Underwater refinancing?

[lostfan]

Yes they do to. Because of Sarbanes Oxley they have to write down the value of that asset versus their loan portfolio to see if they are still maintaining their capital requirements. It is why banks have gone under in many places.

Something = learned

[NorthSideSox72]

Something = learned

Now wait, I am not 100% sure it works that way. Doing that would require the banks to re-value homes regularly, and they don't do that. Furthermore, the bank does not own the asset - they have a lien against it.

 

As I understand it - and I admit this is more from the investment side of the world, not retail loans - loans are assessed by risk level and assigned a projected % of loss. The bank then has to maintain assets to protect against that level of anticipated loss, plus some degree of margin as specified by banking regulations. They got in trouble before by building the math based on the assumption that home values were always at least what they were at the time of loan origination. When that ceased being true, it all fell apart (this is the mortgage aspect of the fall-apart).

 

Now, one way to address that COULD be to force revaluation of homes and look at LTV ratios in assessing capital requirements... but I didn't think that was actually being done, at least not yet.

 

[StrangeSox]

[/b]

 

I dunno that this is true. The bank doesn't typically loan out money when it knows it'll lose money. If they loaned you 300k knowing the house would be worth 280k the next day, they've just lost 20k or more. If anything they might have been dumb to not realize what they were doing would create a huge gigantic problem. But I don't think they did this intentionally.

 

The loan originators were making a quick profit by reselling the mortgage or chopping it up themselves. They weren't in it for a 30 year long haul.

[southsider2k5]

Now wait, I am not 100% sure it works that way. Doing that would require the banks to re-value homes regularly, and they don't do that. Furthermore, the bank does not own the asset - they have a lien against it.

 

As I understand it - and I admit this is more from the investment side of the world, not retail loans - loans are assessed by risk level and assigned a projected % of loss. The bank then has to maintain assets to protect against that level of anticipated loss, plus some degree of margin as specified by banking regulations. They got in trouble before by building the math based on the assumption that home values were always at least what they were at the time of loan origination. When that ceased being true, it all fell apart (this is the mortgage aspect of the fall-apart).

 

Now, one way to address that COULD be to force revaluation of homes and look at LTV ratios in assessing capital requirements... but I didn't think that was actually being done, at least not yet.

 

It would require them to take the loss on the original loan.

[iamshack]

And what has happened now, is, the pendulum has swung too far the other way. Whereas before, someone with marginal or worse credit could buy an expensive home with 5% or even less (or zero) down. Now, you have to have sterling credit, massive income and 20% down to get a loan at any decent rate (if at all). Reality should be somewhere in between.

 

 

Well yes, at 4%, it is only marginally over inflation (and will likely be less than inflation when the recovery does finally kick in). So definitely you did a good thing there.

 

We got lucky, bought late last year during a rate dip, and got 4.125% fixed for 30. Also got a foreclosure home, so the price was right.

You can still get an FHA loan without either....my credit is solid, but by no means sterling. I also do not have massive income. And I did get 4.25% on a 30-year fixed.

 

Those things certainly hold true on conventional loan products, however.

[iamshack]

BTW, I mentioned this in the films thread, but anyone seeking to get a better idea of some of the things that were going on with the banks leading up to the crash should check out Inside Job. Pretty solid explanation of the bs that was going down.

[caulfield12]

BTW, I mentioned this in the films thread, but anyone seeking to get a better idea of some of the things that were going on with the banks leading up to the crash should check out Inside Job. Pretty solid explanation of the bs that was going down.

 

 

Margin Call isn't too bad either.

 

If you want to join the conspiracy theorists, try to watch Collapse.

 

 

If I lived in the U.S. and didn't vote for the Republican administrations that were primarily responsible for running up the score on our national debt from less than $1 trillion when Reagan took office to more than $14.7 trillion today, I would be really angry about that. And if I watched as the Republican Party tried to make it seem like it was the fault of "both parties" while they turned the routine business of raising the debt ceiling into a cynical political gambit, I would be incensed. And if I watched the Republican Party then try to use the debt ceiling fiasco they created in order to lay the whole thing at the feet of a President who inherited an epic fiscal and economic mess from Bush, I would be livid. yahoo message boards

Edited October 26, 2011 by caulfield12

[iamshack]

Margin Call isn't too bad either.

 

If you want to join the conspiracy theorists, try to watch Collapse.

