Is it just subprime causing the problem?

[Alex_angel]

I keep on reading and hearing about subprime being the major problem right now with real estate, but are they really the problem? In a market like San Diego where the average Single family home is in the mid $600s, even someone with stellar credit and a great job would still barely be able to make the monthly payment. This person would not be considered subprime would they?

There are just too many people out there that think they can make a $5000 a month mortgage work when they take home $7000 after taxes but after bills etc… they barely make the payment. I know personally about 6 people who make six figures, own a home in the range of $700-1 million and struggle month to month to make payments. If I were a betting man, I would assume that at least 1/2 of the forclosures are not subprime but are people with good credit that just got in over their heads. I remember reading that only 10% of the people in San Diego can really afford a home at the current prices. They base this off of using 30% of their salary to make the monthlys. I met with a wells agent a while back who told me that they use to base their loans off of 30% of the persona salary, then increased it to 35, then 40 then 50 and now will approve someone up to 55% of their salary. If you need to use 50% of your salary to make the monthly payments then you are in serious trouble. I just think the media and the realtors want to put the blame on someone and blaming Joe Blow with good credit and a decent pay would be a disaster. They would basically slaughter their client base so they pick on subprime and overuse this term just like sports and steroids. It is sexier to blame people with bad credit than good but in the end there is really only a small percentage of uber rich people in San Diego that can truly afford a home. Middle class and lower are priced out unless they want to buy a condo in escondido.

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

I think Country Wide CEO said yesterday, the defaults are increasing across all mortgages types (Prime, subprime ..
Super delux prime “just kidding on the last one”).

[The-Shoveler]

Nor_LA-Temcu-SD-Guy

I think Country Wide CEO said yesterday, the defaults are increasing across all mortgages types (Prime, subprime ..
Super delux prime “just kidding on the last one”).

[Alex_angel]

I guess the mainsteam media just thinks that subprime and predatory are sexy words and would rather use that when reporting.

[Alex_angel]

I guess the mainsteam media just thinks that subprime and predatory are sexy words and would rather use that when reporting.

[Bugs]

I think the real problem is the poor and non-existent underwriting. I also think that problem extends across the entire spectrum of mortgage products, not just subprime. The fallout is going to manifest itself all across that spectrum, albeit to a lesser degree for those segments involving better borrowers and better properties.

Just as the declining market trends start on the outskirts relative to employment and work their way in, so too will they start with the weakest borrowers in the market and work their way up.

[Bugs]

I think the real problem is the poor and non-existent underwriting. I also think that problem extends across the entire spectrum of mortgage products, not just subprime. The fallout is going to manifest itself all across that spectrum, albeit to a lesser degree for those segments involving better borrowers and better properties.

Just as the declining market trends start on the outskirts relative to employment and work their way in, so too will they start with the weakest borrowers in the market and work their way up.

[hipmatt]

This is a good point Alex. There are many reasons to blame for this insane market, but subprime is the scapegoat that’s taking the blunt of it. I was thinking the same things as I continually watch the media blame subprime for all of the housing markets woes. Most of the problems were created from a lack of lending standards. The standards have been eliminated across the board. There were many people using “creative” financing and it wasn’t considered subprime.

Whats funny, is it is still going on today. Last weekend while perusing threw the Press Enterprise, I noticed 3 large homebuilders that had either creative financing or “sample payments” on their particular developments. All the examples were based on 100% financing, and most included teaser rates, some are still promoting interest only. This was on Lennar’s 2 page spread. They are also still doing stated income on loans as well. Housing will slowly come down, but if there was a mandatory 20% cash down for buying homes again…. you would have at least 50% off of all homes within 6 months.

Some of the other factors:
-A really low fed funds rate for 5 years.
-The popularity of 100% financing and interest only(not always subprime) loans.
-Rampant speculation.
-Fear of getting priced out of the market.
-“I wanna make $100s of $Ks on my home too”
-Sheer stupidity.
-HELOCing to death to either stay afloat, or keep up with Jonses because housing never goes down.

