Sub-Prime Lending/Foreclosure etc

[ryan costa]

Was it Alan Greenspan who said, "this wouldn't be happening if properties all appreciated 10 percent a year".

Mortgage Loans, Equity refinance loans, etc are all "products". Nobody sells products by describing their potential or likely shortfalls. Nobody sells Humvees by describing their mileage or how often they breakdown. The Gap doesn't sell clothes by describing how quickly they will go out of style.

Our nations economic policies are described in terms of the "consumer". Mortgage brokers, real estage agencies, title agency work are all hot jobs of the information economy. They aren't "legacy" or "industrial" jobs. All these people get paid when a mortgage is taken out or refinanced, regardless of whether that mortgage is defaulted. It is not in the interest of the industry to make sure the borrower fully understands and acknowledges the risks.

While borrowers will always be responsible for this, the eventual outcome was inevitable. All this loaning money back and forth for real estate that wouldn't really appreciate 10 percent a year forever generated a lot of economic activity measured as GDP and forming up into financial instruments for the big hedge funds to trade back and forth. Those years of a "soaring" economy were hardwired to result in exactly what is happening now. Whether it is a crisis or not is a matter of personal judgement.

The banks frequently don't know what to do with their foreclosed properties. How much does it cost them to complete the foreclosure process? How much is a house that doesn't sell worth? Is it worth more on the books not selling for its book value than selling for far less? Would it have been more productive to lower the interest rate a few points in the excell spread sheet for that mortgage or hitting a few keys to lower the book value? Can they assume ownership of the house and grant the previous owner an indefinite easement in exchange for "rent"?

[Brian Pedaci]

Bill Callahan has a great post today explaining how the buyer in a sheriff's sale isn't always the actual owner of the property.

[Bill Call]

Some of the best analysis and discussion of the sub prime lending problem comes from England:

http://youtube.com/watch?v=SJ_qK4g6ntM

It's well worth the time.

[ryan costa]

Bill Callahan's diagram shows there are a lot more parties involved in financing homes today than yesteryear. In yesteryear most of those people would be working in the administration of small or medium sized factories, mills, foundries, shops, modest sized banks, distribution networks, etc. Now they pass pieces of mortgages around. It is the information economy of the 21st century.

[sharon kinsella]

Bill -

This is the most sensible thing you have ever posted.

Could be a training film for the mortgage lenders.