Dr. Housing Bubble offers some additional insight into Countrywide’s Option ARM fiasco.

Initially, the lenders gave the impression that the majority of these loans were being given out to sophisticated investors who couldn’t document their $500,000 income and had better places to put their money to work. Clearly this wasn’t the case as we are seeing that 71% of the people are electing for the lowest of the low payments. Of course when the market in California was ripping it up by seeing 20%+ appreciation each year, making the minimum payment made sense because you were going to sell in 1 to 2 years and pocket the change. Heck, it was cheaper than renting!

[Dr. Housing Bubble]

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  1. AMetamorphosis says:

    So because other people assumed the value would go up and they could sell after making minimal payments … I’m supposed to subsidize that ?

    bull – shiat

  2. castlecraver says:

    Hm. Lenders misrepresented the customer demographic, presumably resulting in loans getting issued that otherwise wouldn’t have if the underwriters/shareholders had known the truth. Could one of our hardcore free-market capitalists explain to me why this is okay?

  3. barty says:

    That was the logic people I talked to used when they were taking out these crazy short term ARMs or interest only loans. It wasn’t a matter of if they could afford the higher note of a 15 or 30 year fixed, they were just trying to play the real estate market with their home and keep the payments as low as possible.

    I say screw ‘em. Nobody will learn from this if banks start forgiving loans or the government swoops in to bail these people out. They’ll do the same stupid crap again in another few years and the cycle will repeat itself. Its time these people take their lumps for once and do something our parents had to do…be responsible for their decisions.

  4. B says:

    @castlecraver: Cause the people getting the loans should have been smart enough to not take them. Of course, the bank should have been smart enough to not make the loans as well. Really, though, expecting people not to be stupid is the main problem with hard-line free market capitalism.

  5. B says:

    @barty: What to my parents have to do with anything?

  6. Beerad says:

    @castlecraver: Well, to be fair, most hardcore free-market capitalists believe that correct information is essential for the system to work, and that if you have parties cheating and lying to each other the system is obviously not going to work properly.

    But why be fair? We don’t live in a nice, optimal world and the “invisible hand” is all too often manipulated by corporations and marketers to bitch-slap consumers around. I’ll support all the regulations we can dream up if it will force companies to actually play fair.

  7. castlecraver says:

    @B: Bingo. Alls’ I’m sayin’ is that if you make the argument that people should have known better than to buy the loans, you can’t ignore the same argument on the other end where the underwriters and shareholders are concerned, especially if the lender or servicer lied to them about who the people buying the loans were and how well-substantiated their income was.

  8. laserjobs says:

    People got paid to buy a house!!! Cashback at closing using non-profits to gift the down payment.

    What a load of BS this fiasco was!!!

  9. ellis-wyatt says:

    Just wait until the home equity problems start getting center stage. Those loans were made to 90-100% of equity using electronic “appraisals” to “prime” borrowers. Banks wanted to loan those people every penny possible, paying off credit card debt, car loans, whatever. After all, they were “prime” borrowers and had “equity” in their homes. Those borrowers are now under water and default rates are creeping up.

  10. BrianH says:

    I’ve said it before…. scream from the hilltops whenever you hear about a “bailout”, “assistance”, “relief”, etc… for these f***ers.

    OTHERWISE YOU AND YOUR 401K AND YOUR RETIREMENT ARE SUBSIDIZING, REWARDING, PROTECTING AND FUNDING THESE RECKLESS A**HOLES!

    What in the name of God ever happened to the concept of financial responsbility?

    Jeez at 36 I’m way too young to be a grumpy old man, but anything less than all the sub-prime gamblers (lenders AND buyers, screw ‘em all!) left twisting in the wind will leave me bitter.

    Other than that, I don’t have an opinion on the matter. :-)

  11. heintzer says:

    An interesting ad appeared in that post:

  12. thirdbase says:

    As the owner of an ARM I just want to thank all of you who took affordable mortgages for bailing me out whether you wanted to or not.

  13. AMetamorphosis says:

    @thirdbase:

    Thats ok, we get to decide how little welfare you’ll receive in coming years you idiot.

  14. stuckonsmart says:

    @thirdbase

    If that’s how you really feel, then you are a THIEF. A MORALLY BANKRUPT THIEF.

  15. barty says:

    @castlecraver: Who do you think was encouraging these lenders to make these loans?? You can’t tell me that the board of Countrywide wasn’t well aware of what the hell was going on.

  16. ellis-wyatt says:

    @thirdbase: How about those of us who don’t have a mortgage? Don’t our taxes count?

  17. humphrmi says:

    @BrianH: You forgot “And get off my lawn!” :)

  18. bigduke says:

    @AMetamorphosis:

    So Countrywide writes tens of thousands of bad loans knowing full well that people will not be able to pay them back, and you think you are getting screwed by each of those individuals?

    What about the CEO of Countrywide who walked out the doors with for 1/3 of a BILLION dollars! He is just one guy, there are other guys like him. He is not gonna loose any of his houses any time soon.

    Being a good consumerist is not about being smarter then the other guy next to you and then laughing, lamenting or mocking about it later.

    It is about empowering the group against a system that has been put in place to fleece you and I out of every last dime every chance it gets.

    That is a hard thing to do when so many of you don’t even know who your enemy is.

  19. missdona says:

    @ellis-wyatt: Sure your taxes count. They can finance the sub-prime loans just as well as everyone else’s.

  20. thirdbase says:

    @stuckonsmart: It’s not a morality issue It was a great business decision. I had very low payments and now that those payments are rising you all are bailing me out.
    @Ellis-Wyatt: Yes your taxes count. Thank you for helping me as well.
    @Ametamorphisis: I may be an idiot but I came out great financially. Those smarter than me have faired far worse. So who’s the idiot?

  21. humphrmi says:

    @thirdbase: I haven’t seen any evidence yet that any government bailout of sub-prime borrowers is happening, or is going to happen. What I hear is that lenders are being asked to suck it up and refinance your loans at more long-term affordable terms.

    If that’s the case, your actions really don’t affect me too much. They have more impact on the people who come after you – let’s say, your kids or their kids, when they try to buy a house. Thanks to you, they will pay more. I guess by your reasoning, they are the idiots, huh?

    Sure, I got a 20 year fixed loan at 5.25% and no points, which is certainly more than ARMs were paying when I financed. Maybe that rate is lower than yours, maybe it’s not.

    But here’s the salient point – I have my loan. I have my house. I can afford my payments, and my house will be entirely mine in ten more years. Then I’ll be spending my income on other things. What will you be doing then, eh? Still paying on that sub-prime loan? Putting more charges on your credit cards? Racking up more debt? Great. I’ll be free-and-clear.

    So who’s the idiot?

  22. Landru says:

    @humphrmi:
    They might pay more for financing, and loans will be harder to get (ie real downpayment, real job, etc.) but those houses are going to be cheap – close to what they were 10 – 15 years ago. Only those with good credit, a downpayment and no huge heloc or credit card debts will be able to buy them.

  23. bricklayer says:

    @Everyone responding to thirdbase:
    Ignore the troll and it will go away!

  24. thirdbase says:

    All I’m saying is my lender fixed my rate at the initial teaser rate. Excuse me for being in the right place at the right time. Sometimes being a bit risky pays off. For me it did. Sorry you naysayers couldn’t take advantage and are stuck at higher fixed rates that at the time seemed more responsible. Now you have all learned to play the game. Glad I could help teach you