[ucodegen]

I do think that the existing CDO holders want to make the liabilities of the CDO/MBS packages look minimal. To that extent, this interest rate freeze may do that. The problem is that the corner of the rock has been picked up.. looked under.. and man is it ugly. I don’t think this can be so easily painted over. As an investor, I wouldn’t want to be locked into a 7% yielding investment with a 50% chance of losing 20% of my principle on a 5 year span. I would rather take the 20% right now, and find a better place to put the money.

On the other side of the coin, the freeze will tend to hold people within a rapidly devaluing piece of property. If they are not already underwater, they will be in 5 years (unless the Bernanke flush inflates everything else).

What is really important are rules changes for mortgage brokers and real estate agents, establishing their true fiduciary responsibility and with true repercussions on violations.. rules that are much along the lines of Series 3, and Series 7 licenses for stock brokers. A mortgage broker is not required to find you the best mortgage, so they serve themselves and the mortgage companies. They will present the most expensive mortgage they thing you can afford and that you would go for. Same story with the buyers broker and the ‘hidden bid’ trick.

[ucodegen]

I do think that the existing CDO holders want to make the liabilities of the CDO/MBS packages look minimal. To that extent, this interest rate freeze may do that. The problem is that the corner of the rock has been picked up.. looked under.. and man is it ugly. I don’t think this can be so easily painted over. As an investor, I wouldn’t want to be locked into a 7% yielding investment with a 50% chance of losing 20% of my principle on a 5 year span. I would rather take the 20% right now, and find a better place to put the money.

On the other side of the coin, the freeze will tend to hold people within a rapidly devaluing piece of property. If they are not already underwater, they will be in 5 years (unless the Bernanke flush inflates everything else).

What is really important are rules changes for mortgage brokers and real estate agents, establishing their true fiduciary responsibility and with true repercussions on violations.. rules that are much along the lines of Series 3, and Series 7 licenses for stock brokers. A mortgage broker is not required to find you the best mortgage, so they serve themselves and the mortgage companies. They will present the most expensive mortgage they thing you can afford and that you would go for. Same story with the buyers broker and the ‘hidden bid’ trick.

[ucodegen]

I do think that the existing CDO holders want to make the liabilities of the CDO/MBS packages look minimal. To that extent, this interest rate freeze may do that. The problem is that the corner of the rock has been picked up.. looked under.. and man is it ugly. I don’t think this can be so easily painted over. As an investor, I wouldn’t want to be locked into a 7% yielding investment with a 50% chance of losing 20% of my principle on a 5 year span. I would rather take the 20% right now, and find a better place to put the money.

On the other side of the coin, the freeze will tend to hold people within a rapidly devaluing piece of property. If they are not already underwater, they will be in 5 years (unless the Bernanke flush inflates everything else).

What is really important are rules changes for mortgage brokers and real estate agents, establishing their true fiduciary responsibility and with true repercussions on violations.. rules that are much along the lines of Series 3, and Series 7 licenses for stock brokers. A mortgage broker is not required to find you the best mortgage, so they serve themselves and the mortgage companies. They will present the most expensive mortgage they thing you can afford and that you would go for. Same story with the buyers broker and the ‘hidden bid’ trick.

[ucodegen]

Two things occur.

1) The originator can be forced to buy back the loan package (once it is securitized, it is no longer handled as individual loans at the bank/investment level). This occurs if the originator or securitizing bank has misstated the inherent risk on the package.

2) If the mis-statement of the income is intentional, it is a crime. See the part near where the signature is on a mortgage application. I also point you to 18 USC 1011 (Title 18, Part 1, Chapter 47, section 1011), 18 USC 1014 (Title 18, Part 1, Chapter 47, 1014). The real thing that has to happen is that the injured parties (banks/investors/trustee) has to file the complaint. The only thing is that the way the mortgage packages get sliced up.. it is hard to tell… and many of the banks/investors/trustees are not really pursuing this avenue yet. I would not make the assumption that they won’t eventually.

Other interesting parts may apply.. ie Title 18 Part I Chapter 9 depending upon what happens afterwards or events leading up to (cash back?)

[ucodegen]

Two things occur.

1) The originator can be forced to buy back the loan package (once it is securitized, it is no longer handled as individual loans at the bank/investment level). This occurs if the originator or securitizing bank has misstated the inherent risk on the package.

