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Fannie Mae, Freddie Mac and some good old government intervention

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    AegisAegis Fear My Dance Overshot Toronto, Landed in OttawaRegistered User regular
    edited September 2008
    You know, long term thinking, this whole situation might be positive. I'm sure we'll either get some sort of massive reorganization of this industry or the government telling them "you're getting more regulations."

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    DasUberEdwardDasUberEdward Registered User regular
    edited September 2008
    So Goldman Sachs isn't looking too hot. . .

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    AegisAegis Fear My Dance Overshot Toronto, Landed in OttawaRegistered User regular
    edited September 2008
    AIG bailout upsets Republican lawmakers
    WASHINGTON (CNN) -- Key Republicans on Capitol Hill blasted the Treasury Department and the Federal Reserve on Wednesday for orchestrating an $85 billion bailout of insurance giant American International Group, and the White House for not informing them of the plan.

    Some lawmakers complained Wednesday they didn't know a bailout of AIG was in the works.

    Meanwhile, Democrats blamed the Bush administration for the financial crisis, while the White House pointed a finger at Congress.

    The criticism came a day after lawmakers were surprised by the news that taxpayers would again be called on to shore up a member of the struggling financial sector.

    "Once again the Fed has put the taxpayers on the hook for billions of dollars to bail out an institution that put greed ahead of responsibility and used their good name to take risky bets that did not pay off," said Sen. Jim Bunning, R-Kentucky, a member of the Senate Banking Committee.

    A spokesman for Sen. Richard Shelby of Alabama, the top Republican on the committee, said the senator "profoundly disagrees with the decision to use taxpayer dollars to bail out a private company" and is upset the government has sent an inconsistent message to the markets by bailing out AIG after it just refused to save investment bank Lehman Brothers from bankruptcy.

    "The American taxpayer should not be asked to unwillingly assume the inordinate risks that financial experts knowingly undertook, particularly when taxpayer exposure is increased by the ad hoc manner in which these bailouts have been engineered," said Shelby's aide, Jonathan Graffeo. Video Watch how bailout affects taxpayers »

    Republican Rep. Roy Blunt of Missouri complained about not getting a heads-up about the bailout and said House Republicans are struggling to "understand a coherent strategy" about which firms get rescued and which ones don't.

    Rep. Adam Putman of Florida, the third-ranking Republican in the House, said the cost is "unnerving" and called on the Treasury Department and Federal Reserve "to dispatch an envoy to the Hill to bring members of Congress up to speed."
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    "The communications lines are not operating efficiently," he said.

    Late Wednesday, the White House agreed to send a top Bush economic adviser and an official from the Fed to brief House Republicans Thursday, according to a House GOP aide.

    Meanwhile, Congressional Democrats placed the blame for the crisis squarely on the Bush administration, arguing it failed to aggressively regulate the financial industry.

    "The most recent bailout initiated by the Bush Administration -- that of AIG -- is just another example that George Bush is a failed manager," said House Speaker Nancy Pelosi, D-California. "Because of the inattention, or a decision on their part to have crony capitalism in our country, Americans across the country are feeling the pain of this."

    Pelosi said two House committees would investigate the recent bailouts "to tell us how we can avoid this in the future, what went wrong here and also to look into this issue of fraud and mismanagement" at AIG.

    White House spokeswoman Dana Perino said Congress could have done more to head off the crisis.

    "I think that Congress needs to take -- before they start throwing arrows -- take a little bit of time for some self-reflection," she said. "But also, why don't we just set that aside for a minute and focus on the fact that we have a crisis that we're trying to manage."

    Senate Majority Leader Harry Reid -- who also complained that he didn't know a bailout of AIG was in the works -- said Congress won't change laws immediately to address the rapidly unfolding financial crisis because "no one knows what to do."

    "We are in new territory here," Reid added. "You could ask [Federal Reserve Chairman Ben] Bernanke, you could ask [Treasury Secretary Henry] Paulson. They don't know what to do, but they are trying to come up with ideas."

    Reid said he will keep the Senate in session through the end of the year so committees can hold hearings and start writing legislation that he said could become law next year.

    "It's a multitrillion-dollar issue that's facing America, and we can't do it in some timeline that is unrealistic," Reid said.

