Can we add "no fee" mortgages too? The fees are still there, just rolled into the APR. I'd like the chance to compare how much that's going to cost me over however many years I own vs a lump sump payment up front.
It's just a way of compensating the lender for the option he sells the borrower. Why should the lender not get paid for the prepayment option, the default option, or the partial pre-payment option?
If you don't like it, borrow the money from someone who doesn't charge the pre-payment penalty.
No prepayment was a critical component of my mortgage negotiations. I've read accounts of people not knowing that they had an Adjustable Rate Mortgage - they thought it was fixed. Then again, the average reading comprehension in the US is that of a 3rd grader.
Wallace said she knew she had a prepayment penalty. "But I didn't think it would be a problem because I didn't think I would have to move," she said.
Once again, people not taking responsibilty for their own actions. Now they want to sue as if they were lied to. You knew it going in you dope. Swallow the pill you decided to put in your mouth.
Tanta, I have to disagree with you on this one. If a consumer is willing to accept a teaser-rate mortgage, which is an idiotic device for the vast majoity of borrowers, then the consumer should be prepared to pay some sort of prepayment fee. The fact that a mortgage includes a teaser rate blares to the consumer that there is a potential catch, so beware.
While were at it, let's ban all those pesky fees for early withdrawal of 401ks for hardships, right?
Tanta, I totally agree w/you that many consumers don't understand/appreciate acceptance of a prepayment penalty, but that alone doesn't mean they should be banned from everyone - including those who could benefit from them.
Hell, millions of people don't understand/appreciate that they have effectively zero chance of winning the PowerBall jackpot. But that doesn't mean we should ban lotteries.
The prepayment penalty is compensation for giving a low interest loan at the beginning of the loan period. If I get a loan that is 2% for the first year and 7% after that, the lender is banking on making up the lousy return in the first year in subsequent years. if someone repays after a year, the lender gets screwed without a penalty in place.
if you are too retarded to understand the document, then take it to a lawyer to explain it to you. On your dime. Seriously, I have always vetted every major document with my own legal consul.
flexibility equals choice. most of the things we evaluate under such conditions are low probability events. heck that's what lawyers do 90% of the time when they write contracts. you want to afford yourself the maximum set of choices given a circumstance and negotiate the best possible scenario to do so. the second question i asked (fees being first) when getting a mortgage was is there a prepayment penalty. if there was i wasn't signing as it would've reduced a scenario that while might be a low probability if you get enough of them they start to become probable.
I don't know that it is a matter of consumer "understanding" so much as the fact that the individual consumer probably only has the single, very large mortgage loan, and his (mathematical) expectations and risk aversion are not well-defined, while the lender has thousands of loans, and therefore has well-defined expectations and no risk aversion.
Using a pre-payment penalty to put risk onto the party with limited or no capacity to bear or manage risk just does not make any sense.
The pre-payment penalty on a certificate of deposit is different, because the individual buying a certificate of deposit can be reasonably presumed to have multiple reservoirs of liquidity and credit -- indeed the penalty is there to ensure that individuals do not make certificates their first choice as a savings vehicle. The individual has a portfolio and the capacity to manage it.
Funny, because the prepayment options are one of the first things I ask about a loan. But I'm also one of those people that tosses extra payments in each year to buy down principle. Add "deadbeat" as in always paying my balances off each month to my list of crimes.
Someone mentioned borrowers not knowing they had an adjustable loan. That's because people would often directly ask for a fixed rate and they would be told "of course! It's fixed for 5 years" like that was the standard. It's usually followed by the "oh you poor uneducated fool, I'm here to help you" look.
I had some schmarmy guy try that on me back in 01' before I knew bupkis about loan structuring and you certainly can argue that I still know bupkis about it but even I called him on it. I guess some people get so nervous, thinking they aren't worthy of decent terms, that they'll say yes to anything.
I'd like the chance to compare how much that's going to cost me over however many years I own vs a lump sump payment up front.