2) If the mis-statement of the income is intentional, it is a crime. See the part near where the signature is on a mortgage application. I also point you to 18 USC 1011 (Title 18, Part 1, Chapter 47, section 1011), 18 USC 1014 (Title 18, Part 1, Chapter 47, 1014). The real thing that has to happen is that the injured parties (banks/investors/trustee) has to file the complaint. The only thing is that the way the mortgage packages get sliced up.. it is hard to tell… and many of the banks/investors/trustees are not really pursuing this avenue yet. I would not make the assumption that they won’t eventually.

Other interesting parts may apply.. ie Title 18 Part I Chapter 9 depending upon what happens afterwards or events leading up to (cash back?)

[ucodegen]

Two things occur.

1) The originator can be forced to buy back the loan package (once it is securitized, it is no longer handled as individual loans at the bank/investment level). This occurs if the originator or securitizing bank has misstated the inherent risk on the package.

2) If the mis-statement of the income is intentional, it is a crime. See the part near where the signature is on a mortgage application. I also point you to 18 USC 1011 (Title 18, Part 1, Chapter 47, section 1011), 18 USC 1014 (Title 18, Part 1, Chapter 47, 1014). The real thing that has to happen is that the injured parties (banks/investors/trustee) has to file the complaint. The only thing is that the way the mortgage packages get sliced up.. it is hard to tell… and many of the banks/investors/trustees are not really pursuing this avenue yet. I would not make the assumption that they won’t eventually.

Other interesting parts may apply.. ie Title 18 Part I Chapter 9 depending upon what happens afterwards or events leading up to (cash back?)

[ucodegen]

Two things occur.

1) The originator can be forced to buy back the loan package (once it is securitized, it is no longer handled as individual loans at the bank/investment level). This occurs if the originator or securitizing bank has misstated the inherent risk on the package.

2) If the mis-statement of the income is intentional, it is a crime. See the part near where the signature is on a mortgage application. I also point you to 18 USC 1011 (Title 18, Part 1, Chapter 47, section 1011), 18 USC 1014 (Title 18, Part 1, Chapter 47, 1014). The real thing that has to happen is that the injured parties (banks/investors/trustee) has to file the complaint. The only thing is that the way the mortgage packages get sliced up.. it is hard to tell… and many of the banks/investors/trustees are not really pursuing this avenue yet. I would not make the assumption that they won’t eventually.

Other interesting parts may apply.. ie Title 18 Part I Chapter 9 depending upon what happens afterwards or events leading up to (cash back?)

[ucodegen]

Two things occur.

1) The originator can be forced to buy back the loan package (once it is securitized, it is no longer handled as individual loans at the bank/investment level). This occurs if the originator or securitizing bank has misstated the inherent risk on the package.

2) If the mis-statement of the income is intentional, it is a crime. See the part near where the signature is on a mortgage application. I also point you to 18 USC 1011 (Title 18, Part 1, Chapter 47, section 1011), 18 USC 1014 (Title 18, Part 1, Chapter 47, 1014). The real thing that has to happen is that the injured parties (banks/investors/trustee) has to file the complaint. The only thing is that the way the mortgage packages get sliced up.. it is hard to tell… and many of the banks/investors/trustees are not really pursuing this avenue yet. I would not make the assumption that they won’t eventually.

Other interesting parts may apply.. ie Title 18 Part I Chapter 9 depending upon what happens afterwards or events leading up to (cash back?)

[ucodegen]

@mortgage3

The facts:
He bought in 2003 before the really stupid loans(no doc 100%, 100% with no reserves, 100% with low ficos, Option Arm 1st’s with a 100% CLTV, etc) became all the rage. Was he supposed to know that Wall Street would completely lose their mind??

To me, it looks like this guy’s bed was made for him by others(wall street and neighbors).

Not really. House prices and interest rates move in opposite directions. If interest rates go down, house prices go up.. if interest rates go up, house prices go down (in the general term of things). Buyers don’t always look at the actual price of what they are buying.. most look at the monthly payment and say… I can buy that.

He bought when interest rates were at an unusual low.. making house prices at an unusual high. Unfortunately the price lie was not immediately uncovered.. and was postponed by fancy financing.. which has resulted in this mess. Either way, because he bought at an unusual high, the price of the condo was bound to drop anyway, when interest rates went up. It is just happening faster now and will be bound to overshoot.

By the way, with the fancy financing continuing the frenzy resulting in a disaster now.. what does that tell you about the likely result of the bailout? Postponing a problem does not make it go away and does not fix it.. it only gets worse. Eventually there is a reckoning.

[ucodegen]

@mortgage3

The facts:
He bought in 2003 before the really stupid loans(no doc 100%, 100% with no reserves, 100% with low ficos, Option Arm 1st’s with a 100% CLTV, etc) became all the rage. Was he supposed to know that Wall Street would completely lose their mind??

