pretty easy to understand. The lender will allow you to pay less than a fully amotized payment for a certain lenth of time as long as they feel you have enough equity in the home (via down payment, etc) and a stable or growing income.

The “exotic” loans that everyone has panned are those made to mostly subprime or to people who had no means to repay the loan once it reset. In most cases, they were 100% LTV so there was no equity to protect the lender. The brokers who pushed them in many cases lied on the credit app about the borrowers income and assets. Dumb business practices by the lenders and criminal behavior by the brokers lead to tons of losses and pain.

As with any investment or purchase, if you don’t understand the terms then don’t buy or invest.

[The-Shoveler]

Yea this is why I think it’s going to take a full blown recession before prices drop much in the better area’s.

At the same time I think the Fed-Gov will go to extreme measures to aviod a recession at this point for two main reasons,

1) By 2003 (near bottom of last stock market down turn), Private and public pensions funds were going bankrupt one after another (the Fed can’t afford to bail many more of these out).

2) The economy is seen as a large part of the war on terror.

Translation: The economy will look good on paper, but there will be a large part of the population that will not feel all that good about it.

[The-Shoveler]

Yea this is why I think it’s going to take a full blown recession before prices drop much in the better area’s.

At the same time I think the Fed-Gov will go to extreme measures to aviod a recession at this point for two main reasons,

1) By 2003 (near bottom of last stock market down turn), Private and public pensions funds were going bankrupt one after another (the Fed can’t afford to bail many more of these out).

2) The economy is seen as a large part of the war on terror.

Translation: The economy will look good on paper, but there will be a large part of the population that will not feel all that good about it.

[stop_the_bubble_hype]

Interesting comment NLTSG (that’s a lot of locations by the way!)

Anyway, I was watching CNBC this morning and there was a discussion very similar to what you have written. The guest “experts” stated that even though the economy looks good in the news, most common (low to middle income) Americans confidence is low because they are feeling the effects via gas prices, food costs and mortgage issues. The comment was that basically the gap between the haves and have nots is increasing and the upper middles and wealthy are the only ones not feeling the crunch.

Tax cuts won’t help as many of the haves will continue to make more money invest it and stay on top.

[stop_the_bubble_hype]

Interesting comment NLTSG (that’s a lot of locations by the way!)

Anyway, I was watching CNBC this morning and there was a discussion very similar to what you have written. The guest “experts” stated that even though the economy looks good in the news, most common (low to middle income) Americans confidence is low because they are feeling the effects via gas prices, food costs and mortgage issues. The comment was that basically the gap between the haves and have nots is increasing and the upper middles and wealthy are the only ones not feeling the crunch.

Tax cuts won’t help as many of the haves will continue to make more money invest it and stay on top.

[HLS]

Alex,
You found yourself a real professional there. Pedigree and all. I bet their office and furniture was spectacular.

Stating that you aren’t subprime, do you actually know what subprime is ?

Do you know that sometimes subprime lenders have better rates than prime lenders ?

There are subprime loans that can work out better even for people with 800 scores.
I always check to find the best rates for my clients.

If you informed him that you wanted a 30 YR fixed rate, he should not have been pushing ARMS on you.

Shameless plug, are you still looking for a quote ?

[HLS]

Alex,
You found yourself a real professional there. Pedigree and all. I bet their office and furniture was spectacular.

Stating that you aren’t subprime, do you actually know what subprime is ?

Do you know that sometimes subprime lenders have better rates than prime lenders ?

There are subprime loans that can work out better even for people with 800 scores.
I always check to find the best rates for my clients.

If you informed him that you wanted a 30 YR fixed rate, he should not have been pushing ARMS on you.

Shameless plug, are you still looking for a quote ?

[donaldduckmoore]

Alex, I believe there are still buyers who cannot afford a house but still want to buy one so that they have to use these “so-called” strategies. I don’t blame the buyers. It is the market that pushes them to do that. What I do not understand is why the lenders or whatever they are that have money to lend can still do these tricks. I thought they have already tighten the lending rules. If the Fed or the government does not implement laws but to use guidelines (which have no power) to tighten lending. This will continue to happen. It is the government who does the lousy job to begin with to induce this housing bubble, they are still doing the lousy job. They either don’t want to face the reality or they are afraid to deal with that directly.

[donaldduckmoore]

Alex, I believe there are still buyers who cannot afford a house but still want to buy one so that they have to use these “so-called” strategies. I don’t blame the buyers. It is the market that pushes them to do that. What I do not understand is why the lenders or whatever they are that have money to lend can still do these tricks. I thought they have already tighten the lending rules. If the Fed or the government does not implement laws but to use guidelines (which have no power) to tighten lending. This will continue to happen. It is the government who does the lousy job to begin with to induce this housing bubble, they are still doing the lousy job. They either don’t want to face the reality or they are afraid to deal with that directly.

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