My point, I guess, is that it's actually easier to calculate the cost difference between those two things than it is to calculate the probability that you will own the home for the number of years you choose in your cost calculation. And then to decide what weight to put on that probability in making your decision.
Frankly, the smug folks who made sure they didn't get a prepayment penalty still did not get a guarantee that they would not be forced to sell their home at a loss in two years because of a hardship.
There were also plenty of people during the boom who sold in a year and still made a handsome profit even after paying the prepayment penalty. There have been more than a few subprime borrowers who refinanced early, rolled that penalty into the new loan amount, but still came out ahead because the new loan rate was so much lower.
There are all kinds of young and healthy people, this very day, who are signing up for high-deductible limited-coverage health insurance. The laws of probability say that for some of them this will be regretted. For some it will have turned out to be a great deal. But I doubt there are as many proposals to ban this sort of insurance as there are to ban prepayment penalties.
Prepayments aren't allowed in Alabama, either, unless done through a "Hud approved lender", whose rules preempt our state law against them.
I agree w/ Tanta, though. They are generally a bad idea, and very few borrowers are sophisticated enough to understand whether they're getting a good deal.
And since it looks like just about all mortgages will soon be ultimately owed to us, the taxpayers, why not practice a little socialism and just outlaw the things? If we are the ones lending to ourselves, we should be able to make any rules we want about what sort of lending we will allow, and prepayment penalties are a restraint on alienation of real property, which (restraints) have never been favored in the law. It has long been recognized as good policy to limit restraints on alienation, of whatever type.
Oh, and look at Vermont, banning a major pillar of financial engineering - they even elect socialists there, and may not have a single Wal-mart in the state.
No wonder Vermont has such a bad reputation for flinty integrity and personal responsibility.
Damn yankees, in a country seemingly run by good ole boys.
Really, why? Tanta's argument, as I see it, is that the people who use pre-payment penalties don't understand them. What's not to understand about a hugely high rate of interest? If people are that stupid, then we might as well shut down this whole "democracy" thing right now; I'm unwilling to yoke myself to people too stupid to figure out what "APR=115%" means.
Ooops - Alabama joins one of the original colonies, which means that not only yankees are able to recognize their own interests before those of bankers.
Actually, rent_to_own, it would seem to imply that Vermont's elected officials think their constituents are too stupid to figure out what a pre-payment penalty actually means and why you might or might not want to take one on. They need, IOW, to be protected from themselves. Now, this may or may not be the case, but I wouldn't go trumpeting it.
I love how when Joe-Six-Pack finds himself/herself on the losing end of an ugly loan, the solution is always 'class action lawsuit.' Do they think it's some kind of magic wand of social justice?
Hell yes, they should be banned - along with ARMs Option ARMs, pick-a-pay. negative amortization, liar loans and all the other crap that has brought our financial system to the brink of collapse!
Their usefulness is far outweighed by the interests of the taxpayers - who are gonna be left holding the bag for this criminal assault on the financial system. I might be willing to consider very close regulation - and I mean VERY close - limiting such crap to the actual circumstance where it is actually justified - and less that 1% of the totality of loans granted by a given institution.
I might consider that - in return for acceptance of much more stringent regulation and oversight of Federally enabled and insured institutions.
Tanta, to answer your question about how big a class has to be to be a class action, the answer is generally a minimum of 30-40.
There is another, practical limitation. It is so expensive to prosecute a class action the class's losses will generally have to be more than $2 million in total before a lawyer will take their case.
For some types of cases, the minimum is usually more like $20 million.
There are actually quite a few states in which ppy penalties are either outright unenforceable or so highly regulated that they're not worth the lender's while. As far as I know it follows no "blue/red state" pattern.
I am curious why all these commenters who always demand no penalty think they've been wise about that. Are you really sure you will end up saving money that way? Have you never had a mortgage loan that lasted for more than three years? Are you sure the one you have will not last more than three years?
