speechless......

how could anyone think this would be a good idea for their home?????

doom on countrywide for even having this kind of loan. something about reaping what you "loan" comes to mind, or something similar...

I still get weekly mailer from Countrywide trying to get my business. Oh wait, that's because I actually pay my loan down.

@lowlight69: Never underestimate the power of stupid people in large numbers.

Sounds like everyone was relying on another party to keep the loans in check, with no one actually doing so.

Do I think this is bad idea? Sure. Do I feel the least bit sorry for the bank or the customer? Nope.. Not at all. Burn in hell. They want me to bail out the bank and the dirtbag with the low cost mortage.

Who are these idiots taking out these loans?

Why don't we require some basic economics education that can tip people off to these scams?

I like to imagine what the meeting must have sounded like at Countrywide when they thought of this type of loan.

"How could we make more money? I know! Let's increase the amount people owe over time instead of decreasing it as they make payments! Brilliant!"

Going back in time, note how many economic downturns were caused by stupid lenders and stupid borrowers (case in point - black friday, 1929).

Countrywide never fails to amaze me.

Everyone loves a free PUT option.

These are good loans if you are flipping a home and want to minimize carrying costs. That is so 2004 though.

This is really just greedy banks and borrowers getting what they deserve. The bank is hemorrhaging money and the borrowers are out on their butts.

This would be one of the many reasons that I want to rip out currently required curricula and replace it with some basic life skills.

Yes, I loved my chemistry class and literature. But frankly, the management and leadership skills I got from being on yearbook (finances) and chior (people, time, logistics) have been way more valuable in the long run. We need to demand an understanding of basic math, I don't care if you can understand the difference between base ten and base eight as long as you can manage your checkbook and car payment. Basic literacy and reading comprehension, public health and safety, in depth understanding of civil rights and responsibilities are also on my list. Make the other stuff available for geeks who like it, Shakespere's fun but the application of the Constitution is more important.

For the love of god, we have to educate people well enough to function in this world, in this society. Calculus ain't it, folks, accounting, ethics, and civil rights is.

Sorry, my soapbox appears to have attacked me. I need to put it away now.

My parents just refied with a 5/1 Payment Option ARM. They will sell the house when my brother graduates college and currently pay more toward principal on the option ARM than they did with their old 30yr fixed.

If something comes up, they have the option to lower the payment in a rough patch, or say when the $1,200 monthly heating bill comes. Otherwise, they pay as much toward principal they can afford, and the interest amount due goes down every month, just like a fixed. I don't see the problem here.

This is called "hood rich". The illusion that you're doing well even though you're broke. Just a $350 mortgage payment on a house? Sweet.

I've finally come to the realization that the entire mess is due to pure greed on both ends. The banks had these unusual loans (ARMs, interest-only, etc) for unique and rare circumstances but found out that they actually made more money on these loans, so they shoe-horned them into normal situations that really couldn't support them. Boom, they're making more money!

On the other hand, consumers/borrowers wanted a bigger house, more land, etc and didn't want to pay as little per month as possible. So they are only looking at that line-item rather than the entire contract in full. Well, if on paper I afford the monthly payment, what else really matters? Nevermind the fact that there's no way that paper amount is realistic...

Are we really then surprised that this all blew up?

For every idiot who takes a loan out like this, another idiot has to offer the loan. It is a chicken/egg scenario. Both parties had to realize the absolute stupidity of what they were doing, but went ahead anyways.

I would love to talk to the accountants who authored loans like this to ask them how they ever thought that they'd work.

did they really just do this for the LOLZ? like giving the homeless guy on the corner, next to the liquor store five dollars and still thinking the money goes for food/shelter??

also, how is this different from just paying rent on a place? especially if you have the lack of morality to walk away from your mortgage anyways?

I wonder if I should get my money out of Bank of America before all of these homeowners start defaulting.

I am so tired of bailing out idiots that don't have a clue as to what they sign.

I live in a modest 2 bedroom 1 bath home because that is what I can AFFORD !

Why must those of us that live responsibly have to time & time again bail out idiots?

@theblackdog: I'm on my way out now. Probably not a bad idea.

@RagingBoehner: From my understanding, it's working for your parents because they're being responsible with it.

I was refing my house last year, and even though I told the broker i didn't want a Negative Amortization loan, he kept trying to push it on me. I kept telling him it is not what I wanted, but he kept insisting this was the best program for me.

Finally I told him to take a hike and called someone else. It just never made sense to me to loose equity in my home every month.

