🏈 What is the Red Elephant Club?

[Sgt. Lincoln Osiris]

Tell me you've watched The Big Short. I watched it 3xs in 2 days. Granted, it was 'based on a true story' and not a documentary; but still a great movie and very enlightening on how MBS ultimately brought about the 2nd Great Depression.

It a been on my must watch list, I just having gotten around to it yet.

 

[Sgt. Lincoln Osiris]

I would know, too.

Some banks held the subprime paper, but most of it was held outside the commercial banking space. Pension funds, insurance companies and the like took baths, but a good number of banks also held the securitized "PLUMBS" (Private Label Mortgage Backed Securities). What killed most of the 518 or so banks during this downturn was the sudden stop in building, not the mortgage paper itself. They were overextended in development loans, building the infrastructure of residential subdivisions and constructing commerical developments ("ADC" loans - acquisition, development and construction) loans. If something didn't have a building on it yet - just the dirt - we saw 80 percent depreciation in some markets.

As much as I'd like to simply blame Clinton for this, I'd put more of it at the feet of Congress in their lax supervision of, and push to expand, the quasi-gov't mortgage companies, mostly Fannie. Barnie Frnk's protection of his "friend's" pockebook was criminal. That, and the simple lack of accountability when paper was sold. Whenever the incentive to make a loan is separated from the risk of not fully collecting it, capitalism can, and did, run amok. There should always be a credit quality hook on securitizations and incentive compensation.

RTR,

Tim

All that too...Lol.

Subprime lending was the craze from the late 90s up thru the mid 00s. Hell, the company I worked for wrote 85% LTV construction to perm loans at a 580 score. A fooking 580.

Developers overbuilt because their buyer base was so much wider with subprime clients. And all of a sudden, the subprime lending stopped because all those shitty credit folks had shitty credit for a reason. They don't pay their fucking bills. They could get a 90-100% LTV with a 560 score, and a good 7-8% rate... for a fixed 2 years on a 2/28 ARM. Then after 2 years and their payments went from $700 to $1200, for example, those mofos would foreclose.

And when 30+ major subprime lenders closed up shop in less than 6 months, THAT is what caused the banking crisis. Because wall street was left holding all these defaulted mortgage notes. So property values dropped.

If you look at an appraisal, what substantiates the value of said appraisal is sales within the area. When there are foreclosure left and right, that drives the appraisal value down.

So people struggling and needing to refi refi couldn't because their homes ended up being worth less than the balance of their current mortgage. And THOSE people foreclosed.

Subprime lending was supposed to be a great tool to help people rebuild credit. You buy a house at an affordable rate for 2 years on an ARM, build your credit up within those 2 years, then refi into a good fixed rate. But lenders and brokers didn't follow up with their clients or do any kind of credit counseling. They just moved the subprime customers thru like cattle at a processing plant. Close one, forget them, and on to the next.

You sound like either a builder or a banker, with your knowledge. What do you do for a living?

 

[BamaFan334]

Guys, handshakes and decoder rings...

The movie, The Skulls, is coming to mind.

 

[It Takes Eleven]

All that too...Lol.

Subprime lending was the craze from the late 90s up thru the mid 00s. Hell, the company I worked for wrote 85% LTV construction to perm loans at a 580 score. A fooking 580.

Developers overbuilt because their buyer base was so much wider with subprime clients. And all of a sudden, the subprime lending stopped because all those shitty credit folks had shitty credit for a reason. They don't pay their ******* bills. They could get a 90-100% LTV with a 560 score, and a good 7-8% rate... for a fixed 2 years on a 2/28 ARM. Then after 2 years and their payments went from $700 to $1200, for example, those mofos would foreclose.

And when 30+ major subprime lenders closed up shop in less than 6 months, THAT is what caused the banking crisis. Because wall street was left holding all these defaulted mortgage notes. So property values dropped.

If you look at an appraisal, what substantiates the value of said appraisal is sales within the area. When there are foreclosure left and right, that drives the appraisal value down.

So people struggling and needing to refi refi couldn't because their homes ended up being worth less than the balance of their current mortgage. And THOSE people foreclosed.