 

 

If I lived in the U.S. and didn't vote for the Republican administrations that were primarily responsible for running up the score on our national debt from less than $1 trillion when Reagan took office to more than $14.7 trillion today, I would be really angry about that. And if I watched as the Republican Party tried to make it seem like it was the fault of "both parties" while they turned the routine business of raising the debt ceiling into a cynical political gambit, I would be incensed. And if I watched the Republican Party then try to use the debt ceiling fiasco they created in order to lay the whole thing at the feet of a President who inherited an epic fiscal and economic mess from Bush, I would be livid. yahoo message boards

I've seen Collapse as well. Very scary.

[NorthSideSox72]

It would require them to take the loss on the original loan.

Yes, and then attempt to gain relief via seizure of the linked asset - the home. But as I said, I really don't think SOX required what you are suggesting for mortgages. Though it might be a good idea to do things that way, as it might give a better indication of the actual capital health of the banks.

 

[Y2HH]

Now wait, I am not 100% sure it works that way. Doing that would require the banks to re-value homes regularly, and they don't do that. Furthermore, the bank does not own the asset - they have a lien against it.

 

As I understand it - and I admit this is more from the investment side of the world, not retail loans - loans are assessed by risk level and assigned a projected % of loss. The bank then has to maintain assets to protect against that level of anticipated loss, plus some degree of margin as specified by banking regulations. They got in trouble before by building the math based on the assumption that home values were always at least what they were at the time of loan origination. When that ceased being true, it all fell apart (this is the mortgage aspect of the fall-apart).

 

Now, one way to address that COULD be to force revaluation of homes and look at LTV ratios in assessing capital requirements... but I didn't think that was actually being done, at least not yet.

 

I think you're right in that they only re-value homes that need to be re-valued -- such as those people suddenly stop sending payments on. Because that asset gets red-flagged, they re-value/re-evaluate it's worth and would then begin the write down process. However, if there is nothing wrong with the property, and the person is sending in regular payments, there would be no reason to re-value it...because despite what market value might say, the person in question is STILL paying the original amount, thus the asset is worth that amount.

 

My loan, for example, is through US Bank, but they don't actually "own" it, as Freddie Mac bought the loan shortly after it was made. I still send payments to US Bank, but I guess some shady back-alley dealing was done and they send most of the money off to FM. Then again, they may not send any to FM, with how shoddily run that place is, I doubt they'd even know.

[Jenksismyhero]

The loan originators were making a quick profit by reselling the mortgage or chopping it up themselves. They weren't in it for a 30 year long haul.

 

Well that's true, but that's mortgage brokers, not banks. I don't think Chase was handing out mortgage loans and then selling them to other people. It was the independent mortgage broker shops that were doing that. But that's still the negligence/ignorance of the subsequent owner for not doing their homework.

 

And btw, not all of those mortgage shops are bad. That's how we got ours, and they were consistently beating the major players (BofA, Chase, etc) by a good .25-.5% with about a third of the costs. Interesting too since my mortgage ended up being purchased by BoA.

[southsider2k5]

Yes, and then attempt to gain relief via seizure of the linked asset - the home. But as I said, I really don't think SOX required what you are suggesting for mortgages. Though it might be a good idea to do things that way, as it might give a better indication of the actual capital health of the banks.

 

SOX requires proper and regular asset valuation. That is the biggest reason that most banks went under. It wasn't runs on deposits.

[Y2HH]

A lot of people preach about re-financing, and in some respects it CAN be a good idea. But what I've observed, most people do it wrong or do it for the wrong reasons.

 

First and foremost, unless your interest rate is dropping by MORE than 1 full percentage point, don't bother. Example: you are going from 5.25% to 4.15%. If it's less than that, it's really not worth doing. Now, add in the fact that you have to have your home re-assessed (this is a few hundred $), you will have to usually pay 1% of the loan amount up front (probably 1000$ more), and then closing costs, which they sometimes hide by rolling them into the loan (but you're still paying them). All told, you'll probably end up spending close to 2000-2500$ out of pocket to re-fi in addition to all the time you'll spend doing it, which is never fun.

 

Also, if you only had 25 years left on your loan you have 30 again albeit at lower monthly payments.

 

Something important to keep in mind about this is it's all based on a bet. Do you really believe the dollar is collapsing or moving toward hyper inflation? If so, is the re-fi really worth it long term? Additionally, why try to pay off your loan early? Reason I ask this is because you're paying to do this with 2011 dollars...which they love. If those things happen, you'll probably notice that in 10 years, you'd be paying them off with money that's worth far less, and much easier to get. If those things don't happen, and the dollars value skyrockets, and money becomes increasingly hard to get, well -- you still didn't lose anything. Always keep in mind that when they tout re-financing, they'll show you a "total dollar savings" in one up-front lump sum, which is disingenuous because the money is actually spread out over a 30 year curve. Will it save you money over time? Yes...but at what up front cost versus what will those dollars end up being worth in 10 years, or even 20?