I was laughing when I first heard about Option ARMs two years ago, and I'm still laughing now.

oh crap...i have lots of $ in BoA

But you can get a $400,000 loan for just $450 a month!

Commercials and banner ads for this crap where everywhere. Why wasn't anyone putting a stop to this then?

Uh, for the entire "get my money out of BoA!" tinfoil hat brigade, you do know that your money is insured by the FDIC, right?

You may go back to your regularly scheduled "damn no I won't show my receipt, I have RIGHTS and we will overcome" programming.

Didn't we read this back in January? And December? And November?

This explains why I got funny looks from my mortgage broker when I insisted on a 30 year fixed mortgage.

Why do I get the feeling that the folks who went with one of these Option ARMs are the same folks who shop for cars based on the monthly payment.

That is borderline fraud. I am sure the people that would sign on to this were either horribly mortgage ignorant or the brokers were acting in bad faith.
This is as unscrupulous as payday loans, only its with a house.
Oh, and on loans like these, I would totally be in for the banks reworking the loans. The losses they suffer will tell them not to be jackasses in the future.

@A.W.E.S.O.M.-O: I wrap my receipts in tinfoil, just to make sure they can't scan them as I run out the door.

this type of loan made donald trump rich.

way back in the 1970's our high school offered a Business Math class, which I took in addition to algebra. Not sure if schools still offer that, but were given fake checkbooks and bills we had to pay and a lot of different scenarios on how to handle money. We even had to figure out how interest worked. If they don't still offer that, they should@LadyKathryn:

"Our borrowers' ability to defer portions of the interest accruing on their loans may expose us to increased credit risk," the company said.

No Shit.

I guess what keeps me worried about this mess is that deep in the back of my mind I just know that the only entity big enough to set things back to what passes for normal is the taxpayers. That means a bailout of some sort.A big money bailout with a vapor trail of zeroes after some big number that is decided...In congress. By lobbyists. Lobbyists for ...Countrywide. Bank of America . Citigroup.

Lets go to the "Consumerist Scoreboard" to see who wins and who loses in a bailout:

Winners - Dumbass borrowers that signed a stupid,toxic mortgage.

Winners- Dumbass investors and speculators that thought that loaning 100's of thousands of $$$ to people that would actually sign a stupid,toxic mortgage was a good idea.

Winners- Congress. Citi , Countrywide , Bank of America will take care of their friends nicely.

Angelo Mozilo- Countrywide CEO should run a mutual fund because he wisely sold a LOT of Countrywide stock be fore it cratered.

Losers- Everyone that acted prudently and borrowed no more than they could repay , under terms that were easy to understand.

Losers -People that work hard for their pay that will have to pay more because of the winners above.

@LadyKathryn:
You are RIGHT on the money. The root of most of these things are a lack of appropriate education. There is NO financial education in any level of the public school system. Also, there needs to be some check on people's greed and pride (always trying to "one up" each other). But I think financial literacy, and having to DEAL WITH THE CONSEQUENCES if you get screwed by your own actions, would go a long way to curbing those baser human traits. At least in this area.

@mackenzie: Setting your receipts on fire before leaving works very well.

The on-going mortgage industry bailout that we're told really isn't a bailout is going to include mandatory training for all future prospective homeowners prior to being approved for home financing. Some congressman will have this item inserted into the mind boggling bailout bill that's headed our way in the next 90 days.

"Financing a Home 101" will be a 20 hour or so program that only "certified" trainers will be allowed to teach. Banks, realtors, brokers - they'll all be doing them, for a fee, of course, say about $500. They'll be making big fee income and borrowers will then be educated. The problem will be that the people offering this training will be the very people who are largely responsible for creating the current mess. But, hey, that's how we do things here in the good old USA.

@RagingBoehner: "They will sell the house when my brother graduates college... I don't see the problem here."

A potential problem is that they can't sell the house. A few years ago is was a given that you could sell pretty much any house in no time. Now it might sit on the market forever.

Don't be too hard on these borrowers--Countrywide tried to sell one to me, and the hard sell was pretty tough to argue against in Southern California for the following reasons:
1. We had four years in a row of unbelievable home price increases, ranging from 10 to 15%. So, it really looked as if you might never get into the market if you didn't act fast.
2. None of the really bad stuff--the refinancing fees, the incentives for the broker, the odds of actually paying off the mortgage--was well known at the time, and the broker certainly didn't say anything.
3. No one in this area was saying anything about the risk. No real estate people, no developers, no home owners, no bankers, no brokers, no one in the press, absolutely no one. I can't think of another major area of personal finance where the system is so rigged to prevent people from getting any sound advice.