    Yes, because not bailling out this company, while showing companies that they can't take idiotic risks, is going to do wonders to the economy. :|

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    YarYar Registered User regular
    edited September 2008
    Yeah, we could suppose a calculation that shows just how much we'd all lose if we didn't bail these markets out.

    Remember, there is very little bailing out of any owners, directors, or executives. What is being bailed out is a business. A legal entity that defines how a lot of different people interact with one another. A paper structure that keeps the economy moving. The people who made bad decisions (generally speaking) aren't getting bailed out. The legal entity is, in the interest of all those who rely on it and who aren't responsible for the mess.

    Yar on
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    themightypuckthemightypuck MontanaRegistered User regular
    edited September 2008
    I'm suffering from pretty much constant anxiety attacks. I've always had a view that the economy is a house of cards and the people running it don't know what the fuck they are doing. This just feeds my fear. Luckily I've been saving a xanax scrip and a cold bottle of grey goose for this sort of situation.

    themightypuck on
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    JebusUDJebusUD Adventure! Candy IslandRegistered User regular
    edited September 2008
    JebusUD on
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    DalbozDalboz Resident Puppy Eater Right behind you...Registered User regular
    edited September 2008
    Aegis wrote: »
    You know, long term thinking, this whole situation might be positive. I'm sure we'll either get some sort of massive reorganization of this industry or the government telling them "you're getting more regulations."

    No. Expect some pretty significant inflation in the near future as the money floods the market in order to bail these companies out. Then things will level off. The economy will heal. Things will start going up again. Then it will crash again and the whole thing will start over. Remember who makes the rules: The people who are in bed with the companies to begin with. They won't regulate to protect the investments or the companies as long as the executives get to keep skimming off the top and keeping their money and getting their friends re-elected. They'll regulate in the interests of their friends and donors and nothing else.

    The problem is that the regulations that are in place were for the most part put in with the New Deal (with minor revisions since then), so we have a system that's designed to regulate a pre-WWII economy and lending practices. It's not designed to cover an economy that's grown to the scale that it has. It's like building a hut on wooden stilts to protect it from flood waters, then deciding you need to enlarge the building to grow your family. You keep adding on and adding on until you have a large concrete high-rise sitting on small wooden stilts for it's foundation. It's going to collapse under it's own weight at some point.

    I'm copyrighting this idea. No one else is allowed to make a political cartoon out of this.

    Dalboz on
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    MuddBuddMuddBudd Registered User regular
    edited September 2008
    Aegis wrote: »

    When did they suddenly become fiscal conservatives again?

    Oh right. When it looked like they were the ones responsible for letting it get that bad.

    MuddBudd on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Welp. HBOS (Halifax Bank of Scotland, previously two banks that merged some years ago) shares nose-dived a couple of days ago and now Lloyds TSB (again, two banks that merged some years ago) have put in a bid to merge with them, creating some sort of Akira super-bank.

    I'm not very financially savvy so I have no real idea of what this means. HBOS already owned a huge chunk of the UK mortgage market and so now this behemoth is going to control 1/3 of it. We have a mortgage, two bank accounts and an ISA with HBOS.

    Szechuanosaurus on
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    DasUberEdwardDasUberEdward Registered User regular
    edited September 2008
    We all saw this coming right? Things will be much better in about a year if everything goes as predicted.

    it has to :(

    DasUberEdward on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    We all saw this coming right? Things will be much better in about a year if everything goes as predicted.

    it has to :(

    Is Omnibank of Europe a good thing?

    Szechuanosaurus on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    The pessimist who predicted this is saying 18 months.

    Goumindong on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Goumindong wrote: »
    The pessimist who predicted this is saying 18 months.

    My fixed rate mortgage is due for renewal summer 2010, so that wouldn't be so bad.

    Szechuanosaurus on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Its a fixed rate mortgage. You will come out spectacularly through all of this. At least, as long as there is inflation. As inflation increases the amount of real money that you have to pay on your loan will decrease in real dollars.

    Goumindong on
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    japanjapan Registered User regular
    edited September 2008
    Welp. HBOS (Halifax Bank of Scotland, previously two banks that merged some years ago) shares nose-dived a couple of days ago and now Lloyds TSB (again, two banks that merged some years ago) have put in a bid to merge with them, creating some sort of Akira super-bank.