None of you morons go nearly far enough. And I will. We should round up all those bastards in banking, finance, insurance and hmmmm, anyone who is subject to be held liable by vote of the majority and shot.
Screw due process, screw fair trial just go in blasting away. We can sort the guilty from the innocent later and send the grieving widows a nice letter of apology.
Corey, the rule should be that consumer financial contracts are either (1) fair (2) easy to understand.
When they are both unfair and difficult/impossible for an average American to understand, then courts should, and often do, refuse to enforce the harsh terms in them.
Tanta, to answer your question about how big a class has to be to be a class action, the answer is generally a minimum of 30-40.
My question wasn't really how big a class has to be.
I was merely observing that if an event is low enough probability, it isn't likely to be the sort of thing that happens to so many people that class certification is gonna happen.
actually usery IS illegal. if you watch alot of police procedurals, especially back in the day, usery was always quoted as x points over prime (usually like 10-15). It's called loan sharking, except for the very specific exemptions of 'payday loans' (APR 200-450%) and credit card penalties.
NO reason for VInny the shark to get into issues anymore, he just opens a 'check cashing payday loan' company
the real problem with both credit cards and payday laons (and heloc's etc) is that the disguse the poverty line. People will putup with lifelong unfair debt before they turn ugly, but starvation and lack of housing will drive serious discussion.
Maybe they should just structure a prepay penalty as an initial charge that gets credited once a predetermined amount of time has passed on the loan.
It's totally equivalent. Only it makes it clearer up front and then nobody can really cry foul. (It would probably not be taken by the borrower quite as often either.)
Loans should be the greater of $2000 or 1% fees and APR. $200k loan initiates at $202k at whatever rate can be negotiated. Face it, everything, absolutely everything can be distilled to those two items but they aren't in a deliberate strategy to make it impossible to shop a loan.
I have a modest proposal to make on the theory that no one should ever be helped unless they 1) pay for it themselves, and 2) deserve it based on their own personal morality, integrity, and self-responsibility.
Swiftly, so to speak, you and CR should stop providing the services of this website free of charge and without regard for the intelligence, morality and integrity of its readers.
Even more Swiftly, you should 1)institute a pay-per-reading fee scaled to the potential profitibality of your posts, and 2) you should require readers to pass a battery of intelligence, integrity, and morality tests before letting us enter your wensite . . . and most definitely before letting any of us post on Haloscan!
I fail to see why the value of your blog should be diminished for the brilliant by allowing it to be shared and diluted by those who undertands things differently or to a lesser degree.
Likewise, there should be no public education or police or fire services. Let us each teach ourselves and defend our lives and property and homes from criminals and fires. We should not pay for others.
Ladies and Gentlemen, the printing presses have begun. Bubbles Bernanke's helicopter will be making a special delivery of hundreds of billions of Zimbabwe dollars to Fannie and Freddie tonight.
Discount window! What a terrible idea. At least in conservatorship, the equity would probably be wiped out. Now, the taxpayers get stuck with declining assets (even if it's only a few hundred billion) and the shareholders get paid!
We tend to think that people who obsess about very low-probability, very high-severity events are, well, obsessives.
That's because pragmatists are poor systems thinkers. In game theory, you need to multiply the probability times the payoff to make a mathematically sound decision. Pragmatists tend to disregard the payoff component.
yes... nypost has confirmed a nice sikorsky has in fact landed at lehman, and men in pinstripes are now on the roof, taking out what , ominously, looks like casino chip carriers. but instead of chips, it appears there full of usb flash drives....yes folks, we can confirm Digi dollars to the rescue!"
"Ooops - Alabama joins one of the original colonies"
Rent to own: Not a Green Mountain Boy I see. Vermont fought it's own war against the original colonies (at least New York) for it's own independence, but then joined right in, even without partaking in the Continental Congress. I certainly go along with the rest of it.
