14 replies to this topic

[IndexTrader]

Banks are NOTORIOUS for NOT knowing what's coming!

They are masters of shutting the barn door after the horse is gone.

Really. There's a reason why few banks are even in the investment management business (and have a track record to be proud of).

Exactly. Banks are the classic example of dumb money. Always zigging when they should be zagging. Abandoning the subprime business in droves? You mean just as Warren Buffett is rumored to be sniffing around Countrywide?

I recall back when rates went to 20% and banks decided they would not do fixed rate loans anymore...only adjustable. They were expecting 30% rates.

Banks are always fighting the last war. Because that's what committees do.

IT

Edited by IndexTrader, 21 August 2007 - 08:52 AM.

[ogm]

Banks are NOTORIOUS for NOT knowing what's coming!

They are masters of shutting the barn door after the horse is gone.

Really. There's a reason why few banks are even in the investment management business (and have a track record to be proud of).

Exactly. Banks are the classic example of dumb money. Always zigging when they should be zagging. Abandoning the subprime business in droves? You mean just as Warren Buffett is rumored to be sniffing around Countrywide?

I recall back when rates went to 20% and banks decided they would not do fixed rate loans anymore...only adjustable. They were expecting 30% rates.

IT

And people where still borrowing at 20% remarkable, isn't it ?

And now we have 6.5-7%.....

[IndexTrader]

Banks are NOTORIOUS for NOT knowing what's coming!

They are masters of shutting the barn door after the horse is gone.

Really. There's a reason why few banks are even in the investment management business (and have a track record to be proud of).

Exactly. Banks are the classic example of dumb money. Always zigging when they should be zagging. Abandoning the subprime business in droves? You mean just as Warren Buffett is rumored to be sniffing around Countrywide?

I recall back when rates went to 20% and banks decided they would not do fixed rate loans anymore...only adjustable. They were expecting 30% rates.

IT

And people where still borrowing at 20% remarkable, isn't it ?

And now we have 6.5-7%.....

I remember I got my first loan at 11.5% on the way to 20%, and was thrilled. I thought I had screwed the bank. Later, my brother paid 14%. But as time went along, in order to sell your house, buyers started assuming existing loans, or doing other measures of owner finance, in order to finance home purchases under the so-called market rate.

That said though, most of my adult life mortgage rates were over 10%.

IT

[qqqqtrdr]

To continue on that thought...

So lets say California has 0.3% loans in default.

Assume the recovery rate of 50% ( Yes, there is recovery rate too)

So your total loss is 0.15%

What interest rates do you need to charge for new mortgage originations, if you assume foreclosures rates will TRIPLE next year, and your total loss on principal may be as high as 0.5%

Can you still make money on this ?

You bet you can. So they will lend, lend lend.

I agree.... The forclosure rate was not high a year ago, so a double rate is worse but not totally out of line. The drop of interest rates signal the FED will do it's part to stem the problem. There is a part of the population that lived on the home equity lines of credit and refiniancing, so home improvement will slow, and commodities will likely fall, so it should balance things out. Demand for homes is still robust. Lending practices were a problem that are being closely watched by the government. Banks don't want their hand slapped in giving loans, so you must be a good credit risk in order to get a loan.

Barry

[humble1]

as to the HEL's: yes, these may not be headed for an imminent foreclosure/default avalanche. but ... * NEW HEL's will be hard to come by, as will increased credit lines. this means the momentum - the first derivative - of spending from that sector will slam on the brakes. AND this, as well as other things, will affect the economy. one of the scary things about this economic PERFECT STORM is that EMPLOYMENT IS SO LOW. it really has only one way to go and it WILL GO MUCH HIGHER. that will lead to defaults, many defaults, down the line in the HEL category. * as to ARMAGEDDON: you don't have to be one of "those" (lol!) to be realistic. we have had several DEPRESSIONS and we will come out of the other side of this one, as a country. but many will be FLATTENED. and though many of those will survive, the ones who are ready for IT will profit enormously. * so, there is a COST to not being realistic here. THIS IS REAL !!!!!

Edited by humble1, 21 August 2007 - 10:06 AM.