    I'm not very financially savvy so I have no real idea of what this means. HBOS already owned a huge chunk of the UK mortgage market and so now this behemoth is going to control 1/3 of it. We have a mortgage, two bank accounts and an ISA with HBOS.

    For what it's worth, Alex Salmond (Scottish First Minister) is tubthumpingly against this. One of his prominent angles of attack is that it's likely that The Bank of Scotland will lose it's right to print it's own banknotes which would be "A blow to Scottish Identity".

    Now, this is the thing that always has me wondering about him. In practice there are a number of good reasons to oppose the merger: the lost jobs, the likely general depressing effect on the Scottish economy, the competitive implications, etc. I'm never certain whether Salmond actually believes his own rhetoric on things like this, or whether he's deliberately trying to whip up popular support for better reasons than he publicly espouses.

    japan on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    japan wrote: »
    Welp. HBOS (Halifax Bank of Scotland, previously two banks that merged some years ago) shares nose-dived a couple of days ago and now Lloyds TSB (again, two banks that merged some years ago) have put in a bid to merge with them, creating some sort of Akira super-bank.

    I'm not very financially savvy so I have no real idea of what this means. HBOS already owned a huge chunk of the UK mortgage market and so now this behemoth is going to control 1/3 of it. We have a mortgage, two bank accounts and an ISA with HBOS.

    For what it's worth, Alex Salmond (Scottish First Minister) is tubthumpingly against this. One of his prominent angles of attack is that it's likely that The Bank of Scotland will lose it's right to print it's own banknotes which would be "A blow to Scottish Identity".

    Now, this is the thing that always has me wondering about him. In practice there are a number of good reasons to oppose the merger: the lost jobs, the likely general depressing effect on the Scottish economy, the competitive implications, etc. I'm never certain whether Salmond actually believes his own rhetoric on things like this, or whether he's deliberately trying to whip up popular support for better reasons than he publicly espouses.

    'Loss of identity' is perhaps easier for joe public to digest and get outraged at than any of the real reasons it's a bad idea.

    Szechuanosaurus on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Goumindong wrote: »
    Its a fixed rate mortgage. You will come out spectacularly through all of this. At least, as long as there is inflation. As inflation increases the amount of real money that you have to pay on your loan will decrease in real dollars.

    Interesting. I don't really understand that last sentence but it makes me vaguely optimistic. Is this dependent on my salary increasing in line with inflation/cost of living?

    Szechuanosaurus on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Goumindong wrote: »
    Its a fixed rate mortgage. You will come out spectacularly through all of this. At least, as long as there is inflation. As inflation increases the amount of real money that you have to pay on your loan will decrease in real dollars.

    Interesting. I don't really understand that last sentence but it makes me vaguely optimistic. Is this dependent on my salary increasing in line with inflation/cost of living?

    Pretty much. Inflation is a price increase without an increase in production. I.E. Stuff costs more, but its not any better and you don't get more of it. Currently, at least in the U.S. salaries are increasing at the inflation rate.[which means laborers aren't getting payed more in real dollars]. When inflation occurs, salaries tend to lag behind, but they are likely to follow.

    So if you owe 5% on a loan, and the inflation rate is 6% then the real value of the loan drops by 1% each year as the value of the dollar drops relative to the value of stuff and work.

    I don't think i did a good job of explaining that, but the economics pages on wiki are surprisingly well done, so you can head on over there and read up on inflation and interest.

    fake edit after a real edit:

    A good way to explain it is this. A loan is when the lender sells the lendee money today, in exchange for money tomorrow. Inflation is a general devaluation of the currency[Its good for some reasons and bad for others, but generally when low, its good] which means that relative to currency, "stuff" is worth more. So when the lender sells you the money he expects to get a return over inflation. I.E. he expects to profit in terms of "stuff". At say, 3% inflation and a 5% interest, the lender makes 2% per year in "stuff". This is reasonable to you, the lendee, because owning the stuff earlier allows you to be more efficient[for a number of material reasons before tax benefits] in your production.