"Ultimately the US is just highly indebted to the world. Until we enact some more longer-term prudent fiscal measures that contain spending and we don't listen too much to special-interest groups ... until we put some kind of fiscal restraint on our government, it's going to be a challenge for the country," he said.
From an investment standpoint, Leburn said stocks will be highly risky. He recommends high-quality bonds, traditional Wall Street leaders and some commodities. Only after the debt crisis unwinds will it be safe to get back in the market.
"The issue we have is the massive amounts of credit in the system," he said. "However you measure it, private debt is off the charts."
Discount window access is an interesting and relevatory choice. Collateral must be pledged at the window so it won't affect their capital issues. What it does affect is that assets which would have to be firesold can be pledged at higher rates.
The implication is that F&F were about to have to sell a lot of assets well below par value. Hmmm.
wHAT THE HELL happened at 3:00-3:10.Market went a little pos. and then BAM Dow down 50 and then 100.Dow,S&P and Nas. went from even to 1% down in a few minutes.????????????????
July 11 (Bloomberg) -- Veli-Pekka Kaipainen needed cash in a hurry to pay off gambling debts. So he started texting. The Zamboni ice-resurfacing machine driver used his mobile phone to contact Finland's text-message lenders. The only catch was he had to pay fees equivalent to an annual interest rate of as much as 1,600 percent...Text-loans account for 20 percent of problem debts in the home of Nokia Oyj, the world's largest maker of mobile phones. That's prompted the government to start drafting rules regulating text lending, which emerged in Finland three years ago and is now spreading across Northern Europe...
...To get a loan, Finns send a text message containing the amount requested, their address, personal identity number and bank account number. The lender checks an online credit database, transferring the cash if the details check out and the applicant has a clean credit record.
Borrowers receive the money in as little as three minutes and typically must repay it within a month, said Kari Kuusisto, who heads an association of six text-message lenders. Finns took out 270,000 text loans in the first quarter, according to the country's statistics bureau, which released its first data on the topic on July 4...
...Interest is charged as a flat fee, usually about a quarter of the amount borrowed. That translates to a median interest rate of 621 percent on a 100-euro ($157) loan...Pawnshops charged the equivalent of 122 percent for 100 euros, the survey showed....
...A promotional video for lender VipMoney shows a man at a bar table full of empty bottles who receives a text-message loan after his debit card is refused...A television commercial for J.W.-Yhtioet Oy featured a man running out of chips at a poker table. A text message later, stacks of chips appeared. The spot was withdrawn in May after the Finnish Consumer Agency deemed it ``inappropriate.''...
...Finns have been quick to adopt new financial technology. The nation uses less cash per person than any other country, with about 95 percent of payments made electronically, government figures show...
Americans struggling with mortgage payments seem like pillars of financial rectitude by comparison.
WASHINGTON -- Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the emergency discount window, said a source familiar with a conversation between Mr Bernanke and Mr Syron.
Mr Bernanke and Mr Syron spoke by telephone Thursday afternoon and in that call the central bank chief said he intended the discount window to be open to the two companies, said a source familiar with the phone conversation.
The Fed declined comment on whether its discount window might be opened to GSEs. Freddie Mac spokesman Douglas Duvall declined to comment when asked about the phone call.
Greg Weston, in the instant case, the borrower admits she understood the terms. So presumably it was clear enough. As to the issue of "fair", well, that is largely subjective. But in this case, she apparently believed it was fair until it came time to pay up.
"Fair" and "easy to understand" are constantly moving targets, as education gets worse, American consumers get dumber, Government tries to become the the financial caretaker of us all, and the entitlement mentality gets more entrenched.
Half the people I meet cannot even calculate 15% of a restaurant bill. Banning financial contracts that they can't understand will return us to a system of simple barter, at best.
Pre-payment penalties are only a tool. Like any tool it can be misused in the wrong hands. They come in 1,2, and 3 year varieties and soft and hard (no sale or refinance). You can decrease your loan interest rate by 1/4 point or more using a PPP.