[hipmatt]

This is a good point Alex. There are many reasons to blame for this insane market, but subprime is the scapegoat that’s taking the blunt of it. I was thinking the same things as I continually watch the media blame subprime for all of the housing markets woes. Most of the problems were created from a lack of lending standards. The standards have been eliminated across the board. There were many people using “creative” financing and it wasn’t considered subprime.

Whats funny, is it is still going on today. Last weekend while perusing threw the Press Enterprise, I noticed 3 large homebuilders that had either creative financing or “sample payments” on their particular developments. All the examples were based on 100% financing, and most included teaser rates, some are still promoting interest only. This was on Lennar’s 2 page spread. They are also still doing stated income on loans as well. Housing will slowly come down, but if there was a mandatory 20% cash down for buying homes again…. you would have at least 50% off of all homes within 6 months.

Some of the other factors:
-A really low fed funds rate for 5 years.
-The popularity of 100% financing and interest only(not always subprime) loans.
-Rampant speculation.
-Fear of getting priced out of the market.
-“I wanna make $100s of $Ks on my home too”
-Sheer stupidity.
-HELOCing to death to either stay afloat, or keep up with Jonses because housing never goes down.

[HLS]

Stupid loans to anyone is what fueled the market, and created a bubble. It allowed people who should be tenants to become “homeowners”.

The fact is that 100% financing is no more risky today from an underwriting standpoint than it was 5 years ago. The ONLY difference is that the market is going down, not up.

It was irresponsible of the industry to allow 100% financing with stated income. The underwriters know that most people are lying with a stated income loan. They did then and they do now.

If you finance ANYTHING with 100% loans, you are always going to have a % of defaults. It is the backbone of the credit card industry. They also finance 100% of your purchases, but their cushion is charging 15%-30% interest to offset their losses.

Many people were able to get in and buy a home with a crazy exotic loan, and can afford their payments (for now), so it did help a large group of people establish some equity.

The trade off of lax lending is the bubble it created and the meltdown aftermath, which has only begun.

Another crime was the option arm loan, which is the worst loan ever invented for the borrower, but the most profitable for the lender. It paid the largest commission in the industry, and the mostly unregulated, highly unethical, irresponsible loan folks pushed this loan to the masses, with no conscience, only seeing dollar signs in their eyes of the commissions that they received.

I’m in the lending industry. Most people don’t have a clue how to shop for a loan or understand what their options really are. It’s an industry full of rogues.
Many intelligent people who think that they understand loans, still get screwed in fees or rebates, or thinking that they are getting a “no cost” loan.

I am totally honest with everyone that I deal with. I don’t hide anything from them, and explain their options to them in detail. There are a million different loan programs and nobody can know them all. It’s impossible to guarantee that somebody is getting the lowest rate, they change daily or even intra-day, and ads are misleading.

What borrowers deserve and can get is complete honesty and their options explained to them, so they can make an informed decision, from someone with integrity. There’s a mortgage broker on every corner. An honest one is very hard to find.

Even people in the industry cannot explain underwriting decisions, which not only vary from lender to lender, but can vary with underwriter’s at the same lender.

Most people don’t understand what constitutes a “subprime” borrower…. Someone with a 660 credit score, full doc and strong reserves, but ONE mortgage late payment may have to go subprime.

The problem is widespread. but in general the lax underwriting of subprime loans can and will spill over to the prime market. The bubble has burst in certain geographic markets and will continue to lead the bad news.

Some people are living way beyond their means, and will sadly milk their savings and retirement accounts to try and save their home. I do not think that it is going to work, and will lead to financial ruin.

There are plenty of people that have plenty of equity, with homes worth 2x-5x what they paid. Other than a drop of their paper profits and net worth, they are fine and stable.
They aren’t looking to move.

Probabaly less than 10% of homes will trade hands, but will get 90% of the attention. The foreclosures, the short sales etc.

Understanding their loan and getting ethical advice would have saved many people the pain and suffering that they are experiencing today.

[HLS]

Stupid loans to anyone is what fueled the market, and created a bubble. It allowed people who should be tenants to become “homeowners”.

The fact is that 100% financing is no more risky today from an underwriting standpoint than it was 5 years ago. The ONLY difference is that the market is going down, not up.