    But if inflation is 6% per year, and the lender is making 5% per year, the loses 1% per year in "stuff" until inflation drops again. So if you have a fixed rate mortgage inflation is good for you so long as there isn't hyperinflation and your wages increase as expected[i.e. you don't get fired]. This is because you traded money for stuff and all of a sudden, stuff got more valuable. If you own a mortgage, inflation is bad for you since you traded stuff for money and all of a sudden, money got less valuable.

    Goumindong on
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    FyreWulffFyreWulff YouRegistered User, ClubPA regular
    edited September 2008
    Dalboz wrote: »
    Aegis wrote: »
    You know, long term thinking, this whole situation might be positive. I'm sure we'll either get some sort of massive reorganization of this industry or the government telling them "you're getting more regulations."

    No. Expect some pretty significant inflation in the near future as the money floods the market in order to bail these companies out.

    Actually all the money we're loaning them is about how much all their assets are worth, so really not that much new money in the long term.

    although I will agree with you about how it's been pretty much a succession of patchwork solutions on fixing the system.

    FyreWulff on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Goumindong wrote: »
    Goumindong wrote: »
    Its a fixed rate mortgage. You will come out spectacularly through all of this. At least, as long as there is inflation. As inflation increases the amount of real money that you have to pay on your loan will decrease in real dollars.

    Interesting. I don't really understand that last sentence but it makes me vaguely optimistic. Is this dependent on my salary increasing in line with inflation/cost of living?

    Pretty much. Inflation is a price increase without an increase in production. I.E. Stuff costs more, but its not any better and you don't get more of it. Currently, at least in the U.S. salaries are increasing at the inflation rate.[which means laborers aren't getting payed more in real dollars]. When inflation occurs, salaries tend to lag behind, but they are likely to follow.

    So if you owe 5% on a loan, and the inflation rate is 6% then the real value of the loan drops by 1% each year as the value of the dollar drops relative to the value of stuff and work.

    I don't think i did a good job of explaining that, but the economics pages on wiki are surprisingly well done, so you can head on over there and read up on inflation and interest.

    fake edit after a real edit:

    A good way to explain it is this. A loan is when the lender sells the lendee money today, in exchange for money tomorrow. Inflation is a general devaluation of the currency[Its good for some reasons and bad for others, but generally when low, its good] which means that relative to currency, "stuff" is worth more. So when the lender sells you the money he expects to get a return over inflation. I.E. he expects to profit in terms of "stuff". At say, 3% inflation and a 5% interest, the lender makes 2% per year in "stuff". This is reasonable to you, the lendee, because owning the stuff earlier allows you to be more efficient[for a number of material reasons before tax benefits] in your production.

    But if inflation is 6% per year, and the lender is making 5% per year, the loses 1% per year in "stuff" until inflation drops again. So if you have a fixed rate mortgage inflation is good for you so long as there isn't hyperinflation and your wages increase as expected[i.e. you don't get fired]. This is because you traded money for stuff and all of a sudden, stuff got more valuable. If you own a mortgage, inflation is bad for you since you traded stuff for money and all of a sudden, money got less valuable.

    Ok, so while I'm still in the fixed rate mortgage I'm effectively getting more for my money (at least, relative to what I could get were I to take out a similar sized mortgage today). What happens when the fixed rate ends though? Presumably I'm suddenly going to have a huge leap in my monthly payments unless things make a rapid reversal between now and then?

    Szechuanosaurus on
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    CauldCauld Registered User regular
    edited September 2008
    Really, none of this affects most individuals beyond their investments, and future borrowing. Your mortgage won't change. Your bank account likely won't change. At most all that will happen is the name of the bank will change on your statements/mortgage.

    edit: when your fixed rate ends (if it ends) you'll have to pay the market rate, so your payments will increase with the current market. You won't, however, have to "make up" any of the "discount" you were getting. If its easier, just imagine that you'll essentially get a new loan for the amount outstanding on the old loan, at a new interest rate. I don't think you're looking at a big rate change either. I'd guess based on nothing at all, that your loan would jump at most 2% points.