The bet is you will not HAVE to sell your house or refinance in the given period for a cost savings that can add up to tens of thousands of dollars over the life of a loan.
Any reputable mortgage originator can run the figures for folks.
Variable rate loans the same thing, savings over a period time with a bet on being able to refinance, sell, or a drop in rates in that period of time.
All those folks with a fixed rate are paying a premium for that in most markets. If it makes you feel superior or safer, so be it, but understand it is costing you more to have a fixed rate.
Variable rate loans are not a smart loan for the sub-prime crowd, because of their lack of credit scores and reserves to handle the bad times, like now.
As to the women, she knew she had it, and she benefited from having a lower interest rate (presumedly), but she made a decision to sale the house, take her profits and pay the penalty. No big deal, her decision.
Any which way a bailout is initiated on institutions that are too big to fail almost inadvertently means pumping liquidity which is borrowed or created, into the marketplace.
How can this be a strong dollar policy, one wonders.
I just read a news report that the Fed is going to allow Freddie and Fanny wear khaki suits and white after Labor Day.
Unbelievable.
Thats got to be a rumor because it makes no sense. None at all.
This discount window has been open for WS for, what, at least six months now? At best, it seems to have slowed down their rate of descent, without really saving them (see LEH). So why should we expect it to save F&F?
The problem with prepayment penalties is not that they aren't understood but that they are a restraint on alienability. I have zero sympathy for Wallace, who is, clearly, just foolish.
But I can understand that as a matter of public policy we might not want to lock properties out of the market with loan prepayment penalties.
Stops got taken out on the whipsaw. Difficult to set stops on ultrashorts when intraday is $15. Sure I'm not alone. Tough market to avoid getting clobbered.
Shanondoah hit it right on the head.
Also, you can bet your last dollar that the window will be available to FRE and FNM if they need it.
Its a non-event - they have an "implicit" backing from the government so why does the window access mean dick.
It doesnt and people are just scared. The worst for the market is far from over.
In other news Charlie Gasparino reports that a LEH bailout is just around the corner. He says that he can actually hear the fleet of helicopters coming.
Why is the window even necessary in this situation--why can't the Fed simply buy the MBSs for their own portfolio, if they want to inject cash? This was routine until ten years ago or so, if memory serves....
"If it helps avoid a recession, it will have been well worth it," said Vitner. "If the economy falls into recession, then it will pretty much have been a waste."
I don't doubt that everyone on this board is sophisticated enough to understand prepayment penalties, weigh the probabilities, and make an informed decision.
But your Aunt Sally in Toledo cannot do such analysis.
I would take it a step further, and say that unless you are "accredited", you can only get a fixed rate, level payment mortgage. Only those who can show financial acumen (maybe using SEC definitions) can get ARMS, lockouts, IOs and the like. Because while the posters here might think these are not very exotic products, for your Aunt Sally this is some pretty heavy sh*t to understand.
The Market and the Intertubez has played out like a bunch of 17 yr. old kids in High School today. Rumors, people freaking out and the hokey Principal Bernanke all over the place to try and calm the situation.
Inevitably, this led to a night of underage drinking and trouble...I'm afraid that's where we are going this weekend.
Prepayment penalties are simply a form of insanity and way to "insure" cash flow for the holder of the mortgage... assuming that debt = wealth and all that nonsense.
In a culture being crushed by debt on all levels, we should be looking for ways to encourage people to pay off their debts, not drag the payments out forever, IMHO.
Well...Bush certainly isn't making any new friends overseas...
The American leader, who has been condemned throughout his presidency for failing to tackle climate change, ended a private meeting with the words: "Goodbye from the world's biggest polluter."
He then punched the air while grinning widely, as the rest of those present including Gordon Brown and Nicolas Sarkozy looked on in shock.
One reason for banning prepayment penalties might be that they were used to write loans with below-market initial payments, and borrowers were qualified on those initial payments.
