InnoVest Resource Management's Foreclosure Forum

Home Discussion Board "Hands-On" Training Title Holding Trust Speaking Schedule Store Foreclosure Fundamentals Code References 50 State Foreclosure Basics Foreclosure Glossary Foreclosure Statistics 70+ Yrs Interest Rates Fillable Forms Archived Articles Dingbat Retirement Plan Links Contact / Map About Us Home

[ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] Re: More importantly, what primary rule change effectuated this debacle? Posted by Nick(Colorado) on March 31, 2008 at 1:03 PM In Reply to: More importantly, what primary rule change effectuated this debacle? posted by Ward-CA- on March 31, 2008 at 8:25 AM I think that we all know the reasons behind the increase in foreclosures, there is plenty of blame to go around, all of these points are regenerative, feeding back into themselves: 1. A lengthy period of easy money led to a long period of expansion of home values. More importantly there was an expectation of ever increasing home values. This expectation was on the part of both homeowners and lenders. 2. As properties became more expensive lenders and mortgage brokers brought to market, or were more inclined to use, a host of loan types that allowed for less money down then was common 10 or 15 years ago. 3. Securitization rules of many interest only or negative amitorization loans allowed for full booking of interest and principal payments when either in default, or interest only payments were being made. This results in higher profits when there is -less- money coming in. 4. Loans were made to people that can not afford the loans beyond the early teaser rates. So what you have is an expectation that the property will go up in value. The homeowner purchases with little or no money down. The loan type is likely to be a negative/reverse amitorization during the first years of the loan. The homeowner holds the property for two years and sells. The profit covers the early payoff penalty, and a new Hummer, and the homeowner moves on. Everyone is happy, everyone made money. Now when 95% of the people are all betting on the property values going up, it may be time to remove your chips from the table. Think about what happens in the above scenario when the bubble bursts. All these points are also regenerative, feeding back into themselves: 1. The homeowner has no vested interest in the property, because there was little or none of their money on the table. So they may stop payments if their equity goes negative. 2. The loan is being booked as if full payments are being made, while in default. If a bunch of people do this, the securitized instruments behind the loans have a major cash crunch, and fail. 3. Lenders tight up and return to a more conservative criteria. So less money is available, property values drop to be more inline with income driven numbers. So, major bubble, major burst. Follow Ups: Post a Followup: Name : E-Mail : Subject : Comments: : I think that we all know the reasons behind the increase in : foreclosures, there is plenty of blame to go around, all of these : points are regenerative, feeding back into themselves: : 1. A lengthy period of easy money led to a long period of expansion : of home values. More importantly there was an expectation of : ever increasing home values. This expectation was on the part of : both homeowners and lenders. : 2. As properties became more expensive lenders and mortgage brokers : brought to market, or were more inclined to use, a host of loan : types that allowed for less money down then was common 10 or 15 : years ago. : 3. Securitization rules of many interest only or negative amitorization : loans allowed for full booking of interest and principal payments : when either in default, or interest only payments were being made. : This results in higher profits when there is -less- money coming in. : 4. Loans were made to people that can not afford the loans beyond : the early teaser rates. : So what you have is an expectation that the property will go up in value. : The homeowner purchases with little or no money down. The loan type is : likely to be a negative/reverse amitorization during the first years of : the loan. The homeowner holds the property for two years and sells. : The profit covers the early payoff penalty, and a new Hummer, and the : homeowner moves on. Everyone is happy, everyone made money. : Now when 95% of the people are all betting on the property values going : up, it may be time to remove your chips from the table. Think about what : happens in the above scenario when the bubble bursts. All these points : are also regenerative, feeding back into themselves: : 1. The homeowner has no vested interest in the property, because there : was little or none of their money on the table. So they may stop : payments if their equity goes negative. : 2. The loan is being booked as if full payments are being made, while : in default. If a bunch of people do this, the securitized instruments : behind the loans have a major cash crunch, and fail. : 3. Lenders tight up and return to a more conservative criteria. So : less money is available, property values drop to be more inline with : income driven numbers. : So, major bubble, major burst. [ Follow Ups ] [ Post Followup ] [ The Forum Board ] [ FAQ ] WWWAdmin 2.0a © 1997 Matt Wright and DBasics Software Company, All Rights Reserved

Information provided by this website is for informational purposes only and is not a substitute for professional advice. Please consult your investment advisor and/or attorney before entering into any transaction. Read our privacy policy.

Copyright © 1997-2008, InnoVest Resource Management
http://www.foreclosureforum.com

InnoVest Resource Management, 4569-A Mission Gorge Place, San Diego CA 92120-4112
(619) 283-5444, Fax (619) 283-5455