Blamestorming - "Sub-Prime" Edition (channeling some Rude Pundit myself)

[digitaldiscipline]

Funnily enough, there was a cranky thread over on metaquotes on this overnight, but NPR planted the seed for this earlier in the week.

The widespread panic (or "uncertainty" if you're an economist or a pussy) that has come in the aftermath of several mortgage investment funds/firms getting caught by their own bald avarice is actually pretty funny. Everyone talks about how well "the market" self-corrects and all that; what we're seeing here is a large-print edition of what that looks like.

Get a good fucking look. This is what happens when The Market takes the unscrupulous out behind the woodshed with Junior's Louisville Slugger and a roll of duct tape. Shit gets fucked up, because it had that fucking coming to it; had, can you dig this, been asking for it, by flaunting how edgy and high-risk (and high-reward, maybe) a fund it could cobble together and sucker somebody into buying.

It worked for the Pet Rock and Paris Hilton, it can work for sub-prime loan funds!

Greed and culpability make for a powerful tonic for stupidity.

But it's funny, listening to talking heads very narrowly pussyfoot around assigning blame - "It's the fault of Moody's and Standard & Poor's rating services, which gave these shitty instruments glowing marks! They told the banks that put them together exactly how many insect legs and rat testicles were safe in that pound of broccoli!"

There's well-deserved blame there, to be certain, but that is NOT where the shit needs to stop splattering.

How about those lenders who built the questionable instruments in the first place? Anybody believe they didn't know how sketchy these things were? You know when you're making a bucket of jungle punch when you've substituted Mr. Boston for Absolut, and shouldn't be surprised when somebody yarks in the linen closet or tells you the next afternoon about the army of pickaxe-wielding garden gnomes infesting their skull.

Greed and culpability make for a powerful tonic for stupidity.

But, going back even further (after all, we're sub-priming this pump from end to beginning); what about all those banks that made loans to folks with lower credit scores? Now, let me be clear - having a credit score over or under 650, or whatever the sub-prime threshold is, isn't the end-all, be-all determinant for somebody's ability to pay a mortgage... but in the interest of making a quick and easy buck, lenders stopped doing their due diligence - finding out if Mr. Homebuyer was actually making that $55k he claimed, or Ms. Homebuyer was hiding some student loans. Nope, they just wanted that signature on the dotted line so they could start earning interest on principal and escrow. "Why would they lie to us about their income and financial situation?"

Greed and culpability make for a powerful tonic for stupidity.

Adjustable-rate, interest-only, and the litany of other "entice you now, fuck you later" mortgages were just a symptom of this; the fact that they are made of fail is practically beside the point.

Which brings us to the folks getting the mortgages themselves - READ THE FUCKING PAPERWORK. This is the single biggest purchase in your life. Don't embellish your earnings and assets to compensate for having an undersized cock just so you can store it in an oversized foreclosure waiting to happen.

I've said it before, and I'll say it one last time:

Greed and culpability make for a powerful tonic for stupidity.

Comments

::applause::

[redstapler.livejournal.com]

I ambled over from Metaquotes.

This is the best commentary I've heard on this topic. Well done. :)

Re: ::applause::

[etcet.livejournal.com]

i seem to have lied about the footnotes previously alluded to.

maybe if it's a slow day at the office, there will be some demographic breakdown of the foreclosures.

Re: ::applause::

[redstapler.livejournal.com]

I look forward to it.

"Predatory" loans and other similar nasties are of particular interest to me.

I agree that a lot of people don't read their mortgages before signing, but a lot people don't even understand it, and just need the money.

It's a maelstrom.

[vatine]

Hm, when I took out my mortgage (in the UK, rathe rthan the US), the bank was adamant that they would not lend more than three years of untaxed income and wanted a coupoe of payslips as indication of annual earnings (they were willing to include expected on-call remuneration and bonues, if applicable, in the total, though). But obviously these things differ from place to place (and from time to time, I understand that they were much more lenient only a few years later).

[etcet.livejournal.com]

Not all lenders are so lax about covering their, err, assets as the ones that are embroiled in this fiasco; my contention is that, if you're playing fast and loose, you have nobody to blame or beg for bailing out if you fuck up.

[vatine]

That seemed to be UK mortgage industry standard. There may have been more lax lenders, but I went with a big bank, partially because they had a branch office close to where I worked, so I could jog down for another sit-down and paper-filling rounds (it also nurtured some of the bile vented in my name rant (you have in the past linked to my rant borne from the July 7th bombs in London).

[etcet.livejournal.com]

what entertains me in a bitter sort of way is that this hasn't quelled the near-daily influx of "refinance with us!" solicitations in my mailbox.

you know, i -will- be refinancing... through the credit union for which i work. the rest of you penurious assholes can fuck right off.