So prepayments really aren't optional for such borrowers (who need the below-market rate to qualify), and since they aren't making a choice between options, they are taking a risk they don't understand, and furthermore it creates a systemic risk which is hard to quantify or assess. Like DAPs and OAs, markets that have a lot of these loans seem to see heavy forced selling, which pushes risk onto traditional mortgage investors and borrowers.
Does this ban include "soft" prepays as well (no prepayment for selling)? Giving up your option to refinance for 3yrs for a lower rate today seems reasonable to me.
Bush -- makes sense. He's a joke we've been sharing with the world for many many years.
Re: Prepayment penalties. I read a paper last week (sponsored I think by the NBER)which, after many gezintahs, came to the conclusion that ppp's really don't do any harm for "sub-prime" borrowers. They admitted that they only looked at 30 year fixed rate loans for their study and that they didn't take into account whether or not these borrowers were doing cash out refis. So.... worthless study. Question is, why bother to do this study and then publicize it?
Because some people that make the laws or the ones that fund them needed some academic hieroglyphics to make it look like ppp's are just fine.
I think that the 3-year Prepayment penalty is the problem. 1-year I can deal with, but everyone's lives will change in a 3-year period.
Sometimes there is a benefit to the borrower if they take a one-year PP. The lender is willing to do a little more if they know that the loan will be on the books for a while.
In a 3-year PP it's a different story. My experience is that the only difference between a 3-year PP and 1-year PP loan is that the margin is higher and the broker gets paid a lot more. There is no benefit to the borrower whatsoever.
As the earlier poster said, the 2-year fixed loan with a 3-year PP was a criminal act, and the Option ARM with such a low payment that it would recast in the middle of year 2 was another one.
Bankers giving loans and mortgage companies giving mortgages should be made to feel the pain their greed causes to average consumers. It would serve them right if they all suffered serious losses for their greed. Not a single consumer would feel the slightest bit of sympathy for them.
There are prepayment penalties in TX, just not on cashouts of homesteads. Texas homestead equity loan laws are very specific and very restrictive. Other than that, pretty much anything goes.
Frankly, the smug folks who made sure they didn't get a prepayment penalty still did not get a guarantee that they would not be forced to sell their home at a loss in two years because of a hardship.
She could take them to small claims court for $5000 - you're not allowed to have a lawyer in SCC, and she could get back most of her money, they would likely not send anyone down to take care of it and she would win by default.
I would normally agree as to the ignorance of the average borrower, but I must disagree with the understanding of ppps. After closing 1000s of loans, the most likely questions of borrowers were about prepayment penalties and also, fixed vs adjustible. I think the thing most understood by the borrower was ppps or not. I never saw any corrolation between the presence or absence of ppps and the interest rate, in real life.
When couseling about foreclosure, I ask how much the mtg balance is, and most often they tell me what their payment is. No, no I say how much do you owe. More than 50% don't know.
Ok I say, how much was your loan when you bought? Often they don't know that either.
But in the last 5 years or so, I would say 90% asked about ppps.
Four years ago I refinanced a 2000 vintage ajustable mortgage. The prepayment penaly was $7,000.00 on a $60,000.00 mortgage!!! In a class action lawsuit I recieved $1,800.00 I presume the lawyers got another $900.00 for their efforts. So a class action suit is definatly a possibility.
Bitter Renter -
'I don't understand how anyone gives a damn what those mass murderers have to say.'
Actually, it looks like many people don't, really. After their experiences in mass murder and failed conquest, Germans of all political stripes attempted their best to prevent the U.S. from following the same path that eventually led to German mass murderers being hanged for waging offensive war and other crimes against humanity.
Luckily, America was able to ignore people who themselves, or their parents or grandparents, destroyed their entire nation in a war of stupidity, led by evil and deluded figures who cloaked themselves in patriotism and historical necessity to defend the homeland against the hordes of evildoers threatening the very existence of the nation.