Subprime lending was supposed to be a great tool to help people rebuild credit. You buy a house at an affordable rate for 2 years on an ARM, build your credit up within those 2 years, then refi into a good fixed rate. But lenders and brokers didn't follow up with their clients or do any kind of credit counseling. They just moved the subprime customers thru like cattle at a processing plant. Close one, forget them, and on to the next.

You sound like either a builder or a banker, with your knowledge. What do you do for a living?

I agree that subprime unnaturally extended this real estate cycle, making the burn down all the more worse. Beyond the easy money, the biggest two problems with the environment we had (perpetually increasing prices and continuously falling interest rates) were cash out refis and speculation. People refinanced and pulled cash out for consumer spending or to repay consumer debt (buying a blouse on the house). Because debt levels were rising, it was assumed that equity would always continue to build (a rising tide lifts all boats) and they could always refi (a rolling loan gathers no loss). Many people who ended up upside down on their loans did so because they continued to build mortgage debt. If they'd simply adhered to their original amortization they would've built equity and remained afloat. Regarding speculation, I remember reading an article about a California street that had something like 24 of its 30 houses in some stage of foreclosure. They highlighted the woe of one lady who couldn't pay her mortgage once the rates reset - AND she couldn't pay the interest on the other two homes she'd bought down the street to flip. By her own doing, she was completely overextended, so her tale didn't really tug at my heart strings.

My Dad was a builder for over 50 years, so I grew up around construction. As an adult, I continued to help him off and on. I've built most of my houses, and have one more to go. Professionally, I've been in the banking industry for about thirty years, largely in the southeast, heavy in risk management and credit risk, some capital markets work.

RTR,

Tim

 

[Sgt. Lincoln Osiris]

I agree that subprime unnaturally extended this real estate cycle, making the burn down all the more worse. Beyond the easy money, the biggest two problems with the environment we had (perpetually increasing prices and continuously falling interest rates) were cash out refis and speculation. People refinanced and pulled cash out for consumer spending or to repay consumer debt (buying a blouse on the house). Because debt levels were rising, it was assumed that equity would always continue to build (a rising tide lifts all boats) and they could always refi (a rolling loan gathers no loss). Many people who ended up upside down on their loans did so because they continued to build mortgage debt. If they'd simply adhered to their original amortization they would've built equity and remained afloat. Regarding speculation, I remember reading an article about a California street that had something like 24 of its 30 houses in some stage of foreclosure. They highlighted the woe of one lady who couldn't pay her mortgage once the rates reset - AND she couldn't pay the interest on the other two homes she'd bought down the street to flip. By her own doing, she was completely overextended, so her tale didn't really tug at my heart strings.

My Dad was a builder for over 50 years, so I grew up around construction. As an adult, I continued to help him off and on. I've built most of my houses, and have one more to go. Professionally, I've been in the banking industry for about thirty years, largely in the southeast, heavy in risk management and credit risk, some capital markets work.

RTR,

Tim

True.

Refis are great when you use them properly. Before I went full bore into mortgage lending, I worked as a financial/debt management consultant with Citi. We targeted homeowners who were in major debt (medical bills, credit card debt). Citi's mortgage amortization then would allow for bi-weekly bi-weekly payments, which allowed them to essentially pay off a 20 year mortgage in 12, at a much lower payment than what they were paying toward all their combined debt, and then invest the difference in heavily diversified mutual funds. And we'd counsel them to cut up all credit cards but one, and use it only for emergencies.

And we followed up with them pretty much on a monthly basis. So we were killing their debts, and creating wealth for retirement (a lot of times, early retirement).

THAT is what refis were supposed to be for, if folks were smart. Or maybe cash enough out to add to/improve their home, to increase value. But all these mortgage brokers didn't care. All they wanted was their closing costs on the front, and their YSP checks on the back.

Oh, and I guess we can officially call it...:hijack:

 

[Biff1]

Impressive to see how SLO parlayed that career in finance to the food delivery business.

 

[T&B]

First rule of the REC is you dont talk about the REC

Second rule of the REC is you. do. not. talk. about the REC

 

[ComeOnSon]

Buddy sent me this today...