60 Minutes Subprime Meltdown

confoming deals are still being done. Rates were super low on tues and wed of last week but have now shot back up to about 5.875 to 6.0% for a 30 yr fixed. Jumbo deals are next to impossible to approve because of strict LTV guidelines
 
<p>Did their contract say they had to exhaust every fiber of their being attempting to pay the [adjusting] mortgage on the [declining] property, or did it say if they didn't pay they would default on their mortage and lose their property?</p>

<p>I don't know, but I suspect it is closer to the latter, and that is what they are chosing.</p>

<p>SCHB</p>
 
Whether it is right/wrong to walk from a house when you can afford the payments is immaterial - what is important is whether this becomes a common practice and the impact of this activity on the housing market.
 
SCHB, I haven't seen the hypothetical mortgage in question, but would guess that the buyer agreed to repay the loan whether or not their place appreciated. They knew their real (not stated) income when they signed on the dotted line, and they should have been able to figure out what the fully amortizing payment was after the teaser rates expired.
 
<em>"what is important is whether this becomes a common practice and the impact of this activity on the housing market."</em>





The more prices drop, the more common the practice will become.
 
<p>If it becomes too common, say hello to 30% down requirements and additional point of risk premium. I wonder if they'll start writing loans with a rider clause tacking on an additional interest penalty in the event suborbinate liens are placed. Is that legal? </p>

<p>Could the banks create the next greatest thing, the No-subs 30 years fixed at 5.5% conforming and 20% down, that has clause that resets to the APR to 8.5% if any additional liens are placed on the property, or even worse, calls the loan if additional liens are placed? Similar to the credit card's universal default?</p>

<p> </p>

<p> </p>
 
?The more prices drop, the more common the practice will become?.



Personally I believe this is what the feds really fear.



What will Irvine neighbor "A" do when he is upside down $200K and neighbor"B" is renting the same floor plan for $2-3k/month less than "A's" resetting mortgage? "A" will feel like a complete smuck every time he writes the mortgage check.



Doctor Housing Bubble indicates 850,000 home were sold in S. Ca (LA, Ven., SB, RV, OC, SD) from 2005-2007, with an additional 350,000 in 2004 and 360,000 in 2003. Even taking into account multiple sales on the same property and low ltv loans, it sems there could easily be over 1 million upside down loans in Southern CA by the end of 2008. which I am guessing represents 20-25% of the entire housing inventory in the Southland. (My guess is 4 - 4.5 million owned households).



A year from now, people could be bragging about how they mailed in the keys early in the cycle.
 
<p>It is legal to forbid 2ndary financing. It used to be done a lot. Years after the closing, no one seems to care.</p>

<p>I've never heard of raising the interest rate if you do get a 2nd mtg anyway. I don't see why it wouldn't be legal if properly disclosed and all. But lenders would probably be scared to be the first one on the block with this, because it will be litigated the first time someone tries to raise the rate per the contract. And it will be expensive litigation.</p>

<p>You would have to monitor the title, which lenders have never bothered to do, but since everything's on line now, it could be done. </p>

<p>One more reason to add to the mtg servicing premium. Which will raise interest rates.</p>
 
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