 

The problem with "home equity" is it's dead money. Why? Huh? Think about it...if you want that money back, YOU HAVE TO BORROW IT FROM YOURSELF. Ever hear of or take out a "home equity loan", which is the biggest fool loan in the history of the world? Funny thing, they're loaning you YOUR OWN MONEY and you're paying them to do it.

 

The only time you need to care about home equity is when you're SELLING. Otherwise, don't worry about where you loan stands so long as you have a good interest rate and the stability to make the payments. Whatever the case may be, so long as you planned on living there for the foreseeable future, in 10-15 years, odds are the housing market will have stabilized and at the very least, you won't sell into a market where you'd take a loss.

[Jenksismyhero]

Wonder if this will happen:

 

 

President Obama on Wednesday is launching a new plan to lower the cost of paying back student loans for millions of borrowers – the latest installment in his bid to move a jobs agenda that bypasses a gridlocked Congress.

 

At nearly $1 trillion, federal and private student loans now exceed US credit-card debt, posing a formidable repayment burden for many borrowers at a time of near-double digit unemployment.

 

The plan, to be implemented by executive authority alone, allows some 1.6 million students to cap their loan payments at 10 percent of their discretionary income starting in 2012. It also forgives the balance of student loans after 20 years of payments. Current law allows students to limit loan payments to 15 percent of income, forgiving debt after 25 years of payments, though few students are aware of this option

 

http://news.yahoo.com/obamas-student-loan-...Y3Rpb25z;_ylv=3

[Balta1701]

Wonder if this will happen:

The fact that he doesn't need to go to Congress to get the authority to change the payout rules probably means that something will in fact change.

 

Very hard to judge of course what the actual impact will be.

[Jenksismyhero]

On a similar note, anyone else been to the new Direct Loan servicing page? They completely f***ed it up. I used to have all my prior e-correspondence, payout schedules and summaries of my loans (letting me know, ya know, when I'm expected to finish paying these things) and now all that s***'s gone. It's the most basic "here are your loans and how much you owe" web page. I can't believe it. I essentially have zero paperwork now for what I owe and what I owe in the future.

[NorthSideSox72]

A lot of people preach about re-financing, and in some respects it CAN be a good idea. But what I've observed, most people do it wrong or do it for the wrong reasons.

 

First and foremost, unless your interest rate is dropping by MORE than 1 full percentage point, don't bother. Example: you are going from 5.25% to 4.15%. If it's less than that, it's really not worth doing. Now, add in the fact that you have to have your home re-assessed (this is a few hundred $), you will have to usually pay 1% of the loan amount up front (probably 1000$ more), and then closing costs, which they sometimes hide by rolling them into the loan (but you're still paying them). All told, you'll probably end up spending close to 2000-2500$ out of pocket to re-fi in addition to all the time you'll spend doing it, which is never fun.

 

Also, if you only had 25 years left on your loan you have 30 again albeit at lower monthly payments.

 

Something important to keep in mind about this is it's all based on a bet. Do you really believe the dollar is collapsing or moving toward hyper inflation? If so, is the re-fi really worth it long term? Additionally, why try to pay off your loan early? Reason I ask this is because you're paying to do this with 2011 dollars...which they love. If those things happen, you'll probably notice that in 10 years, you'd be paying them off with money that's worth far less, and much easier to get. If those things don't happen, and the dollars value skyrockets, and money becomes increasingly hard to get, well -- you still didn't lose anything. Always keep in mind that when they tout re-financing, they'll show you a "total dollar savings" in one up-front lump sum, which is disingenuous because the money is actually spread out over a 30 year curve. Will it save you money over time? Yes...but at what up front cost versus what will those dollars end up being worth in 10 years, or even 20?

 

The problem with "home equity" is it's dead money. Why? Huh? Think about it...if you want that money back, YOU HAVE TO BORROW IT FROM YOURSELF. Ever hear of or take out a "home equity loan", which is the biggest fool loan in the history of the world? Funny thing, they're loaning you YOUR OWN MONEY and you're paying them to do it.

 

The only time you need to care about home equity is when you're SELLING. Otherwise, don't worry about where you loan stands so long as you have a good interest rate and the stability to make the payments. Whatever the case may be, so long as you planned on living there for the foreseeable future, in 10-15 years, odds are the housing market will have stabilized and at the very least, you won't sell into a market where you'd take a loss.

 

These are all really good points.

 

I just want to add one more... as Y2HH said, there is a significant upfront cost to refinancing. So one thing you want to watch out for is, what is your time scale? If you plan to sell your place in a year or two, then even that 1% change is likely not worth it, because the upfront points and fees will wipe out your savings over such a short timeline.

