OT-since we're into trashing threads this morning i might point out that "down goes CFC". what a bunch of panzies. is that all u got she wrote? Friday's runup was just a big short squeeze into which i shorted more. while i'm at it "down go the financials" as a result of what's really goin' on on Wall St. Folks are startin to realize that Paulson is just another frat boy goon trying to prop up US ponzie finance.

when investors start to "see" the real losses on the books of all these financial firms that are out in the open Mother Merrill will be needed in large doses.

DSL is a bellwether for option ARMS and has been a darling on Wall St and for Cramer who's been pumping them for over 8mo. i heard him a couple of weeks back after DSL got trashed after they reported dismal results and all he said was "mea culpa".

their trashing tells u investors have caught on bigtime to this pig.

oh and i might also mention BKUNA which was a topic thread also last wk. its now going into the tank bigtime.

with gold hitting 798 last nite and oil at 92 we are approaching armageddon.

when will ppl realize that no matter how much BB cuts Wednesday, it won't matter?

idoc,

It may matter but it won't help.

"allows payments based on a 1% interest rate"

Isn't this the crux of the problem (and the LA Times furthers the confusion). Its never a 1% interest rate and throwing around percentage rates in the context of a loan (other than the annual APR which folks assume the percentage represents) is deliberately misleading to 90% of the population (including the LA Times).

Sounds like that cheesecake is loaded with protein and calcium!

Well, that headline was hard to miss. So she made a mistake and is paying for it.
That reminds me of an acquaintance who ownes a RE office in an affluent suburb just north of Boston. In 2005, he told me "I just spent the last two years selling people houses they can't afford". He's a moral person, but needed to provide for his family and play by the same rules as the sharks.

"Or, people's faith in verbal representations made by loan salespeople is so strong that they can see the top line of this document but their mind cannot process what it means."

I believe this to be a huge part of the problem.

Even simplistic legal jargon is legal jargon. People's eyes glaze over.

It happened like this with a friend of mine:
they got a huge stack of papers and their RE agent (who was a friend, who they trusted) was there and said: "yeah it's just a bunch of legal mumbo jumbo... essentially here's what it's saying".

And they signed. Very stupid I know.

That said, in my own realm, there are times when I need a person to sign a consent form for a procedure, and CLEARLY WRITTEN in the stock form is stuff that isn't applicable to them. I tell them "this stuff doesn't apply to you" and they sign it.

I'm being honest, it DOESN'T apply to them. But the point here is that they TRUST me to keep my VERBAL end of the agreement, even though the writing states something very different.

To expand my idea:

In my teaching hospital, the consent form for the procedure states that I am able to teach and train a resident/med student, or that I can videotape/audiotape the procedure for future learning issues.

Most days I do not do this. When I don't, I tell the families
"It will be me and you and my nursing support staff in the room, nobody else. nobody will touch you except for me. I will not audiotape or video tape anything. All extra tissue goes immediately in the trash".

And they sign.

But that document clearly states that I could do all those things I verbally promised not to do.

In 14 years, NOBODY has refused to sign, and they sign quickly.

Anonymous in the post above is me...

Fact is, you can't have a high cost of funds like a Countrywide and make only vanilla loans (conforming non-jumbo). Just as many Americans are addicted to credit, a lot of banks and mortgage lenders are addicted to exotic loans.

lenders will get more and more selective and tougher on credit in the future.

This was my belief, too. But we just got a written 30 days note with the rent that a Section 8 family is moving because they're buying a home. How is this possible? I guess there are a number of possible unlikely scenarios, but who would lend? I won't be surprised if it falls through, but how did it get this far? They're good people, but still, they're far away from the Newport Beach crowd especially in terms of income.

Folks are desperate to maintain their lifestyle. It doesn't matter what income bracket they happen to be part of, they generally are living beyond their income and are in denial about what the outcome.

Much truth there. I'm watching a local situation where a couple HELOC'ed their 5-ac and doublewide to buy an alcohol-consumption license. The bar where the license is/was being used is currently closed. The homestead is in FC (likely for $80k +/-). FC will go final next month.

Now money is a very tangible thing, you can hear it crackle in your hand, you can hear the roar of the new Hog, you can hear the purr of the new SUV, you can hear the game on your new big screen TV, you can hear the sweetness of the voice of your significant other with the new bobble, you can hear the ding of the check counter with your food.

Future money is an intangible thing, a promise, a concept, maybe even a threat. But never the less, it is not tangible and like it or not, many if not most of the human species has problems with intangible things.

So it has to be regulated, to any measure assert otherwise is to assert that a one legged man can race with everyone else.

Time and Money are intangibles that Humans have no hard wiring for. They are artificial intangible constructs that have to be learned to survive. But most have a handicap in one or both. Time is artificial. 3:00PM is an arbitrary thing. $1.00 is an arbitrary thing. So mommy or daddy government has to protect.

If I am hungry and someone offers me a large chocolate bar now for 20 1$ annual payments, I might just take it because I am satisfied now and the future is well a ways off.