To me, it looks like this guy’s bed was made for him by others(wall street and neighbors).

Not really. House prices and interest rates move in opposite directions. If interest rates go down, house prices go up.. if interest rates go up, house prices go down (in the general term of things). Buyers don’t always look at the actual price of what they are buying.. most look at the monthly payment and say… I can buy that.

He bought when interest rates were at an unusual low.. making house prices at an unusual high. Unfortunately the price lie was not immediately uncovered.. and was postponed by fancy financing.. which has resulted in this mess. Either way, because he bought at an unusual high, the price of the condo was bound to drop anyway, when interest rates went up. It is just happening faster now and will be bound to overshoot.

By the way, with the fancy financing continuing the frenzy resulting in a disaster now.. what does that tell you about the likely result of the bailout? Postponing a problem does not make it go away and does not fix it.. it only gets worse. Eventually there is a reckoning.

[ucodegen]

@mortgage3

The facts:
He bought in 2003 before the really stupid loans(no doc 100%, 100% with no reserves, 100% with low ficos, Option Arm 1st’s with a 100% CLTV, etc) became all the rage. Was he supposed to know that Wall Street would completely lose their mind??

To me, it looks like this guy’s bed was made for him by others(wall street and neighbors).

Not really. House prices and interest rates move in opposite directions. If interest rates go down, house prices go up.. if interest rates go up, house prices go down (in the general term of things). Buyers don’t always look at the actual price of what they are buying.. most look at the monthly payment and say… I can buy that.

He bought when interest rates were at an unusual low.. making house prices at an unusual high. Unfortunately the price lie was not immediately uncovered.. and was postponed by fancy financing.. which has resulted in this mess. Either way, because he bought at an unusual high, the price of the condo was bound to drop anyway, when interest rates went up. It is just happening faster now and will be bound to overshoot.

By the way, with the fancy financing continuing the frenzy resulting in a disaster now.. what does that tell you about the likely result of the bailout? Postponing a problem does not make it go away and does not fix it.. it only gets worse. Eventually there is a reckoning.

[ucodegen]

@mortgage3

The facts:
He bought in 2003 before the really stupid loans(no doc 100%, 100% with no reserves, 100% with low ficos, Option Arm 1st’s with a 100% CLTV, etc) became all the rage. Was he supposed to know that Wall Street would completely lose their mind??

To me, it looks like this guy’s bed was made for him by others(wall street and neighbors).

Not really. House prices and interest rates move in opposite directions. If interest rates go down, house prices go up.. if interest rates go up, house prices go down (in the general term of things). Buyers don’t always look at the actual price of what they are buying.. most look at the monthly payment and say… I can buy that.

He bought when interest rates were at an unusual low.. making house prices at an unusual high. Unfortunately the price lie was not immediately uncovered.. and was postponed by fancy financing.. which has resulted in this mess. Either way, because he bought at an unusual high, the price of the condo was bound to drop anyway, when interest rates went up. It is just happening faster now and will be bound to overshoot.

By the way, with the fancy financing continuing the frenzy resulting in a disaster now.. what does that tell you about the likely result of the bailout? Postponing a problem does not make it go away and does not fix it.. it only gets worse. Eventually there is a reckoning.

[ucodegen]

@mortgage3

The facts:
He bought in 2003 before the really stupid loans(no doc 100%, 100% with no reserves, 100% with low ficos, Option Arm 1st’s with a 100% CLTV, etc) became all the rage. Was he supposed to know that Wall Street would completely lose their mind??

To me, it looks like this guy’s bed was made for him by others(wall street and neighbors).

Not really. House prices and interest rates move in opposite directions. If interest rates go down, house prices go up.. if interest rates go up, house prices go down (in the general term of things). Buyers don’t always look at the actual price of what they are buying.. most look at the monthly payment and say… I can buy that.

He bought when interest rates were at an unusual low.. making house prices at an unusual high. Unfortunately the price lie was not immediately uncovered.. and was postponed by fancy financing.. which has resulted in this mess. Either way, because he bought at an unusual high, the price of the condo was bound to drop anyway, when interest rates went up. It is just happening faster now and will be bound to overshoot.

By the way, with the fancy financing continuing the frenzy resulting in a disaster now.. what does that tell you about the likely result of the bailout? Postponing a problem does not make it go away and does not fix it.. it only gets worse. Eventually there is a reckoning.

