STFU

omfgayfkm?

I keep my posts related to fishing material but occasionaly wander to other forums. I have a sincere question that I hope someone will take the time to answer. My understanding of the current economic woes is that banks are failing because people are walking away from their homes because they:

1. Lost their jobs can't find a replacement soon enough, fail to make the mortgage payment and walk away or

2. Their ARM loans finally caught up with them and their payment went from $800 to $1800 and they can't make the payment and walk away.

Losing your job is tough and I have a little more compassion for these folks.

However, pertaining to the other scenario, why didn't home owners when, after realizing their mortage payment was going to double, didn't they refinance to a lower rate?

My guess, with what little economics I understand, is they bought more house than they could afford and so instead of creating some equity, they were slowly but steadily went further and further in the hole.

Assuming I have a handle on this, I would guess if I were to place blame, it would be to those that signed on the bottom line with partial blame going to banks and loan officers for allowing folks to borrow more than they could afford.

I bought two houses (selling one to buy the other) in the last few years. After the loan officer told me what I could afford, I lowered it by several hundred dollars per month so I was not living on the edge all the time. I suspect there are some who should have done the same.

Anyone?

Or should I just tell myself to STFU (which BTW I just found out what it meant a few weeks ago).

Our current "crisis" that was really exposed by the mortage problem is that bank have becomed to far leveraged and with the current rate of defaults they couldn't cover their losses. Not enough money on hand.



"2. Their ARM loans finally caught up with them and their payment went from $800 to $1800 and they can't make the payment and walk away."

People who took out the "ARMs" and also took out a second mortage to cover the down payment could not qualify for standard mortages. When banks were making "Drug dealer" loans, no proof of income or financial history the system was doomed. The whole house of cards that was inflating the housing market could only be sustained if more and more people coould live the "Americam dream of home ownership". (That is a Bush quote). Well the truth is some people can never own a home. They are either not financially responsable or they don't have enough income or both.

http://www.bloomberg.com/apps/news?pid=newsarchive&sid=aFGf71vlQkWM

The percentage of subprime mortgages packaged into bonds and delinquent by 90 days or more, in foreclosure or already turned into seized properties climbed to 10.09 percent from 9.08 percent in October, analysts led by Michael D. Youngblood at the Arlington, Virginia-based firm said in a report today. The default rate fell to 5.37 percent in May 2005 from 10.05 percent in November 2001, when economic growth resumed.

The default rate is the nearly the same as it was back in 2001, the difference is that now banks cannot cover the losses partial due to having less capitol on hand that isn't also leveraged. This in great part due to the Grahm sponsered bill the relaxed regulation on them and other banking institutions. Along with less oversight.