I would say it is one of the flaws with our tax policy, and more importantly, how Boards-of-Directors are very inbred, and how management exists only to enrich themselves.

Shareholders, employees, and customers are a mere annoyance or afterthought.

I think it would be more accurately put “the flaws of American Capitalism…”

What I find amazing is that until now, it would appear that nobody has contemplated the ramifications of loaning easy money in a declining market.

WTF do banking execs actually discuss at board meetings? Is the industry so replete with short-sighted morons that never asked “What if…?”

P&I for $280K, @8.5%, 30yr – $2154.26

P&I for $280K, @15%, 30yr – $3540.95

Are you saying that your freind will be paying 15%? Or did you get it backwards and the loan goes from 6.5% to 8.5%?

Any idea on the payments for that?

What they are and will be?

My 20 cents prediction may be too bullish.

This is one of several common spins floating around by RE cheerleaders. Dr. Roubini’s blog did a comprehensive job of debunking all of them

http://www.rgemonitor.com/blog/roubini/143257/

There are many good comments/feedbacks in it.

“Last week, H&R Block, the big tax preparer, alerted Wall Street that its Option One Mortgage unit, which focuses on the subprime market, would have to set aside about $60 million, or 19 cents a share, because borrowers were falling behind on their payments.”

“Customers of Countrywide Financial, which has products across the credit-quality spectrum, are paying loans off more slowly, as are those at subprime companies Impac Mortgage and Accredited Home Lenders. Mortgage companies, such as regional bank Fremont General, have begun putting money aside to account for loans going bad.”

“So far, late payments and defaults are relatively low. But the housing downturn is just in its early stages. In one of the first signs of concern in the market for credit-worthy customers, First Horizon National said yesterday that mortgage volume was falling so rapidly that it would miss earnings estimates for the current quarter. Less than 5% of First Horizon’s loans are to customers with poor credit.”

If interest rates go up just a little bit people will not be able to qualify for a fixed rate on the amount they owe. They will also not be prepared for the new arm payment, so foreclosures should naturally go up.

I think the Fed is going to bail everyone out next year by lowering rates

On top of that, ratings agencies (like Standard and Poor) are griping about the quality of exotic mortgage tranches. Some lenders are even reporting negative earnings shocks due to their being forced to buy-back low-quality mortgages from angry investors.

The point is this: as defaults increase lending standards WILL tighten if for no other reason than the fact that the secondary market (i.e. investors who buy loans from banks) will demand higher risk premiums on dodgier loans which will tighten credit availability to consumers. A year from now sub-prime lending will almost have vanished.

Let’s hope so.

Maybe some teeth will be applied as more buybacks of MBS appear on the horizon.