March 15, 2007

Subprime Mortgage Primer

What has been behind the increasing home ownership of the Bush economy? And why is it so worrying to the economists? Here's an article that explains what made up the "subprime market" without the jargon.

Today's pop quiz involves some potentially exciting new products that mortgage bankers have come up with to make homeownership a reality for cash-strapped first-time buyers.

Here goes: Which of these products do you think makes sense?

(a) The "balloon mortgage," in which the borrower pays only interest for 10 years before a big lump-sum payment is due.

(b) The "liar loan," in which the borrower is asked merely to state his annual income, without presenting any documentation.

(c) The "option ARM" loan, in which the borrower can pay less than the agreed-upon interest and principal payment, simply by adding to the outstanding balance of the loan.

(d) The "piggyback loan," in which a combination of a first and second mortgage eliminates the need for any down payment.

(e) The "teaser loan," which qualifies a borrower for a loan based on an artificially low initial interest rate, even though he or she doesn't have sufficient income to make the monthly payments when the interest rate is reset in two years.

(f) The "stretch loan," in which the borrower has to commit more than 50 percent of gross income to make the monthly payments.

(g) All of the above.

If you answered (g), congratulations! Not only do you qualify for a job as a mortgage banker, but you may also have a future as a Wall Street investment banker and a bank regulator.

No, folks, I'm not making this up. Not only has the industry embraced these "innovations," but it has also begun to combine various features into a single loan and offer it to high-risk borrowers. One cheeky lender went so far as to advertise what it dubbed its "NINJA" loan -- NINJA standing for "No Income, No Job and No Assets."

In fact, these innovative products are now so commonplace, they have been the driving force in the boom in the housing industry at least since 2005. They are a big reason why homeownership has increased from 65 percent of households to a record 69 percent. They help explain why outstanding mortgage debt has increased by $9.5 trillion in the past four years. And they are, unquestionably, a big factor behind the incredible run-up in home prices.

Now they are also a major reason the subprime mortgage market is melting down, why 1.5 million Americans may lose their homes to foreclosure and why hundreds of thousands of homes could be dumped on an already glutted market. They also represent a huge cloud hanging over Wall Street investment houses, which packaged and sold these mortgages to investors around the world.

How did we get to this point? [read more]

What's clear is most of the people who got these loans are in real trouble as the interest rates go up. What's also increasingly clearer is the size of the problems is a real threat to the overall economy and with the failure of over 30 subprime loan companies in the past 3 months, the situation is getting dire.

What to expect next? Nouriel Roubini thinks it will extend beyond just the subprime companies and that we're heading for a general credit crunch. Stay tuned.

Posted by Mary at March 15, 2007 07:00 AM | Economy | Technorati links |


A few days ago, the Carpetbagger wrote this and I wrote this. So what's going on with the media? I think everyone who pays attention can agree it seems like something- from our own experiences with the major outlets, to what we see reported on in the blogs, to all the things Media Matters catches because they're looking for it all the time, the irregularities in the media have been proven, beyond a reasonable doubt, irregular. FNC's regular promotion of statements a blog later proves false, or headlines that are misleading, without ever a correction or a retraction, make FNC's operations equal to those of a propaganda news organization in a fascist state. So I have to ask you, if someone is using improper influence on major newspapers throughout the country as well as major news channels, why after all these years hasn't evidence turned up? Why hasn't the scandal come to light as evidence of any scandal involving bumbling party politicians and activists always inevitably does? If this is just the people who do K-street, if this is just the Harriet Miers types, the young Republicans, the people who were involved in the prosecutor purge scandal or the outing of Valerie Plame-- just threatening to blacklist people or to spread gossip about them, the usual modus operandi we always hear about by way of explanation-- why hasn't somebody leaked something about it this time? Think about that, and you'll start to appreciate why I write on my blog and say in my videos that someone has to create an organization to deal with the threat of FNC, and the problem has to be taken seriously by liberals.

Posted by: Swan at March 15, 2007 03:41 PM

From a German Newspaper called Express
Khalid Sheich Mohammed
HERE HE ATTACKED * The attack on the world trade center in New York 2001 * the assassinations of vacationers and an Israelian airplane in 2001 in Kenia * the attempt of an attack of shoe-bomber Reid. * HERE HE WANTED TO KILL * Attax on Big Ben, Canary Wharf and airport Heathrow in London, against the New York Stock Exchange (NYSE) and other financial institutions as well as the Panama channel * A planned "second wave" of airplane attacks against US-skyscrapers such as the library tower in LA, the Sears Tower in Chicago, the Plaza Bank in Seattle and the Empire State Building in New York * An attack attempt against the former pope John Paul the 2nd at his visit of the Philippines * attax against the president of Pakistan Musharraf, against the former US-presidents Carter and Clinton * Plans for attax against US nuclear plants * against bridges in New York * against NATO-HQ in Belgium * Preperations of attax in Thailand, Israel, Turkey * The planned destruction of US and Israelian embassies in Asia and Australia, furthermore againstUS military ships and oiltankers on the oceans * attax against the oil firm of former us secretary of state H. kissinger

Posted by: at March 15, 2007 05:56 PM