[Bruno]

I'm a bit surprised noone brought this topic up yet, considering that a couple of financial Icons were shattered.
Anyone here got hit by the smurf?

Found this today:
subprime works - Google Docs

[majurey]

My neighbour works for Lehman and he has been pretty stressed and depressed for months. When the sh1t hit the fan it was like a load off his shoulders. He was slightly more fortunate than others there as he works for one of the two divisions which were not part of the bankruptcy -- asset management. He has been spending the last week chopping up bits of the business and selling to Barclays.

Barclays have just approached him to say he's on the shortlist for a job with them. I'm keeping my fingers crossed for him as he has a young family (our kids go to school together).

I didn't think it would affect my situation much since I work for a fairly recession-proof industry: academic publishing. We don't rely on advertising or other market industries. We make money from selling to university libraries. I was wrong... today we felt a direct effect of the crisis.

For the last three months a private equity group has been trying to acquire our business and we have fought hard to persuade the shareholders not to go for the offer. (If we were acquired and merged with another publisher, there would be a lot of redundancies). Well, this morning the private equity group, led by Provident, said they were giving up and cited the fall of Lehman as the reason. Apparently, leveraged buyouts are now off the agenda.

So I'm breathing a sigh of relief, until the next group tries for a bite at the apple.

[gssixgun]

This particular thread directly concerns what I actually do for a living (and you thought I just restored razors )
Being a Finance Manager at a Ford dealership I deal with the lending institutions on a daily basis.... Since April of this year there have been more changes to the lending industry then I have seen in the previous 6 1/2 years combined....
Long term loans ie: over 72 months are pretty much a thing of the past...
High LTV (loan to value) loans are harder and harder to get bought I don't care how great your credit rating is....
I have seen a 25% drop in LTV allowance in 3 months time...
Rates are all over the place even though the banks are getting money at a lower rate then they have in the past...
I have processed more repo requests than I ever have in the past, just yesterday I processed a repo that was actually sold in 2003, think about that for a second, the loan was in the last 6 months of term, and they repo'd out of it !!!!!!! that makes no sense.....
Banks that I deal with (16 different ones) that are not exclusive automotive lenders are the worst right now, any bank that has a housing loan dept. are raising auto rates, to offset losses in their home loan portfolio, it is an interesting time right now....

[Bruno]

The things you mention seen alien to me.
Over here, the loan to value ratio is always <= 1
There is not a single bank here which will loan you more than your collateral is worth.

If you buy a house, there are very few banks that will provide you with a loan if you cannot pay at least 10% of the house in yourself. To get favorable rates you have to go up to 20%. Which is why we ate spaghetti for half a year when we started looking for a house

The value of the house is determined by a certified expert, and you can only borrow for the realistic amount. Then you have to show official pay statements to prove that you can pay off the loan. Your max payments are x percent of your combined salary, and from there follows the max amount you can loan.

Defaulting on mortgages is very uncommmon, and banks are very careful about loans.

[gssixgun]

Ahhhhhh see Bruno that's what the lending rules should be, and were in the past but when you have an real estate balloon market, creative financing and "certified appraisers" working off of each other, this is the outcome that should be expected.....Add lawmakers that want "everyone" to have an equal opportunity to own a home and the person left "holding the bag" so to speak is the bank holding an un-paid mortgage that is on a home that really isn't worth the money that was lent in the first place...
Now if you look deep enough, at what caused this, you are going to find the truth in there..... However many people might not want to admit what the real problem was...

I would almost bet that you have never even heard of ARM & Balloon loans where you are at?????? Other than in the news????

[nun2sharp]

Between the greed of the banks and everyone trying to live beyond their means, it had to happen sooner or later. That and the fact that we have lost our manufacturing base, with out it you cannot create wealth.

[hoglahoo]

I didn't know home loans were ever given for more than the value of the home! even 3 or 4 years ago I never saw any offers for more than 100% financing

[AaronX]

Glen works in auto finance and I work in home finance so we see all this stuff first hand.
As has already been said there were banks lending 125% of the value of a home. Not the one I work for but others did it. Not to mention the shady appraisers some of the sub prime lenders used; ameraquest comes to mind.

Couple all this with; greed, keeping up with the Jones', and the inability of the public to read or focus on something for more than 5 minutes and we have what we are left with now.

Now as far as the bailing out of the sector by the Fed... I hate that we have to do this. If it weren't for FNMA and FHLMC people would not be able to qualify for a home. If banks had to go back the the 5C's of underwriting (or was it 4?) they'd be so lost on what to do now. We've relied for far too long on things like credit scores as the end all and be all and this is coming from a guy who looks at > 100 credit reports a day!

[Mike7120]

Haven’t bought a house yet, but me and my fiancé did buy 15 acres of land a while back. The Seller (my uncle) had the land appraised and it was valued at $40,000. Four months later my girlfriend and I went to get a loan from the bank to buy the property. The bank sent out their appraiser and he valued the land at $65,000. The appraiser did not even get out of his car to examine the property, which is funny because you can only see about an acre of my land from the road. Undoubtedly the appraiser valued the land more than it is worth, possibly even $25,000 more than its real value. The bank said it was worth $65,000, the seller was only asking $40,000, we got the loan no problem. Does this happen often? If so, I can certainly see why there is a credit crisis.

[Seraphim]

Capping a week that has reshaped Wall Street, U.S. Treasury Secretary Henry Paulson urged Congress to quickly agree on a program for huge purchases of bad debts held by banks and other financial institutions.

