 |
|
|
|||||
| « Previous thread | Next thread » |
IndyMac to Cut Work Force, Halt Most Loans Applications
By JAMES R. HAGERTY and DAMIAN PALETTA
Wall Street Journal, July 8, 2008
"IndyMac Bancorp Inc. said it has stopped taking most types of loan
applications and will cut more than half of its work force as it
struggles with losses from home-mortgage defaults.
The Pasadena, Calif., mortgage company and savings-bank operator is
one of the largest lenders yet to be forced by the credit crunch to
ditch the bulk of its business. IndyMac specialized during the housing
boom in Alt-A loans, a category between prime and subprime that
typically involves borrowers who don't fully document their incomes or
assets."
****************************************************
****************************************************
*********************
I don't understand why such loans were ever made. Giving a lender a
few W-2 forms, tax returns, and bank/brokerage statements is not
difficult. The IRS offers free tax transcripts. A person who cannot
document income or assets should not be getting a loan.
There is no "magic" ratio of mortgage, home insurance, and property
tax payments to income above which a delinquency is impossible -- the
lower the better. In a free country, lenders ought to be able to make
riskier loans at higher interest rates and absorb the occasional
losses, as in the credit card industry. But why wouldn't lenders
gather information before handing over hundreds of thousands of
dollars?
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
<b...@a...com> wrote
> In a free country, lenders ought to be able to make
> riskier loans at higher interest rates and absorb the
> occasional
> losses, as in the credit card industry. But why wouldn't
> lenders
> gather information before handing over hundreds of
> thousands of
> dollars?
I honestly feel that even the upper ranks of lenders' staff
are abysmally educated. Thus they got caught up in the
housing bubble (you can't lose when houses only go up and by
lots! [not]). Then they fooled themselves into trusting that
high risk loans could be re-packaged into lower risk
vehicles. I think when one is making money hand over fist,
one gets blinded. (And but for the grace of god, there go I.
I got a tad too caught up in banks' high dividends.)
I know many here consider this a sound theory. Just
reiterating so maybe this will become a lesson to be
recorded in the annals of history. Like the causes of the
Great Depression.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
b...@a...com wrote:
> But why wouldn't lenders
>gather information before handing over hundreds of thousands of
>dollars?
Because they could. The mortgage brokers got paid for making loans. As long as
they met the standards to sell the loan, they didn't care. The buyers of the
loans didn't care. They packaged them up, got some ratings agency to rate them
"AAA" and sold the CDO's to investors, who believed the "AAA" ratings.
It all worked as long as housing prices kept going up. If the homeowner
defaulted, the lender took the house and sold it for enough to be made whole.
-- Doug
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
On Jul 8, 7:35 am, b...@a...com wrote:
> I don't understand why such loans were ever made. Giving a lender a
> few W-2 forms, tax returns, and bank/brokerage statements is not
> difficult. The IRS offers free tax transcripts. A person who cannot
> document income or assets should not be getting a loan.
>
> There is no "magic" ratio of mortgage, home insurance, and property
> tax payments to income above which a delinquency is impossible -- the
> lower the better. In a free country, lenders ought to be able to make
> riskier loans at higher interest rates and absorb the occasional
> losses, as in the credit card industry. But why wouldn't lenders
> gather information before handing over hundreds of thousands of
> dollars?
This is not a question about financial planning, but since the
moderator approved it, I suppose it deserves an answer that also
doesn't involve financial planning.
The subprime problem occurred because neither the mortgage brokers nor
the bankers had any "skin" in the game. The brokers were lending money
supplied by the bankers, securitized by investment bankers, and rated
by securities rating companies. The brokers made money on every loan,
but had no risk of loss if the loan failed. The bankers were selling
the mortgages as soon as they were written to replenish their money
supply. They were making money every loan they made, but were taking
no risk, either. The investment bankers packaged the loans, obtained
favorable ratings, and sold them to investors. They made money on
every loan, but also had no risk of loss. The rating companies were
paid by the investment bankers, who wanted high ratings to ease sales
to investors, and satisfied their customers. They made money on every
loan, but they also took no risk by overrating the packaged loans.
Loan qualification rules merely were impediments to the brokers,
bankers, investment bankers, and rating companies making more money,
so they found ways to relax the rules and finally to eliminate them
completely.
Dave
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
"Dave Dodson" <d...@j...com> wrote in message
news:3871f48c-30e2-436c-91b2-8fe03caeb9a7@m73g2000hs
h.googlegroups.com...
>
>The brokers were lending money
> supplied by the bankers, securitized by investment bankers, and rated
> by securities rating companies. The brokers made money on every loan,
> but had no risk of loss if the loan failed. The bankers were selling
> [etc.]
A Ponzi scheme?
Elizabeth Richardson
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
Dave Dodson wrote:
> The subprime problem occurred because neither the mortgage brokers nor
> the bankers had any "skin" in the game. The brokers were lending money
> supplied by the bankers, securitized by investment bankers, and rated
> by securities rating companies.