So, what's the real issue here? I'm hearing a lot of angry talk from people whose real estate values are going down that it's all the fault of ignorant people who got in over their heads. OK, maybe they should have checked into the fine print more, but they're about to be punished severely for their mistakes. My complaint is that the people who do all this for a living watched a completely corrupt system run the most important investment in the country into the ground and did nothing. Is it any surprise that mortgage brokers, who took no risk themselves, would give out self-interested and short-sighted advice? Why was there so little regulation of the market on which all other markets depend? The entire premise of reasonable regulation is that you put experts in charge of watching out for ordinary consumers. We don't expect people to form their own Food and Drug Administration when they go to the grocery store--why do we berate them for failing to become banking experts?

For the record, I didn't take the bait, but mainly because the seller wouldn't come down far enough in price. I finally had to tell the mortgage broker that I wasn't interested under any circumstances--she was still pushing the loan, no matter what, and is still making a fine living at Countrywide pushing junk.

@ericole:

Speak for yourself, I had *2 years* of business oriented classes in highschool. Budgets, balancing checkbooks, business law, the whole nine.

It's like my local check-cashing business started offering mortgages!

@A.W.E.S.O.M.-O: So what happens if they tank the day before I am supposed to get my direct deposit, will it still go through or will the computer come back and say "sorry, this bank doesn't exist anymore"

These were not stupid loans if you understood what you were doing!! I took out four of these loans in the beginning of 04 (primary and 3 rental properties) I payed the 15yr option on my primary and then payed the interest only on two and negative am on the fourth. I was able to rent these out for more than the payments and sold two of them in the summer of 06. I was able to sell the two homes for quite a bit more than i payed and it didnt cost me a dime!! Somebody please explain to me how that is stupid?

what does this have to do with bank of america. i just bought my first house through bank of america, and they made me go to a full day course on home buying, that saved me from paying pmi insurance. i also got a fixed 6.75 percent rate b/c they said thats all i qualified for, (didnt have the option for arm, and i learned the evils of arms in that class) i had filled bankruptcy about 10 years ago, and have avoided any credit what so ever since. they said i had nothing on my credit history and still gave me a great deal.

@theblackdog: Well first of all, the biggest bank in the country is not like a dollar store strip mall. They don't just close and disappear. Even without capital, BoA's operation would be extremely valuable just for its customers. Someone would buy them out before they failed and you wouldn't even notice outside of a name change.

Second, people have already run the banks during the Great Depression so now we have deposit insurance. The FDIC will reimburse any deposits that you lose should a bank fail.

@AMetamorphosis and others with similar views as "I am so tired of bailing out idiots that don't have a clue as to what they sign."

I'd love to hear some examples of the times you've bailed these people out. There's a lot of this sentiment going around, but I don't see much difference between this and those boobs, back in the glory Reagan years, who were tired of subsidizing welfare queens who paid for their vodka with food stamps.

Examples please! Most of us agree these were bad loans, but let's hear those examples where you've had to bail the borrowers out.

@A.W.E.S.O.M.-O: That should be dollar store in a strip mall.

Savemejebus is right, in my view. And more generally speaking, at a time when the real estate market was hot, this and other non-traditional loan products, made perfect sense for quick-turnaround real estate investors. That is until idiot borrorwers used these to take on risk that they could not possibly ever absorb to pay for homes that, based on their income and credit situation, that they just did not deserve to have.

@Litmajor:

I agree completely. I see so many comments on this site railing on people for being "stupid" to sign these deals. Your average home buyer goes through the experience two or three times in his or her lifetime. The people in the industry see hundreds and thousands of loans. They should have known better! They only saw dollar signs.

The CEO of Countrywide walked out the door with over 400 million out of this mess, which makes the 37.5 mil he got shamed into giving back not so bad. This one man alone took 1/3 of a BILLION dollars out of the system.

But go ahead, you smart guys keep telling me about how the "stupid borrower" is the bad guy that is gonna ruin it for the rest of us...

Please keep in mind that Countrywide, their accountants, their brokers, etc., did NOT invent this type of loan. All they did was sell it more effectively than everyone else. Don't blame the messengers who delivered the product -- blame the Wall Street investors and the securitization firms and the bond-ratings companies for allowing this market to exist in the first place. Even "greedy" brokers and lenders can't sell products that don't exist.