Hmmm - did I just write 'homeland?' And to think, in all my years growing up in the U.S. near DC, I can never remember anyone using that term to describe America. But then, 'enhanced interrogation' is a word perfect translation of the German term for torture used by the Gestapo, so why not use 'Heimat' when talking about a government agency concerned about 'security.'
ratefink writes:
'Not a Green Mountain Boy I see'
Nope, but I was cautious enough to write 'original' instead of 13, because Vermont is pretty unique. Nonetheless, it most certainly is part of the original American states in the sense of joining during the original constitutional period, though now looking at wikipedia ( List of U.S. states by date of statehood - Wikipedia, the free encyclopedia ) I see that Kentucky (and possibly Tennessee ) can also claim to be in that group.
'I have zero sympathy for Wallace, who is, clearly, just foolish.'
Wow - getting cancer is just foolish? Wonder what you think about death, and the hole that rips into a corporate bottom line.
Oh wait - some companies make money from the death of their employees. Capitalism can find a way to benefit from anything, even including the death of employees. Not that the employees receive anything for the death, but then, they were foolish enough to not only die, but to work for such a company.
My wife is an estate planning attorney who always thinks about unlikely and macabre possibilities, but before I met her I never would have thought about what would happen if I got cancer and had to sell my house.
I can't fathom what it would be like to have a grave illness. I think, though, that it would put the $6,000 payment in perspective. The $6,000 would be at the bottom of my priorities, especially compared to cancer. It's sad that she is leaving instructions for her kids to carry on the fight for the $6,000 in her name. It's just not that much money.
It's just not that much money.
After my husband read me his previous post on this topic, I reminded him that $6,000 just may be a substantial sum of money for a women battling cancer and her mortgage holder. Her co-payments on treatment could be staggering. Also, cancer is certainly something that would dominate one's thoughts, however, former clients of mine in similar situations were much more concerned about leaving their final affairs in order for their loved ones. I admire this women for addressing these issues and making plans. Too many people cannot face mortality, and their surviving loved ones pay a huge emotional price.
I don't understand why she paid it. If I have a terminal disease, the last thing I would do would be pay a bank their usurious fees. What are they going to do, sue her for $6000? Ruin her credit rating? She should have said "here's $500, be happy with that, now leave me alone."
Goodafternoon, TGIF
Hearst
Can we add "no fee" mortgages too? The fees are still there, just rolled into the APR. I'd like the chance to compare how much that's going to cost me over however many years I own vs a lump sump payment up front.
It's just a way of compensating the lender for the option he sells the borrower. Why should the lender not get paid for the prepayment option, the default option, or the partial pre-payment option?
If you don't like it, borrow the money from someone who doesn't charge the pre-payment penalty.
And, how about yield spread premia?
Nobody understands those at all. Oh, well, hardly any more mtg brokers anymore anyway.
Especially deserving of contempt are the two year ARMs with a three year PPP.
No prepayment was a critical component of my mortgage negotiations. I've read accounts of people not knowing that they had an Adjustable Rate Mortgage - they thought it was fixed. Then again, the average reading comprehension in the US is that of a 3rd grader.
Wallace said she knew she had a prepayment penalty. "But I didn't think it would be a problem because I didn't think I would have to move," she said.
Once again, people not taking responsibilty for their own actions. Now they want to sue as if they were lied to. You knew it going in you dope. Swallow the pill you decided to put in your mouth.
Tanta, I have to disagree with you on this one. If a consumer is willing to accept a teaser-rate mortgage, which is an idiotic device for the vast majoity of borrowers, then the consumer should be prepared to pay some sort of prepayment fee. The fact that a mortgage includes a teaser rate blares to the consumer that there is a potential catch, so beware.
Here in Vermont, prepayment penalties are not allowed. Maybe that's one reason we had less subprime activity than most states.
While were at it, let's ban all those pesky fees for early withdrawal of 401ks for hardships, right?
Tanta, I totally agree w/you that many consumers don't understand/appreciate acceptance of a prepayment penalty, but that alone doesn't mean they should be banned from everyone - including those who could benefit from them.