    Cauld on
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    bowenbowen How you doin'? Registered User regular
    edited September 2008

    Ok, so while I'm still in the fixed rate mortgage I'm effectively getting more for my money (at least, relative to what I could get were I to take out a similar sized mortgage today). What happens when the fixed rate ends though? Presumably I'm suddenly going to have a huge leap in my monthly payments unless things make a rapid reversal between now and then?

    I was under the assumption that fixed rate mortgages stayed fixed rate until the end of it's term. Is this not the case?

    bowen on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Ok, so while I'm still in the fixed rate mortgage I'm effectively getting more for my money (at least, relative to what I could get were I to take out a similar sized mortgage today). What happens when the fixed rate ends though? Presumably I'm suddenly going to have a huge leap in my monthly payments unless things make a rapid reversal between now and then?

    If your fixed rate ends before you have payed off your mortgage, its not a fixed rate mortgage, its a variable rate mortgage. If that is the case, they will increase your rate as much as they can to cover their costs over inflation at the very least. In that case inflation is still good for you now if your wages continue to go up at the inflation rate and will be good, but less good when it comes to raising their rates because they are likely limited in how high and how fast they can raise their rates[which means you will get more time of lower costs, and/or they will be unable to raise rates as much as they might have otherwise].

    Goumindong on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Goumindong wrote: »
    Ok, so while I'm still in the fixed rate mortgage I'm effectively getting more for my money (at least, relative to what I could get were I to take out a similar sized mortgage today). What happens when the fixed rate ends though? Presumably I'm suddenly going to have a huge leap in my monthly payments unless things make a rapid reversal between now and then?

    If your fixed rate ends before you have payed off your mortgage, its not a fixed rate mortgage, its a variable rate mortgage. If that is the case, they will increase your rate as much as they can to cover their costs over inflation at the very least. In that case inflation is still good for you now if your wages continue to go up at the inflation rate and will be good, but less good when it comes to raising their rates because they are likely limited in how high and how fast they can raise their rates[which means you will get more time of lower costs, and/or they will be unable to raise rates as much as they might have otherwise].

    Ah, I think we call mortgages slightly different things over here.

    We have a 3 Year Fixed Rate Mortgage from Halifax (HBOS) which is a 40 year term but fixed rate for the first three years. Variable rates here just mean that the rate fluctuates with the base rate.

    Szechuanosaurus on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Goumindong wrote: »
    Ok, so while I'm still in the fixed rate mortgage I'm effectively getting more for my money (at least, relative to what I could get were I to take out a similar sized mortgage today). What happens when the fixed rate ends though? Presumably I'm suddenly going to have a huge leap in my monthly payments unless things make a rapid reversal between now and then?

    If your fixed rate ends before you have payed off your mortgage, its not a fixed rate mortgage, its a variable rate mortgage. If that is the case, they will increase your rate as much as they can to cover their costs over inflation at the very least. In that case inflation is still good for you now if your wages continue to go up at the inflation rate and will be good, but less good when it comes to raising their rates because they are likely limited in how high and how fast they can raise their rates[which means you will get more time of lower costs, and/or they will be unable to raise rates as much as they might have otherwise].

    Ah, I think we call mortgages slightly different things over here.

    We have a 3 Year Fixed Rate Mortgage from Halifax (HBOS) which is a 40 year term but fixed rate for the first three years. Variable rates here just mean that the rate fluctuates with the base rate.

    Fixed rate, adjustable rate, variable rate. Your's is adjustable. But they can't start adjusting for 3 years. That is about as close to a lie as they can reasonably get away with. A 3 year teaser rate on a 40 year mortgage is inconsequential.

    Goumindong on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Goumindong wrote: »
    Goumindong wrote: »
    Ok, so while I'm still in the fixed rate mortgage I'm effectively getting more for my money (at least, relative to what I could get were I to take out a similar sized mortgage today). What happens when the fixed rate ends though? Presumably I'm suddenly going to have a huge leap in my monthly payments unless things make a rapid reversal between now and then?

    If your fixed rate ends before you have payed off your mortgage, its not a fixed rate mortgage, its a variable rate mortgage. If that is the case, they will increase your rate as much as they can to cover their costs over inflation at the very least. In that case inflation is still good for you now if your wages continue to go up at the inflation rate and will be good, but less good when it comes to raising their rates because they are likely limited in how high and how fast they can raise their rates[which means you will get more time of lower costs, and/or they will be unable to raise rates as much as they might have otherwise].