 

[NorthSideSox72]

On a similar note, anyone else been to the new Direct Loan servicing page? They completely f***ed it up. I used to have all my prior e-correspondence, payout schedules and summaries of my loans (letting me know, ya know, when I'm expected to finish paying these things) and now all that s***'s gone. It's the most basic "here are your loans and how much you owe" web page. I can't believe it. I essentially have zero paperwork now for what I owe and what I owe in the future.

If you know your term, your current balance, your most recent payment principal/interest and your rate, you can use an online calculator to show you the payoff curve.

 

[illinilaw08]

On a similar note, anyone else been to the new Direct Loan servicing page? They completely f***ed it up. I used to have all my prior e-correspondence, payout schedules and summaries of my loans (letting me know, ya know, when I'm expected to finish paying these things) and now all that s***'s gone. It's the most basic "here are your loans and how much you owe" web page. I can't believe it. I essentially have zero paperwork now for what I owe and what I owe in the future.

 

Yes. It is terrible.

 

I was on automatic withdrawal and it took them until after my payment was due to update (fortunately, I did my homework ahead of time - the DOE said that all payments will be retroactivley applied to the date it should have been pulled). Most concerning to me, however, is that they haven't pulled your payment history from the old site. I assume that this will happen eventually, but it's disconcerting that those records could have been lost (note, that I am hopeful that those records will eventually make their way over to the new site). Poor job by Direct Loans.

[StrangeSox]

Yes. It is terrible.

 

I was on automatic withdrawal and it took them until after my payment was due to update (fortunately, I did my homework ahead of time - the DOE said that all payments will be retroactivley applied to the date it should have been pulled). Most concerning to me, however, is that they haven't pulled your payment history from the old site. I assume that this will happen eventually, but it's disconcerting that those records could have been lost (note, that I am hopeful that those records will eventually make their way over to the new site). Poor job by Direct Loans.

thanks for the heads up on that, I'll have to make sure my autopay is still set up correctly.

[illinilaw08]

thanks for the heads up on that, I'll have to make sure my autopay is still set up correctly.

 

http://www.ed.gov/blog/2011/10/ed-working-...t-loan-website/

 

Department of Education's "Everything is Ok!" statement about the new site. Good to read if you are planning to use the new Direct Loans site. Some very, very angry comments in the comments section.

[Jenksismyhero]

If you know your term, your current balance, your most recent payment principal/interest and your rate, you can use an online calculator to show you the payoff curve.

 

The problem is I have about 12 different loans (grouped together as three groups of loans) at varying interest rates. On top of that i'm in a graduated payment schedule so every two years I pay a little more. Unfortunately all of that stuff was sent to "me" electronically via my online account's message system, which is now all gone. So now I don't know what that info is.

 

[Jenksismyhero]

Yes. It is terrible.

 

I was on automatic withdrawal and it took them until after my payment was due to update (fortunately, I did my homework ahead of time - the DOE said that all payments will be retroactivley applied to the date it should have been pulled). Most concerning to me, however, is that they haven't pulled your payment history from the old site. I assume that this will happen eventually, but it's disconcerting that those records could have been lost (note, that I am hopeful that those records will eventually make their way over to the new site). Poor job by Direct Loans.

 

Yeah I had the same issue. 2-3 days past my due date the loans for both me and my wife had not yet been deducted. Then they eventually did.

 

And yes, it's incredibly s***ty that my payment history is now one payment from this month.

[Jenksismyhero]

http://www.ed.gov/blog/2011/10/ed-working-...t-loan-website/

 

Department of Education's "Everything is Ok!" statement about the new site. Good to read if you are planning to use the new Direct Loans site. Some very, very angry comments in the comments section.

 

I guess I should consider myself lucky that I can access the site at all.

[lostfan]

I think you're right in that they only re-value homes that need to be re-valued -- such as those people suddenly stop sending payments on. Because that asset gets red-flagged, they re-value/re-evaluate it's worth and would then begin the write down process. However, if there is nothing wrong with the property, and the person is sending in regular payments, there would be no reason to re-value it...because despite what market value might say, the person in question is STILL paying the original amount, thus the asset is worth that amount.

 

My loan, for example, is through US Bank, but they don't actually "own" it, as Freddie Mac bought the loan shortly after it was made. I still send payments to US Bank, but I guess some shady back-alley dealing was done and they send most of the money off to FM. Then again, they may not send any to FM, with how shoddily run that place is, I doubt they'd even know.

That's kind of what I was thinking. How often does the bank go out of their way to re-determine the value of someone's house? vs. what the person is actually paying them for it?