Isn't this excellent!

Now, we as US taxpayers own huge purchases of BAD DEBT.

Fantastic financial minds at work! Genius even...

Spend most of our tax money on two wars, and the rest on bad financial debt.

[thebigspendur]

The plug has been pulled from the bathtub and that gurgling sound is us going down the drain with all the fatcats standing on the rim laughing their butts off.

[WireBeard]

The only bright spot was the Government telling the CEO's of Freddie and Fannie that "No, you aren't getting your separation bonuses...you drove the company into the ground...why should you get anything?...and turn the light out when you leave your office".

That should be the policy with all CEOs, etc.....if the company gets into trouble while you are at the helm, your bonus and salary goes to the employees and stockholders.

I am still shocked that no one has gone after the scum from Enron, WorldCom etc. with a large-bore weapon.....why, that's almost un-American!

(You get the tar, I'll get the feathers...he's busy loading.......)

[denmason]

Yes folks, I think we're going down. I've been following this subject closely for about 6 years now. Most people didn't even want to hear about it then and many still don't want to hear it. We could end up a third world nation if we don't take the necessary steps to correct the problem. I won't go into that here.
I found a little video that might explain a bit about how banks work, so I'll post it here.
It's a cartoon and 47 minutes long. So, grab the popcorn and have a watch:

Money As Debt

[Bruno]

Originally Posted by gssixgun

Ahhhhhh see Bruno that's what the lending rules should be
...

I would almost bet that you have never even heard of ARM & Balloon loans where you are at?????? Other than in the news????

Don't know what that means.
There are basically only 2 types of loans here: fixed interest rate, and variable interest rate.
With fixed, you won;t get the minimum interest rate, but it'll never change.
With variable you get the minimal rate, but it may increase.

However, variable rates have to extra constraints: The % of your wages that you can borrow is lower (i.e. the banks assume the rate will rise). This means that if you can get a fixed rate loan where you pay off 1000$ per month, your variable rate loan will be max 900$ to start with.
On top of that, the banks will also demand that you have 20% (or something like it) of the value in liquid assets. That way they minimize the risk.

My mortage is a hybrid, which is getting more common. Mortgage over 20 years, with a fixed rate for the first 10 years, and then a possible adjustment at 10 and 15 years, up to a total max 2% increase of the starting index rate. For our case, this was the most optimal, and the risk is very limited because the interest rate can never be more than what it is now + 2%.

Btw, all loans are registered (by law) with a central financial database. This is to prevent people from getting themselve into trouble with multiple loans.

[Quick Orange]

It comes down to people that have zero patience and just don't care. They convince themselves that they need or deserve something. What we've experienced is what I would think the "roaring 20's" was like. Except in this case, people are living far more beyond their means.

What really frightens me is some FDR wannabe going to town on our system for round two.

[Nord Jim]

Originally Posted by Quick Orange

It comes down to people that have zero patience and just don't care. They convince themselves that they need or deserve something. What we've experienced is what I would think the "roaring 20's" was like. Except in this case, people are living far more beyond their means.

What really frightens me is some FDR wannabe going to town on our system for round two.

Interesting, especially when you consider that the Glass-Steagall Act of 1933, one of Roosevelt's "First 100 Days" initiatives, was what kept us safe from this kind of irresponsible speculation -- right up until that idiot Gramm and his buddies Leach and Bliley spearheaded the repeal of Glass Steagall's most important protections. The fact that the right wing continues to demonize FDR doesn't change the fact that, all things considered, and especially considering the mess he inherited, he did a pretty good job.

j

[Quick Orange]

You know that the consensus among economists is that the bulk of FDR's programs, specifically the spending and welfare ones, actually hurt us more than helped us, right? WWII was actually a helpful thing for our economy. FDR's policies were typical Democrat feel-good policies which sound great to the blue-collar masses, but in the end don't accomplish much. If it's right wing to disagree with moronic government spending, then I'm certainly a right winger.

To me though, our government isn't a business or a safety net. Its only form of income is and should be taxes. To "create jobs" by spending tax money doesn't make sense. If the government could do without that money in the first place, then why tax it?

[Seraphim]

Originally Posted by Quick Orange

You know that the consensus among economists is that the bulk of FDR's programs, specifically the spending and welfare ones, actually hurt us more than helped us, right? WWII was actually a helpful thing for our economy. FDR's policies were typical Democrat feel-good policies which sound great to the blue-collar masses, but in the end don't accomplish much. If it's right wing to disagree with moronic government spending, then I'm certainly a right winger.

To me though, our government isn't a business or a safety net. Its only form of income is and should be taxes. To "create jobs" by spending tax money doesn't make sense. If the government could do without that money in the first place, then why tax it?

As opposed to Bush's feel good policies which sound great to big oil execs, and other corporate big wigs. They actually accomplish quite a bit, such as bailing out huge companies using taxpayer dollars.

Quite effective!

[Quick Orange]

Originally Posted by Seraphim

As opposed to Bush's feel good policies which sound great to big oil execs, and other corporate big wigs. They actually accomplish quite a bit, such as bailing out huge companies using taxpayer dollars.

Quite effective!

I never said our current policies make me happy either. What I'm saying is that both candidates are screaming "we need change!", and so far all I've gotten from that is that they want my pocket money. Neither have committed to any actual plan, and it will likely devolve into the creating jobs bullcrap that so many people think will bail us out.