    Ah, I think we call mortgages slightly different things over here.

    We have a 3 Year Fixed Rate Mortgage from Halifax (HBOS) which is a 40 year term but fixed rate for the first three years. Variable rates here just mean that the rate fluctuates with the base rate.

    Fixed rate, adjustable rate, variable rate. Your's is adjustable. But they can't start adjusting for 3 years. That is about as close to a lie as they can reasonably get away with. A 3 year teaser rate on a 40 year mortgage is inconsequential.

    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Szechuanosaurus on
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    bowenbowen How you doin'? Registered User regular
    edited September 2008
    Basically.

    bowen on
    not a doctor, not a lawyer, examples I use may not be fully researched so don't take out of context plz, don't @ me
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Nah, you'll probably be fine regarding the crisis. That you signed what might be a terrible and predatory loan might be another issue.

    Goumindong on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Goumindong wrote: »
    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Nah, you'll probably be fine regarding the crisis. That you signed what might be a terrible and predatory loan might be another issue.

    Well, I mean, we can just renegotiate it in 2010. Right?
    These things are pretty normal over here. I think most people do it this way.

    Szechuanosaurus on
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    CauldCauld Registered User regular
    edited September 2008
    Goumindong wrote: »
    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Nah, you'll probably be fine regarding the crisis. That you signed what might be a terrible and predatory loan might be another issue.

    Well, I mean, we can just renegotiate it in 2010. Right?
    These things are pretty normal over here. I think most people do it this way.

    That attitude is what got us into this mess :...:

    Cauld on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Cauld wrote: »
    Goumindong wrote: »
    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Nah, you'll probably be fine regarding the crisis. That you signed what might be a terrible and predatory loan might be another issue.

    Well, I mean, we can just renegotiate it in 2010. Right?
    These things are pretty normal over here. I think most people do it this way.

    That attitude is what got us into this mess :...:

    Aww fuck. Sorry guys.

    Szechuanosaurus on
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    Alistair HuttonAlistair Hutton Dr EdinburghRegistered User regular
    edited September 2008
    Goumindong wrote: »
    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Nah, you'll probably be fine regarding the crisis. That you signed what might be a terrible and predatory loan might be another issue.

    Well, I mean, we can just renegotiate it in 2010. Right?
    These things are pretty normal over here. I think most people do it this way.

    Yes you can. And yes it is. If people are too lazy to renegotiate their mortgage after the end of the fixed period then they deserve being lumped on a bad rate.

    Of course, with the imminent loss of one of Britain's largest mortgage lenders the amount of choice is going to go down and as a result the number of mortgages with low-to zero arrangement fees might decrease.

    Alistair Hutton on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    Goumindong wrote: »
    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Nah, you'll probably be fine regarding the crisis. That you signed what might be a terrible and predatory loan might be another issue.

    Well, I mean, we can just renegotiate it in 2010. Right?
    These things are pretty normal over here. I think most people do it this way.

    Yes you can. And yes it is. If people are too lazy to renegotiate their mortgage after the end of the fixed period then they deserve being lumped on a bad rate.

    Of course, with the imminent loss of one of Britain's largest mortgage lenders the amount of choice is going to go down and as a result the number of mortgages with low-to zero arrangement fees might decrease.

    Well we're not really loosing them, they're just merging. Hopefully it'll make RBS rabid for scraps and they'll put out for tuppence.

    Speaking of, how are RBS doing at the moment? Much is being made of how big HBOS was but isn't RBS one of the biggest companies in the world as of last year or so? They own a bunch of banks in the US as well.

    Szechuanosaurus on
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    mcdermottmcdermott Registered User regular
    edited September 2008
    Goumindong wrote: »
    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Nah, you'll probably be fine regarding the crisis. That you signed what might be a terrible and predatory loan might be another issue.

    Well, I mean, we can just renegotiate it in 2010. Right?
    These things are pretty normal over here. I think most people do it this way.