Yea, regulation is the enemy of flexibility, but too much flexibility is the friend of chaos.

Not to mention that by the time problems are found, a nation of busted chocolate addicts, it is too late to correct.

Vader,
And here I am with my Nestles stock, hoping you'll buy more chocolate, however you can.

A lot of people will sign anything for two different reasons.

First, there are a lot of people who just can't or won't process information in a logical step-by-step manner. If you give them directions, they have to be able to grasp them all at once or they're completely lost. There's no way you can grasp a loan contract all at once, so they have to rely on the person handing them the document.

Second, the general view in this society is that legal documents are incomprehensible. Not just relatively incomprehensible compared to the sports pages, but might-as-well-be-in-Attic-Greek level. If it looks like it says something in plain text in a legal document, there's something somewhere else in the document that makes it mean the exact opposite. The fact that every consumer gets inundated with deliberately confusing and unavoidable contracts all the time certainly doesn't help. So if the broker sitting there tells you something that directly contradicts what it says on the document, you'll believe him and not the piece of paper.

Could something help? Sure, increased emphasis on critical thinking and questioning authority in school. Considering the first victims of these new skills would be the authorities themselves, that's not terribly likely.

but who is going to be the judge of how many are made and to who?

It will turn out that the market is not the final arbiter, because left to its own devices the market ends up, well, it ends up just about where we are now. The government is going to be the final arbiter, and I'll bet you a big fat slice of cheesecake you aren't going to like the outcome of the arbitration...

This is why a boiled down version needs to happen.

Maybe have 3 versions of the loan documents.

Version 1: SUPER boiled down version. (1 page or less)
Version 2: boiled down version using only layperson talk. No legal mumbo jumbo. (2-4 pages)
version 3: the legalese.

The borrower needs to sign all 3 versions. and the 3 versions need to have the same "essence".

for instance, Version 1 should seriously ONLY say:

Your loan: $XXX,XXX
Your payment: $X,XXX per month

(if an ARM)
Your payment WILL change in X years. At that time, you will still owe $XXX,XXX on your loan.

Your new payment might go as high as $X,XXX or as low as $X,XXX but NOBODY can tell you for sure.

No matter what anyone says, in X years, you might not be able to change to a new loan. In the future, if you can change to a new loan, it might not reduce your payments.

It is possible that your house might lose value.

=====
it could have stuff in there about interest, but we've already seen how people really only care about "how much is it a month"

BTW: English is her second language, so I'm not sure she would have understood everything anyway.

That's probably a huge BTW. Well, please get back to us if you find anything fishy with those docs. It would be intersting to know.

Sorry to butt in Ron, but I think Tanta's point(at least as much as I can tell) is your example is why we should not offer alternative financing to people at all. It's like giving the crack addict a better crack pipe. Of course, maybe you agree. I do not. There is a huge difference between my going out and finding my first crack dealer and getting addicted because I decided that it was a good idea and the crack dealer showing up at my house and talking me into trying it for the first time.

Anyway, the fix is in the works. If bankruptcy law is changed to discharge owner occupied mortgages like any other secured debt, the holders of the money will get a lot less reckless with how they lend it out.

It takes an MBA to understand an amortization schedule?

No, but it might take one (plus a law degree) to understand a fraction of the fine print buried in your average loan packet.

I'll leave it to Tanta and CR to school Producer in the pre-bubble history of I/O and neg-am loans, as they are industry insiders and far more qualified to comment (hint: they were not being mass marketed to Joe & Jane Howmuchamonth prior to the MBS/CDO risk-offloading "miracle" and Greenspan's 1%).

Regarding "elitism", if being in favor of matching risk with reward (i.e., forcing toxic paper-pushers to eat their own shit vs. socializing risk via Fannie/Freddie or some other government bailout), I guess I qualify as "elitist" then. Ditto for being in favor of laws that discourage fraud and aim to protect consumers from outright usury.

I guess I "hate" Wall Street's "freedom" to financially rape my neighbors, friends and co-workers without any nasty government "interference" in that lovely level-playing field "free-market" process. But I'm just "elitist" that way.

Of course your neighbors, frineds and co-workers are a bunch of loons who would otherwise need a MBA to ensure they could add a margin to an index, and only the governement, that shrine to purity of motive and goodwill, can help them make their decisions for them...

@Producer,

Loons? No. Occasionally irresponsible, functionally innumerate, and easily manipulated by slick self-serving industry con-men (like 90+% of the American public)? Yes.

The government may be no paragon of virtue or shrine to goodwill as you so poetically put it, but as the old saying goes: "Capitalism is not supposed to be two wolves and a sheep voting on what's for dinner."

I haven't seen much in the way of government "regulation" in mortgage markets over the past decade. Stockbrokers must act as fiduciaries, take exams, comply with SOX, and can even lose their license over relatively small infractions. By contrast, independent mortgage brokers seem to be able to say, do and peddle pretty much whatever they want with virtual impunity.

There are many freedoms that I treasure and would fight to defend. The right to hang myself with a toxic loan and get gang-raped by Wall Street is not among them.