Foreclosures up 100% YOY (mortgages, loans, houses)

[katie45]

Originally Posted by IcantSELLmyHouse

The answer is GREED!!!!

Bravo!!! This is the correct answer!! It's the answer most don't want to hear or acknowledge - but that's why so many are in the mess they're in.

[Charles]

Originally Posted by sheri257

The same question applies to the internet bust. Why did people invest billions in companies with no revenue? It didn't make any sense and was phenomenally stupid but they still did it.

To me it all comes down to human nature and the herd mentality. Once a market gets hyped up with smoke and mirrors .... common sense doesn't apply.

You are referring to inexperienced investors. I am referring to world class corporations.

People (average joes with internet connections to schwab, etc.) who invested probably didn't employ legions of PhD statisticians and economists. I'm asking how world class companies (Countrywide, Washnigton Mutual, etc.) with huge technical staffs could get into this situation. They had to have known many people wouldn't be able to continue their payments. So far I haven't read any posts with a reasonable explanation. I know there are a lot of sharp people out there. Please chime in.


Washington Mutual

http://stocks.us.reuters.com/lib/charts/basic.asp?cht=price&symbol=US%3BWM&days=365&width= 172&height=127 (broken link)

Countrywide

http://stocks.us.reuters.com/lib/charts/basic.asp?cht=price&symbol=US%3BCFC&days=365&width =172&height=127 (broken link)

[IcantSELLmyHouse]

When you give out loans to people who either have bad credit or no down payment and to top it off put them on a ARM this is what you get. I think the lenders thought it would not ever go down. I would not call these "class companies" I call them greedy companies they made alot from closing costs and points and other hidden fees, they get what they deserve. Joe Homeowner did not do the homework needed. You need to READ THE CONTRACT before signing it. It will say what you are being charged for and how much. I have asked plenty of banks this question, Is there a early payoff penalty? If the answer is yes i walk out and if they answer no i look for it on the contract,to be sure they didnt lie to me or missed it. Ive been thru this in the mid 1990s and i have learned from it. Some learn some dont they may not like me when im there for 3 hours going over things but i want to know what i am signing. If i have a question ill ask it.Its not a dumb question if you do not know the answer. Not to many thought it would ever fall and not to many now think it can get as low as price levels that were seen in the year 2000. It can happen

[Axiom]

Originally Posted by Charles

Before this takes a stray tangent, I'd like to reiterate my question of how the mortgage companies with their infinite wisdom could let this happen. They had the experts, they knew the risks.

I don't think my question has been answered.

Hmm... I didn't think my earlier response was straying off point; but feel free to keep looking for an answer that makes sense, I'm just not sure you're going to find one.


Nevertheless,
I still think my take on it applies just as much to the big wigs as to the employees on the front lines trying to get that signature on the dotted line any way possible.

Subprime loans can be very lucrative. Many charge handsome interest rate premiums as compensation for the extra risk. Others have prepayment penalties that guarantee additional $$$ for the broker/lender at the back end as well.

But a lot of borrowers didn't seem to care about those little details, they were just happy to get into that big house they thought they'd never be able to afford. (they thought right)

So originators kept lowering lending standards and offering more and more creative, but risky, loans. They knew full well those borrowers couldn't afford the payments once the teaser rates expired. But they gambled that housing prices would continue to climb, ensuring that said borrowers could refinance their way out. Gee, even MORE money for lenders - what a deal!

On top of all that they were then able to bundle all those risky loans and somehow morph them into AAA rated securities to sell to investors.

And you discount GREED as a response?
Personally I think can't sell is right there with his answer.

[Huckleberry3911948]

Originally Posted by tigerclaws

This cant be good.

Foreclosure Filings Soar in 3Q: Financial News - Yahoo! Finance (broken link)

California, it up 36% from last quarter and up more than 100% from last year.

when chicken licken runs into the street yelling the sky is falling
rich folks buy lots of houses.

[IcantSELLmyHouse]

The rich folks are not buying right now,they are sitting right along the sidelines. When a house payment equals what rent is going for in an area thats when the so called rich folks will buy and then rent out to those who lost their homes.And they will buy them for about a third of the peak price. I see a new forclosure pop up almost everyday. It is a very sad situation i will not deny that, but...... I will let you fill in the rest.

[Charles]

Originally Posted by Axiom

And you discount GREED as a response?
Personally I think can't sell is right there with his answer.

No, I wasn't discounted greed as a response. I was looking for more of a mechanical response, with perhaps numbers, players, etc.

I think one problem is I am not an expert in the finance industry and my questions may be naive, oversimplified or slightly invalid. I got a feeling the explanation is very complicated (as someone at work today tried to explain it to me and I got lost...).

Today one explanation I heard was these mortgage big wigs are rewarded short term like quarterly and their bonuses are tied to short term sales. In the go go years of selling these wacky ARMs they made a killing on commissions and fees and they didn't care that three years later lots of these folks would default out. Yet the stock price dropped and that has to affect all of them. I would have thought that they would have realized that the price of homes would go down once all these foreclosures hit and one of the big results would be tighter lending practices = less loans = lower stock price.

[IcantSELLmyHouse]

Charles, The answer you were given today are very true and has quite a bit to do with the problem. The managers should of caught this during approval but i bet they also got a bonus. I think you do understand it, you might making it more complicated then it really is. Its also a competition thing if the bank (lender) down the road gave a loan like this then we better do the same to compete with them, or the other bank(lender) will get all of the business.

[sue-z]

Unfortunately I don't think we are anywhere near the bottom yet. My local paper lists real estate transactions and only 7 houses sold in my zip code. All were in the 200's except for 1 that sold for 199! One in my neighborhood that's a pretty nice 4 bedroom, on small acreage with a large shop went for 288, this one would have been at least in the upper 300's very recently...it's getting scary.Still lots of new tracts going in tho...what are they thinking?? sue-z

[sheri257]

Originally Posted by Charles

You are referring to inexperienced investors. I am referring to world class corporations.

No, actually, I wasn't. How do you think all of those internet companies got IPO's to begin with? Because major Wall Street firms and corporations were buying into it hook, line and sinker. Even the major pension funds got burned, just like they have with the housing crash.

Whether it's the stock market, real estate market or whatever... people don't seem to care about the fundamentals as long as the market is going up and they're making money ... even if the whole thing is built on a house of cards.

The reason, IMO, is because the focus and the pressure is always on the short term quarterly profits. How much money are you making right NOW.

If you're a publicly traded company, simply being profitable isn't good enough ... a ten percent rate of return is often viewed as a failure. The pressure is always to make 20 percent or better and, if you don't do that no matter what ... you're toast.

If you're not jumping on the bandwagon making a lot of money right NOW and try to take a long term, more responsible approach, then people take their money elsewhere, your stock price tanks and you lose a lot business as well as investment capital.

Of course, the stock price tanks later on but, what your graphs don't show is how much the stock prices when up during the boom cycle. The Wall Street pressure cooker is totally focused on the short term ... they don't care about the long term because once the bust is on the horizon, they just move on to the next bubble investment.

That's the real problem ... IMO.