Securitizing itself became part of the problem. In the 'old' days, even
a 90% loan to value mortgage was something one could understand. If the
house dropped 20%, the mortgage holder stood to lose 1/9 of their funds
(plus costs, of course). Securitization brought in more liquidity, of
course, but also created instruments that were incomprehensible, slicing
and dicing pools of loans so some pieces had no underlying value from
day one. Even in normal times, one can slice up the expected payment
streams to create tranches which would be impacted by even a low default
rate. This time, those tranches all bubbled up too soon and too many at
once as rates rose.
Joe
www.blog.joetaxpayer.com
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
Dave Dodson wrote:
>> There is no "magic" ratio of mortgage, home insurance, and property
>> tax payments to income above which a delinquency is impossible -- the
>> lower the better. In a free country, lenders ought to be able to make
>> riskier loans at higher interest rates and absorb the occasional
>> losses, as in the credit card industry. But why wouldn't lenders
>> gather information before handing over hundreds of thousands of
>> dollars?
>
>
> The subprime problem occurred because neither the mortgage brokers nor
> the bankers had any "skin" in the game. The brokers were lending money
> supplied by the bankers, securitized by investment bankers, and rated
> by securities rating companies. The brokers made money on every loan,
> but had no risk of loss if the loan failed. The bankers were selling
> the mortgages as soon as they were written to replenish their money
> supply. They were making money every loan they made, but were taking
> no risk, either. The investment bankers packaged the loans, obtained
> favorable ratings, and sold them to investors. They made money on
> every loan, but also had no risk of loss. The rating companies were
> paid by the investment bankers, who wanted high ratings to ease sales
> to investors, and satisfied their customers. They made money on every
> loan, but they also took no risk by overrating the packaged loans.
>
> Loan qualification rules merely were impediments to the brokers,
> bankers, investment bankers, and rating companies making more money,
> so they found ways to relax the rules and finally to eliminate them
> completely.
Thank you, that is the clearest explanation of this mess I've heard yet.
The greedheads keep pointing at each other so you can't figure out who
to blame. Greed is good until you bring the whole house down on everybody.
I wonder if this is going to end like the Savings and Loan scandal of
the Keating era (John McCain was one of his Five). Massive gov
bail-outs for the greedheads and screw the middle guy.
That affects financial planning, brother!
Chip
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
"Dave Dodson" <d...@j...com> wrote
> The subprime problem occurred because neither the mortgage
> brokers nor
> the bankers had any "skin" in the game. The brokers were
> lending money
> supplied by the bankers, securitized by investment
> bankers, and rated
> by securities rating companies. The brokers made money on
> every loan,
> but had no risk of loss if the loan failed. The bankers
> were selling
> the mortgages as soon as they were written to replenish
> their money
> supply. They were making money every loan they made, but
> were taking
> no risk, either. The investment bankers packaged the
> loans, obtained
> favorable ratings, and sold them to investors. They made
> money on
> every loan, but also had no risk of loss.
Don't the many bank writedowns of recent months show that
the banks gambled, took risks, and lost? Also, when a bank
requires minimal-to-no downpayment on a home mortgage, and
then the house price goes upside-down and many folks
default, the risk is clear.
I agree there were underlings who made money on transaction
costs of home sales, but this money was relatively meager.
Also, these underlings do not control things like the
integrity of re-packaged mortgages and how much downpayment
is required.
Aside: I think this does go towards financial planning for
ordinary folks. We are seeing history here, insofar as
another bubble has burst. Noting what caused the bubble is
important. Ordinary folks must never look at an investment
such as a house, stock, or mutual fund as an ATM machine.
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
"Elle" <h...@s...net> wrote in message
news:PDcdk.27275$i55.3854@newsfe22.lga...
> Ordinary folks must never look at an investment such as a house, stock,
> or mutual fund as an ATM machine.
Ordinary folks ought not to look at their house as an investment.
Elizabeth Richardson
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
> Ordinary folks ought not to look at their house as an investment.
>
> Elizabeth Richardson
Agreed, but for some, the downsize after retirement can certainly help.
No matter the economy, the person who sells their Boston or LA home and
moves to a smaller home further away from a city is going to pocket some
difference there. It would certainly be wise to underestimate that sum.
Joe
--------------------------------------
Misc.invest.financial-plan is a moderated newsgroup where Moderators strive
to keep the conversations on-topic for financial planning. Other posting
guidelines include a request for brevity and another for trimming posts to
which we respond. For all of the other tips and suggestions, see "FROM THE
MODERATORS: Posting to misc.invest.financial-plan", a weekly post now on the
Newsgroup.
| « Previous thread | Next thread » |
529 plan questions from someone in Alabama
I need online portfolio tracking.
Model Portfolio of beaten up stocks
FROM THE MODERATORS: Posting to misc.invest.financial-pl an
Economics of retaining an older car, versus a buying a new car
vanguard target retirement fund vs. fidelity freedom fund
FROM THE MODERATORS: Posting to misc.invest.financial-pl an
Pension Plan - Single Life Annuity (Divorced)
Up