It was irresponsible of the industry to allow 100% financing with stated income. The underwriters know that most people are lying with a stated income loan. They did then and they do now.

If you finance ANYTHING with 100% loans, you are always going to have a % of defaults. It is the backbone of the credit card industry. They also finance 100% of your purchases, but their cushion is charging 15%-30% interest to offset their losses.

Many people were able to get in and buy a home with a crazy exotic loan, and can afford their payments (for now), so it did help a large group of people establish some equity.

The trade off of lax lending is the bubble it created and the meltdown aftermath, which has only begun.

Another crime was the option arm loan, which is the worst loan ever invented for the borrower, but the most profitable for the lender. It paid the largest commission in the industry, and the mostly unregulated, highly unethical, irresponsible loan folks pushed this loan to the masses, with no conscience, only seeing dollar signs in their eyes of the commissions that they received.

I’m in the lending industry. Most people don’t have a clue how to shop for a loan or understand what their options really are. It’s an industry full of rogues.
Many intelligent people who think that they understand loans, still get screwed in fees or rebates, or thinking that they are getting a “no cost” loan.

I am totally honest with everyone that I deal with. I don’t hide anything from them, and explain their options to them in detail. There are a million different loan programs and nobody can know them all. It’s impossible to guarantee that somebody is getting the lowest rate, they change daily or even intra-day, and ads are misleading.

What borrowers deserve and can get is complete honesty and their options explained to them, so they can make an informed decision, from someone with integrity. There’s a mortgage broker on every corner. An honest one is very hard to find.

Even people in the industry cannot explain underwriting decisions, which not only vary from lender to lender, but can vary with underwriter’s at the same lender.

Most people don’t understand what constitutes a “subprime” borrower…. Someone with a 660 credit score, full doc and strong reserves, but ONE mortgage late payment may have to go subprime.

The problem is widespread. but in general the lax underwriting of subprime loans can and will spill over to the prime market. The bubble has burst in certain geographic markets and will continue to lead the bad news.

Some people are living way beyond their means, and will sadly milk their savings and retirement accounts to try and save their home. I do not think that it is going to work, and will lead to financial ruin.

There are plenty of people that have plenty of equity, with homes worth 2x-5x what they paid. Other than a drop of their paper profits and net worth, they are fine and stable.
They aren’t looking to move.

Probabaly less than 10% of homes will trade hands, but will get 90% of the attention. The foreclosures, the short sales etc.

Understanding their loan and getting ethical advice would have saved many people the pain and suffering that they are experiencing today.

[PerryChase]

HLS, i agree with you.

But the homeowners who don’t and won’t sell don’t make the market. Who cares about them?

It’s the market that we care about and it should get 100% attention. Sellers and buyers will create the new values for everyone.

[PerryChase]

HLS, i agree with you.

But the homeowners who don’t and won’t sell don’t make the market. Who cares about them?

It’s the market that we care about and it should get 100% attention. Sellers and buyers will create the new values for everyone.

[gn]

I know personally about 6 people who make six figures, own a home in the range of $700-1 million and struggle month to month to make payments. If I were a betting man, I would assume that at least 1/2 of the forclosures are not subprime but are people with good credit that just got in over their heads.

These people have loans that fall into a category called Alt-A.

It is sexier to blame people with bad credit …

The subprime loans are the first ones to "roll over" (i.e. blow up) b/c they are the weakest links. Also, sub-prime borrowers are the "poster child" of what's wrong with real estate. Therefore, it’s easier to blame them.

There is currently evidence that the "contagion" is working its way to the Alt-A loans.

 

[gn]

I know personally about 6 people who make six figures, own a home in the range of $700-1 million and struggle month to month to make payments. If I were a betting man, I would assume that at least 1/2 of the forclosures are not subprime but are people with good credit that just got in over their heads.

These people have loans that fall into a category called Alt-A.

It is sexier to blame people with bad credit …

The subprime loans are the first ones to "roll over" (i.e. blow up) b/c they are the weakest links. Also, sub-prime borrowers are the "poster child" of what's wrong with real estate. Therefore, it’s easier to blame them.

There is currently evidence that the "contagion" is working its way to the Alt-A loans.

 

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