    Well yeah, that was the idea here as well (as mentioned). The problem comes when you go to renegotiate your mortgage, but your house has stagnated or even lost value. At which point you're trying to renegotiate a loan worth more than the property backing it up, which is the kind of risk that may keep you from getting a particularly good rate.

    Or at least this is my understanding. I could be wrong, though.

    mcdermott on
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    SzechuanosaurusSzechuanosaurus Registered User, ClubPA regular
    edited September 2008
    mcdermott wrote: »
    Goumindong wrote: »
    Haha! Yeah, so I'm fucked along with everyone else then basically?

    Nah, you'll probably be fine regarding the crisis. That you signed what might be a terrible and predatory loan might be another issue.

    Well, I mean, we can just renegotiate it in 2010. Right?
    These things are pretty normal over here. I think most people do it this way.

    Well yeah, that was the idea here as well (as mentioned). The problem comes when you go to renegotiate your mortgage, but your house has stagnated or even lost value. At which point you're trying to renegotiate a loan worth more than the property backing it up, which is the kind of risk that may keep you from getting a particularly good rate.

    Or at least this is my understanding. I could be wrong, though.

    Ah, that could be quite shitty. When we first negotiated our mortgage it was only about 25% of the value of the property and it looks like the low-rate cut off is 60% so presumably we would still be below that in 2010. I guess I need to keep an eye on property prices. It looks like sale value hasn't gone up much in our neighbourhood since last year, but it doesn't appear to be dropping yet.

    Szechuanosaurus on
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    japanjapan Registered User regular
    edited September 2008
    Speaking of, how are RBS doing at the moment? Much is being made of how big HBOS was but isn't RBS one of the biggest companies in the world as of last year or so? They own a bunch of banks in the US as well.

    They took a bit of a beating, but seem to be through the worst of it. £5 billion writedown (as I understand it, this essentially means that they've reviewed their assets and come to the conclusion that they were worth 5 billion less than they thought they were) and they announced a loss of several hundred million as opposed to their multi-billion profits last year.

    They've got hold of an extra £12 billion in cash by issuing new shares, and sold of a few outlying bits and pieces of the company (including parts of the recently purchased ABN Amro. That purchase is part of the reason why the company was so stretched in the first place).

    japan on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    The problem is only tangentially related to the value of the house. The real problem is that "renegotiating" your mortgage is very difficult if you can't pay it off(if you can sell the house and make up the principal plus interest after Realtors fees and closing costs you will be O.K. but you still lose the house and need another loan, and doing so is not easy, with Realtors fees ranging between 3-7% closing costs on the new loan being 1% or so, and the various other fees for attorney regarding title transfer et all. ). They have all the power. Hell, your contract likely stipulated that they could set the rate whatever they wanted during these "renegotiations".

    Look, a contract is a set of obligations that each party agrees to meet. When you sign it you are agreeing to meet your end and the other side is agreeing to meet his end.

    But the bank has 100% totally fulfilled their obligation under the contract already. They literally cannot breach it anymore. You have agreed to "renegotiate" your obligation to an entity that has already fulfilled its obligations. You wrote them a check that reads "please select any number between these upper and lower bounds" in exchange for a house. You should not be surprised when they ask for a number on the upper side of it, and if you say no, they get to take your house. The only thing that keeps them from doing this is because they would rather have you pay than have to sell assets[its expensive]

    This is one of the reasons that so many of these mortgages are in trouble. The teaser rate is just that, at the end of it, you're pretty much going to move to the maximum rate. Then people default. Then rates get higher to cover the increased risk. [The paradox of debt, the less ability that someone has to pay, the more interest is. Such, those that can afford the interest don't need it, those that cannot afford the interest do]

    If you have good credit you should be looking at your contract and see if you have any penalties for paying it off early[this is rare now, but it can happen]. If you don't have such penalties, you should be shopping for a fixed rate refinance for as low as you can get it and if you can get it and the rates are good[I.E. not much higher than your teaser, and/or a lot lower than your likely new adjusted rate] you should jump on it before your adjustable rate kicks in.

    Don't feel bad that you got an ARM. They have been very popular for a number of years partly because the power and information advantages are lumped so firmly on the sides of the banks.