[angledge.livejournal.com]

Is it horrible of me to wish that this whole thing would cause the housing market bubble to finally burst?

[etcet.livejournal.com]

Not if you're in the market to buy; if you're in the market to sell, it's cause for some frustration. :-)

[angledge.livejournal.com]

Are you in the market to sell?

[etcet.livejournal.com]

Not particularly; my house has appreciated substantially since I bought it, and even if it comes down in value another 15%, it'll still be worth more than what it appraised for when I refinanced two years ago.

However, regardless of what my personal financial stake is, I think an accurately-valued market is best for everyone.

[geeki.livejournal.com]

You know a good friend of mine started looking for a house. They are looking long term, but she called me *shocked* when they were approved for a 1.25 million dollar loan.

Yes they technically make 150 - 200K annually, but they have no write off's, no kids, nothing. Their car payments alone are 1500 a month.

I told her to do what we did. Sit down with your taxes, and see what deductions give you what back monthly. Say you can now claim 14 exemptions, see what 10 gives you. Add that to your rent, and then figure out what you are willing to give up in your life to make up any difference for a mortgage payment.

After 3 hours on the phone walking her through this, she decided that she and the hubby would be much happier at around a 700,000 loan....quite a bit of difference from the other loan. I advised her to do a 30 or 45 year fixed, and interest only wasn't a BAD thing, just not adjustable so much....as long as she had the diligence to pay extra towards principal every month (and to increase that amount as she gets raises). considering I know she paid off her last three cars over a year early on each loan, I am fairly sure she can do that.

That said...foreclosure rates are up around 45% in San Diego... *shakes head* sad really...

[etcet.livejournal.com]

what the fuck are they driving that costs $1500 a month before insurance? that's as much as my mortgage and -both- our car payments.

sorry, i have a short fuse when i see people worrying about finances when they've got what looks (from where I sit at the relatively frugal end of some conversations) like a wildly inflated fixed cost for something that doesn't need to be anywhere near as high.

but, yeah - just because you -can- get a loan for $X doesn't mean you -have to.-

[geeki.livejournal.com]

3 cars :)

And yes I know there are only two of them.

Dom's truck payment was originally 600 a month before we paid it off.

You cant compare your mortgage to ones out here though hun...cost of living is very different.

[etcet.livejournal.com]

i'm saying that they're paying more for their cars than i am for my house and both our cars.

[geeki.livejournal.com]

yes but your mortgage is sooo teeny. :)

[etcet.livejournal.com]

that doesn't mean that paying $500 a month for each car (plus whatever insurance costs) is any more reasonable or responsible if you're trying to buy a home, especially if you live someplace expensive.

that's (roughly) three thirty-grand cars with a five-year payoff. not unreasonable, true, but having more than one car payment per household driver doesn't strike me as the best decision they could have made. *shrug*

[geeki.livejournal.com]

While I agree, I also know that two of their cars will be paid off in the next year or so, and that while they are paying 1500 a month in car payments, that isnt their minimum (I believe their payments are only around 1000 a month they are paying them off early).

At this point, we are having to look at adding a car payment right around the time we will be adding in daycare for the leech. My car is starting to act out and neither Dom nor I are car friendly enough to take it apart and fix it.

[d-m-v.livejournal.com]

Beautifully said. I love that after taking it to the industry you saved a clobber for the enduser rather than letting them off the hook. FFS, as a *renter* I understand why managed properties want the renter's income to be 3x the monthly rent. The same logic, if not the same simple rule of thumb, should apply to a homebuyer considering what they can afford. Mortgage plus taxes plus insurance plus plus plus and, oh, yeah, hold on, the cost of life! Weren't there other expenses than rent when we rented? If they added all that up and it stretched their net income with no wiggle room, what did they think would happen when the teaser rate ran out? The bank would get the warm fuzzies and give them free wiggle room and a toaster?

And I don't buy the "oh I didn't understand what I was signing" BS for a moment. Of course they didn't (unless they were an attorney or financier experienced in that Mephistophelian fine print). You'd think maybe with all the money changing hands they could budget $250 or so to have an attorney read the language and give 'em the skinny in English for Dummies? I dunno, maybe I've got my usual overly simplistic way of seeing things, but when I see fine print I didn't write, I don't assume its for *my* benefit.

Maybe, though, you should share some insight on this "injecting liquidity" crap? I'm too Everyman to understand the high finance, but it *sounds* like the S&L bailout without quite saying "bailout" or quite saying it's taxpayer money being given to private institutions to um, bail them out? I *hope* I'm wrong.