[ucodegen]

@sandiego

Instead, Countywide et al, made a bunch of bad loans to people who couldn’t afford them causing them to foreclose. Now Countrywide et al is dumping these units back on the market at reduced prices because they have to get rid of them.

No, they are dumping them on the market at those prices because that is what they are worth now. The value is what it will sell for currently.

Units in concrete buildings are now trading near replacement costs.
Another definition of what an item is worth.. its replacement cost.

It is not as if I am getting a free ride. My $100,000+ downpayment is already gone. Also, the bank will be getting $50,000+ in upgrades (lighting, built in cabinets, flooring, etc.)

Neither is the bank.. because they loaned you more money to buy the place than they will get back on foreclosure. They also did not get to live in the place in the meantime.

At this point, I would be glad to sign a Deed in Lieu of Foreclosure if they wanted to save the time and money of an actual forclosure. I don’t know the advantages/disadvantes of doing this.
If you don’t have a second or HELOC, this could be done. It does have the ability to get you out from under quickly. I think the bank will want to offer you ‘generous’ terms on a refi, or second which would end up being recourse. If the only money is a purchase money loan, then don’t do any refi or HELOCs. Keep it non-recourse. It gives you a bargaining chip.

Very simple math. I may decide that it is not worth losing $6,000 a month (Mortgage, Taxes, HOA) for the next 7 years ($504,000 total) while not gaining any equity (and probably losing more).
One question to ask here.. is the loan amortizing or I/O? What is the equivalent rent for same type of location or for place that you could live in?

I am not going to continue to fund a bad investment indefinitely especially whin I know that the peak of bad loans won’t happen until March 2008.
There are going to be two peaks… one in 2008.. a pause of about 1.5 years and then the Option ARMS start to hit.

@sd gal
If you borrowed 100% financing with 500k. You walk away from 500k mortgage, then lender sell the property for 350k. The loss of 150k will be considered as income for the year’s tax return for you. You will be responsible for income tax of 150k which will be around 40-50k?
Not if it is original purchase money loan (1st mortgage on purchase). These are non-recourse in California.

What about 2nd mortgage? Can I walk away from it too? Or they would come after my other asset?
2nds are recourse in California. They can come after you. If they feel they can’t get anything from you, they can 1099 you for loan loss forgiveness which gets taxed at income rates for the equivalent $$.

[ucodegen]

@sandiego

Instead, Countywide et al, made a bunch of bad loans to people who couldn’t afford them causing them to foreclose. Now Countrywide et al is dumping these units back on the market at reduced prices because they have to get rid of them.

No, they are dumping them on the market at those prices because that is what they are worth now. The value is what it will sell for currently.

Units in concrete buildings are now trading near replacement costs.
Another definition of what an item is worth.. its replacement cost.

It is not as if I am getting a free ride. My $100,000+ downpayment is already gone. Also, the bank will be getting $50,000+ in upgrades (lighting, built in cabinets, flooring, etc.)

Neither is the bank.. because they loaned you more money to buy the place than they will get back on foreclosure. They also did not get to live in the place in the meantime.

At this point, I would be glad to sign a Deed in Lieu of Foreclosure if they wanted to save the time and money of an actual forclosure. I don’t know the advantages/disadvantes of doing this.
If you don’t have a second or HELOC, this could be done. It does have the ability to get you out from under quickly. I think the bank will want to offer you ‘generous’ terms on a refi, or second which would end up being recourse. If the only money is a purchase money loan, then don’t do any refi or HELOCs. Keep it non-recourse. It gives you a bargaining chip.

Very simple math. I may decide that it is not worth losing $6,000 a month (Mortgage, Taxes, HOA) for the next 7 years ($504,000 total) while not gaining any equity (and probably losing more).
One question to ask here.. is the loan amortizing or I/O? What is the equivalent rent for same type of location or for place that you could live in?

I am not going to continue to fund a bad investment indefinitely especially whin I know that the peak of bad loans won’t happen until March 2008.
There are going to be two peaks… one in 2008.. a pause of about 1.5 years and then the Option ARMS start to hit.

@sd gal
If you borrowed 100% financing with 500k. You walk away from 500k mortgage, then lender sell the property for 350k. The loss of 150k will be considered as income for the year’s tax return for you. You will be responsible for income tax of 150k which will be around 40-50k?
Not if it is original purchase money loan (1st mortgage on purchase). These are non-recourse in California.

What about 2nd mortgage? Can I walk away from it too? Or they would come after my other asset?
2nds are recourse in California. They can come after you. If they feel they can’t get anything from you, they can 1099 you for loan loss forgiveness which gets taxed at income rates for the equivalent $$.

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