    *Disclaimer: In no way can i be held responsible if this advice does not pan out for you. It is generally a good idea to get a fixed rate loan over an adjustable rate loan, but as always, whether or not it makes sense depends totally on the specifics of the deal in question. In all instances you should run the numbers of both options and find the one that will work best for you, or hire an accredited profession to do so for you. This is a lot of work(and or a decent chunk of cash), and probably one of the reasons why so many people get sucked into ARMs.

    Goumindong on
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    GoumindongGoumindong Registered User regular
    edited September 2008
    Ah, that could be quite shitty. When we first negotiated our mortgage it was only about 25% of the value of the property and it looks like the low-rate cut off is 60% so presumably we would still be below that in 2010. I guess I need to keep an eye on property prices. It looks like sale value hasn't gone up much in our neighbourhood since last year, but it doesn't appear to be dropping yet.

    If you have 75% equity you ought to be fine. Especially if there are stipulations in the loan that they cannot raise it if they do not have >60% equity. As i said, it all depends on the loan.

    Goumindong on
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    khainkhain Registered User regular
    edited September 2008
    Do you live in Canada, Szechuanosaurus? Because outside of the US and a couple other countries its actually pretty difficult to get fixed rate mortgages and ARMs are common. As Goumindong explained you do take on more risk with an ARM loan which isn't good, but its not a terrible thing as long as you keep several things in mind when looking for a loan. The first is to make sure you can continue to make payments on the loan after the initial interest rate has lapsed, this was the main problem in the US as people got loans and then expected to sell before the initial rate lapsed, the market crashed they couldn't sell and they also couldn't make their payments. Find out what index rate your loan is tied to and the margin above that rate that you'll actually pay, interest caps are also good and finally make sure that there isn't a payment cap as negative amortization is terrible.

    khain on
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    YarYar Registered User regular
    edited September 2008
    Goumindong wrote: »
    The problem is only tangentially related to the value of the house.
    No, that's pretty much the problem with people wanting to refi any time soon. Lower rates are great, inflation ahead means you'll win big... but wait, your home has lost so much value that you don't have 20% equity anymore? That interest-only loan certainly didn't help you there, did it? The rates won't be so great. Don't even have 5% equity anymore? You're about to get reamed on FHA premiums. Don't even have 3%? NO SOUP FOR YOU! You have to keep your loan for now and hope things turn around, or sell your devalued house at a possible loss and go back to renting.

    Also, another one of the big reasons we are in this mess is the appraisers, who were racking up $350 fees for doing essentially nothing except adding 10% to the loan amount and signing off on that as the value of the house, without even looking at it. This was serious fuel to the real estate bubble. And now the actual value of the home vs. what some appraiser agreed to as the value in order to get paid is a big problem when you go to redo your loan.
    Goumindong wrote: »
    The real problem is that "renegotiating" your mortgage is very difficult if you can't pay it off(if you can sell the house and make up the principal plus interest after Realtors fees and closing costs you will be O.K. but you still lose the house and need another loan, and doing so is not easy, with Realtors fees ranging between 3-7% closing costs on the new loan being 1% or so, and the various other fees for attorney regarding title transfer et all. ). They have all the power. Hell, your contract likely stipulated that they could set the rate whatever they wanted during these "renegotiations".
    No, the real problem is not whether or not you can sell and pay it off. The real problem is how much the bank can get when they have to repossess it and sell it for you at a huge discount. Though admittedly you did mention that.

    Szech, a 3/1 40-yr ARM is a pretty bad loan, although it certainly could make sense to do it that way. ARMs are the way to go if you know you'll be selling in the next few years anyway. The 40-year thing just makes it more money to the bank's pocket and less money against what you owe every month, though at a reduced monthly cost and over a longer period of time. What bothers me is that you refer to it as a "3-yr fixed." It's about as unfixed as a loan can be. You can just renegotiate in 2010, or anytime before or after that for that matter. If home values are back up but rates are still low, you'll be able to score something nice. If both are still low, you may have trouble getting approved. If rates are up, it's a matter of which is better: the terms of your ARM at that time, or the terms of new loans being offered at the time.

    But if you have 60 - 75% equity then jebus you hardly even have a mortgage and any bank would be willing to make you a competitive offer, because it's practically risk-free for them.

    Yar on
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