[etcet.livejournal.com]

No, you're right, and the lack of detailed coverage that's gotten in the media means that a) this is probably what's happening and b) is pissing me off.

notice how politics have kind of drifted off the front pages with that asshole and those assholes all on vacation? the country doesn't stop working, it's like they've been given a three-week reprieve from scrutiny which they don't fucking deserve. if nothing else, there should be -closer- attention given to the shit that they don't want us thinking and talking about when they're not around to spin and sound-bite it to death.

[hellsop.livejournal.com]

If they added all that up and it stretched their net income with no wiggle room, what did they think would happen when the teaser rate ran out? The bank would get the warm fuzzies and give them free wiggle room and a toaster?

They expected that the house would have appreciated 30-50% and they could either refinance at a rate that they could afford since obviously rates would be even MORE competative and looser or that they could quickly sell the house for a cool profit, or at least that a raise would have come through at work by now for sure. No raise and a now-near-stagnant housing market kinda quashed that.

[trystbat.livejournal.com]

Even in insane-as-hell-prices California, there is no need for buyers to be taking out those stupid subprime & adjustable fucked-up loans that banks/brokers dangle in front of them. As cool as it is to have a house, really, not everyone needs one. If you can't afford it, don't buy it. Don't fall into the trap. The more I listen to the news, the more I think a sucker is born every minute.

It was damn hard for T&I to buy our house, but no way in hell were we doing anything but the standard 30-year fixed w/10% down. We scraped our own together & got $$ from our parents (that's the old-fashioned way, ppl!). Anything else bites you in the ass 5 years down the road, & that's exactly what's happening right now. Morons.

[geeki.livejournal.com]

I dont know about the 10% down.... we didnt put it down, but when the house is 500K, the 10% is 100K, plus 6 months of savings to cover anything you needed?

Instead we did the 9 months of bills, plus some set aside for refurnishing the house and just agreed to two loans (80/20). BUT in the 18 months since we've bought our house, we've gone up almost 100K in "equity" and we might be able to refinance to a single loan in another 24 months. We will be paying off the second at that time, but even if we couldn't it would still allow us to make the payments on a single loan.

I DO agree 100% if you cant afford the payment, dont buy the damn thing. Same goes for cars (although they are definitely cheaper to afford)

[trystbat.livejournal.com]

It's those crazy offers that lenders make that get ppl in trouble. Nothing down! Tiny payments now, ginourmous ones a few years later! Add that to the lenders not really checking the buyer's info., & you get the current mess.

We still have 2 loans, just bec. CA home prices are stupid. But the monthly payment is the same as our last rental was. Plus, we lucked out & the only reason we could buy was that it was during the dot-com bust & right after 9/11, there was a dip in the market. Got less than the asking price, no other bids. Timing is everything ;-)

[geeki.livejournal.com]

*laughing*

We bought for 100K under the asking price because the last owner was upside down. We bought the house for the cost of the loan he had on the house (that was 2 years OLD). That and that we had no contingencies walked us into our house.

There is no way we could find a place for the cost of our rental, BUT we can afford our payment and it's fixed so I'm not concerned. If the spouse is out of work, I can cover everything. If I go out of work, well then we will be dipping into our savings for awhile.

We also have a house, that *should* the market crash and take 30 years to recover, we can stay in for 30 years. Not to say that I dont want a bigger house, or that I am not planing on upgrading but technically we've got 1 bedroom per person in this place so we're above average.

[razerwolfe.livejournal.com]

When we went looking for a house, I was horrified by the level of intrusion into my life that they wanted ... and then turned around and approved us for 1/3 of a million dollars + -- something we knew was crazy ourselves, at the time and in that market. Ignoring their offers of stupid money we went out and found a place we liked that we could AFFORD! I have zero sympathy for the dumbass people who were probably already extended out on their credit cards taking on yet another stupid liability that they couldn't afford finally getting their asses in a sling over it. And I don't feel bad for the tools who enabled these clearly ineligible wanks in getting said loans getting their bacon fried to a crisp either. I don't remember any real useful economic lessons being taught when I went to school and as far as I can tell they must be teaching even less than then. Hell, idjits, you might even be able to afford that over-priced McMansion if you stopped buying your irresponsible crotch droppings Escalades or supporting thier rice-burner tuner obsession or granting every fucking desire they have immediatley -- hell, take that advice for yourselves as well. Stupid monkeys!

[fenixinthedark.livejournal.com]

My sides huuuuuurt!!! Owowowowow! There is *no* humour quite like sarcastic humour in the face of ridiculous truth.

The Man (tm) had this to say; "He could be published with that crap". I agree. Get yer ass to a paper, man.

[etcet.livejournal.com]

I don't think they go for my brand of coprolalia at the more respectable papers.