<p>I have written so many posts about stuff like this lately because I’m just sick of this. All these supposedly smart people peddled this crap. Some of these people peddling these “neutron” loans have highly paid jobs, or “important jobs”. And the people running these companies should be put away. They are either too stupid or too short-sided or too crooked to live among the public. </p>
<p>There is this story. A guy dies. He goes to hell. He has a choice of two rooms. He enters the first room. Everyone is standing in sh** two feet deep. He is told, if he chooses this room, he will have to stand in this room for eternity.</p>
<p>He leaves the first room and enters the second room. In the second room, everyone is just standing around, and they are standing in s*** a half a foot deep. He is told if he chooses this room, he will never leave it.</p>
<p>So the guy decides. "I will spend eternity standing in s*** a half a foot deep because that is better than standing in s*** two feet deep. " The guy enters the room where everyone is standing in s*** a half foot deep. The door closes. The guy starts smiling. This isn’t so bad. After a couple of minutes, the guard yells out, “Break time is over. Everybody stand on your head.”</p>
<p>That’s too good for some of these leaders.</p>
<p>Anyway, here is the link to another column that ****** me off.</p>
<p>How anybody who understands arithmetic would think this would work…</p>
<p>Not only get over it but this man will probably get some type of contract relief. There is enough fraud in this industry that judges will look favorably on the borrower. Further, I doubt that the lender really want another nonperforming asset on its books-the lender would rather take a relatively small lose rather than a complete lose.</p>
<p>My son’s left over college fund is now 50% of what it was 5 months ago. Our retirement funds is down 25%. Was there rampant fraud in the mortgage and real estate industry, yes, wasn’t hard to see. Will the option loanees come out OK, in many cases, yes. Am I upset, probably more than, dstark. Get over it.</p>
<p>There is plenty of blame to go around here. The article mentioned that many home buyers used these type of products to purchase more house than they could afford. Well duh! </p>
<p>Also, most homebuyers use the services of realtors and attorneys, not the most respected of professions but they are licensed by states to practice. They certainly shoulder some blame.</p>
<p>And who in their right mind could ever think that no-doc mortgages would lead to anything but disaster at some point. People in the industry and particularly saavy investors in exotic mortgage products were talking about a housing bubble for months. How could anyone think the ROI could be worth the risk!</p>
<p>So we all suffer and the only question is how long it will take for the economy to recover and get back on track.</p>
<p>And if that painter did not put any money down to purchase this house he got very cheap rent. If he used it to refinance his home, he is in deep…well you know.</p>
<p>been there, done that. If it had not been the crisis of 1998, we would not have a big loan to pay off for our kids’ education. The savings we’d accumulated since they were born would have been enough. Our retirement income would also have been far greater than it is. But we have a few more years of work to pay off those loans. There are many people like the 66 year old painter who don’t have the luxury of time. That’s what breaks my heart. </p>
<p>originaloog: I agree it was foolish to use this option mortgage. And I agree that the mortgage brokers who steered the painter and others in that direction ought to shoulder some of the blame. I wonder what spiel they used to convince prospective buyers? I’d never heard of option mortgages before; but the last time I bought a house was 17 years ago.</p>
<p>I never heard of them either marite since our house is paid off and we havent been in the mortgage market for 22 years either.</p>
<p>Thisoldman, sorry about the savings hit you are taking! I made a significant move to bonds/cash in early January and our portfolio is down about 3% off its peak in October '07. Ye olde homestead may be another matter and could be financilally problematic as I am hanging up the professorial spurs in May and we are planning to relocate to climes more conducive to year round golf. Fortunately I have never considered our house as an investment but as a home to live in. Hang in there. Time will most likely be your friend. I know having been an investor since 1978 and muddling through several market recessions. Just make sure to reinvest all dividend and capgains. When the turnaround comes you will have bought at very low prices.</p>
Negatively amortized loans and zero-principal loans have been around for a long time. They have their applications such as for a shorter-term loan in an appreciating market. </p>
<p>I find it hard to imagine that someone would sign loan papers agreeing to a negative amortization thinking it was a 30 year fixed loan. It just doesn’t make any sense unless there was out and out fraud by the lender and even then it’d be hard to hide it in the contract. </p>
<p>I don’t find it hard to believe that people would leverage themselves as much as possible with a lack of foresight and a certain amount of greed to get more house for the money based on the payments for the next 12 months - ignoring what happens after that.</p>
<p>Let’s see: the guy in the article is living in a $200k house that is costing him $565/mo., and he can live there for five years. Without knowing how much he put down, we really don’t know what, if anything, he will lose in actual cash.</p>
<p>Are there fraudulent lenders out there, sure. But, this is a he said-she said type issue.</p>
<p>Same here, our capital loss will never be completely wiped out unless we live 100+ more years.</p>
<p>But we did learn from our lesson from 2001, and not 1998, we were very cautious for a very long time. Most of our liquid assets are in cash except our retirement plan.</p>
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<p>We almost did but back out at the last minute. Loan terms and loan officers were not very clear either. PS: I’m not at all naive when it comes to financial terms. So it is believable that somebody would sign for this type of loan.</p>
<p>“I find it hard to imagine that someone would sign loan papers agreeing to a negative amortization thinking it was a 30 year fixed loan. It just doesn’t make any sense unless there was out and out fraud by the lender and even then it’d be hard to hide it in the contract.”</p>
<p>The amount of Option Arms outstanding that are due to reset in 2010 and 2011 are staggering.</p>
<p>Here is a nice chart that shows how many exist. We are talking about $400 to $500 billion that are going to be reset in 2010 and 2011.</p>
<ol>
<li><p>Don’t sign a contract you don’t understand.</p></li>
<li><p>If you don’t understand it, pay money to an outsider (attorney) who will give you an educated opinion about it.</p></li>
<li><p>If it sounds too good to be true, it is. TANSTAAFL.</p></li>
</ol>
<p>It sounds like there were lots of sharks in the mortgage loan business, but they only ate the people who jumped out of the boat.</p>
<p>“Housing prices continued their freefall in January, according to an analysis of properties listed-for-sale in 22 major metropolitan markets across the country.”</p>
<p>I’m sorry but this constant drumbeat of hugely falling prices has no basis in fact except in a couple of relatively minor markets–Las Vegas and Miami condos. All the rest of the data shows annual decreases from negative (prices up) to maybe 10% or so. That does not meet the definition of “freefall in my book”. It is BS and rotten journalism. </p>
<p>While the lady in Oakland may be in a better market than most, most markets are not near freefall. The inclusion of the higher cap on conforming mortgages will help greatly in high cost markets lowering loan rates by at least .5%.</p>
<p>Yup, and what’s the worst that might happen? I was not planning to sell any houses for at least 20 years. They’ll be OK and rents keep going up. </p>
<p>Also the Lannar example was mixing apples with oranges. Lennar sold a bunch of lots and land is the first to go down when improved prices go down as the costs of labor and materials almost never go down. So the land takes the hit. Land is the most volatile type of RE.</p>