06-05-2008, 02:14 PM
Yes it did get OT, I was wondering why it kept coming to the top.
A few thoughts...
You donÔÇÖt need to really inflate income, you adjust the qualifying ratios. The standard for a long time was 28/36. That means 28% of gross HH income for the PITI payment and a max 36% of HH income for all debt. A couple with $100K income will qualify for about 300K. A payment of $2300 (28,000/12) is about $300K at 6%. Assuming no other large debts, less than an additional $8000 per year.
Push those ratios to 37/45 (which our system uses) and you get that same couple in a $500K mtg.
Now, qualify them using the 37/45 ratios on an ARM at the 2 year introductory rate of 4% and now you have a fully qualified borrower for a $675K mtg. And, based on historically low foreclosure rates for ÔÇ£qualified borrowersÔÇØ MBSs get AAA ratings.
The MBSs were also used as collateral to borrow more money to lend out. When you leverage up like that you either get rich go Bear Stearns. Some market analysts think this drove the private equity boom.
It may be difficult to really pinpoint fraud, but rest assured more than just home prices need correction. These practices need correcting. And if the govt sends the message they will mitigate risk for everyone then history will repeat itself in similar fashionagain. (S&L..circa 80s)
One proposed fix that will do just that.
Sen Dodd and his buddies have come up with a plan. Assess the value of the house and readjust the mortgage principal based on the new value, less 20% for equity. e.g you have $200K mtg, the house is now worth $180K so you cannot re-fi out of your ARM or afford the impending adjustment. The new mtg will be based on a principal of $162K (180 less 20%). Why will the bank go for this? The gov't guarantees to make up the difference if defaulted. This is a great idea, what we have learned is ignoring risk is very very bad, the solution, eliminate risk, sorry, I misspoke, spread the risk to only those not responsible.
It gets better, their argument is that this will do two things:
1) Make homes affordable.
2) Protect the value of other homes by preventing foreclosure.
That's right, this plan will make home prices/values go up and down simultaneously. BRILLIANT!!
A few thoughts...
You donÔÇÖt need to really inflate income, you adjust the qualifying ratios. The standard for a long time was 28/36. That means 28% of gross HH income for the PITI payment and a max 36% of HH income for all debt. A couple with $100K income will qualify for about 300K. A payment of $2300 (28,000/12) is about $300K at 6%. Assuming no other large debts, less than an additional $8000 per year.
Push those ratios to 37/45 (which our system uses) and you get that same couple in a $500K mtg.
Now, qualify them using the 37/45 ratios on an ARM at the 2 year introductory rate of 4% and now you have a fully qualified borrower for a $675K mtg. And, based on historically low foreclosure rates for ÔÇ£qualified borrowersÔÇØ MBSs get AAA ratings.
The MBSs were also used as collateral to borrow more money to lend out. When you leverage up like that you either get rich go Bear Stearns. Some market analysts think this drove the private equity boom.
It may be difficult to really pinpoint fraud, but rest assured more than just home prices need correction. These practices need correcting. And if the govt sends the message they will mitigate risk for everyone then history will repeat itself in similar fashionagain. (S&L..circa 80s)
One proposed fix that will do just that.
Sen Dodd and his buddies have come up with a plan. Assess the value of the house and readjust the mortgage principal based on the new value, less 20% for equity. e.g you have $200K mtg, the house is now worth $180K so you cannot re-fi out of your ARM or afford the impending adjustment. The new mtg will be based on a principal of $162K (180 less 20%). Why will the bank go for this? The gov't guarantees to make up the difference if defaulted. This is a great idea, what we have learned is ignoring risk is very very bad, the solution, eliminate risk, sorry, I misspoke, spread the risk to only those not responsible.
It gets better, their argument is that this will do two things:
1) Make homes affordable.
2) Protect the value of other homes by preventing foreclosure.
That's right, this plan will make home prices/values go up and down simultaneously. BRILLIANT!!
Current: 1985 LS1 Corvette | 2014 328i Wagon F31
Former: 2010 Ford Edge | 1999 Integra GS
I have a little bit of a rub near lock but if you are turned to lock on a track there are other problems already...
Former: 2010 Ford Edge | 1999 Integra GS
I have a little bit of a rub near lock but if you are turned to lock on a track there are other problems already...