Hell, millions of people don't understand/appreciate that they have effectively zero chance of winning the PowerBall jackpot. But that doesn't mean we should ban lotteries.
But I didn't think it would be a problem
It wasn't a problem: she sold, she paid. No problem.
Usury should be illegal too, yet we have Check Into Cash and credit card late fees.
The prepayment penalty is compensation for giving a low interest loan at the beginning of the loan period. If I get a loan that is 2% for the first year and 7% after that, the lender is banking on making up the lousy return in the first year in subsequent years. if someone repays after a year, the lender gets screwed without a penalty in place.
Yeah, you're right. It should be illegal for me to purchase anything that anybody else does not understand.
If you sign then you should not whine.
if you are too retarded to understand the document, then take it to a lawyer to explain it to you. On your dime. Seriously, I have always vetted every major document with my own legal consul.
Trust no one.
Yeah, you're right. It should be illegal for me to purchase anything that anybody else does not understand.
Hmmm, I don't understand the Federal Tax Code, maybe we can outlaw income taxes?
flexibility equals choice. most of the things we evaluate under such conditions are low probability events. heck that's what lawyers do 90% of the time when they write contracts. you want to afford yourself the maximum set of choices given a circumstance and negotiate the best possible scenario to do so. the second question i asked (fees being first) when getting a mortgage was is there a prepayment penalty. if there was i wasn't signing as it would've reduced a scenario that while might be a low probability if you get enough of them they start to become probable.
I don't know that it is a matter of consumer "understanding" so much as the fact that the individual consumer probably only has the single, very large mortgage loan, and his (mathematical) expectations and risk aversion are not well-defined, while the lender has thousands of loans, and therefore has well-defined expectations and no risk aversion.
Using a pre-payment penalty to put risk onto the party with limited or no capacity to bear or manage risk just does not make any sense.
The pre-payment penalty on a certificate of deposit is different, because the individual buying a certificate of deposit can be reasonably presumed to have multiple reservoirs of liquidity and credit -- indeed the penalty is there to ensure that individuals do not make certificates their first choice as a savings vehicle. The individual has a portfolio and the capacity to manage it.
Funny, because the prepayment options are one of the first things I ask about a loan. But I'm also one of those people that tosses extra payments in each year to buy down principle. Add "deadbeat" as in always paying my balances off each month to my list of crimes.
Someone mentioned borrowers not knowing they had an adjustable loan. That's because people would often directly ask for a fixed rate and they would be told "of course! It's fixed for 5 years" like that was the standard. It's usually followed by the "oh you poor uneducated fool, I'm here to help you" look.
I had some schmarmy guy try that on me back in 01' before I knew bupkis about loan structuring and you certainly can argue that I still know bupkis about it but even I called him on it. I guess some people get so nervous, thinking they aren't worthy of decent terms, that they'll say yes to anything.
Sdtfs,
The tax code is easy to understand: grab you ankles and relax. The rest are just details
I don't understand the Federal Tax Code, maybe we can outlaw income taxes?
I don't understand Scientology. Can we ban Tom Cruise?
I'd like the chance to compare how much that's going to cost me over however many years I own vs a lump sump payment up front.
My point, I guess, is that it's actually easier to calculate the cost difference between those two things than it is to calculate the probability that you will own the home for the number of years you choose in your cost calculation. And then to decide what weight to put on that probability in making your decision.
Frankly, the smug folks who made sure they didn't get a prepayment penalty still did not get a guarantee that they would not be forced to sell their home at a loss in two years because of a hardship.
There were also plenty of people during the boom who sold in a year and still made a handsome profit even after paying the prepayment penalty. There have been more than a few subprime borrowers who refinanced early, rolled that penalty into the new loan amount, but still came out ahead because the new loan rate was so much lower.
There are all kinds of young and healthy people, this very day, who are signing up for high-deductible limited-coverage health insurance. The laws of probability say that for some of them this will be regretted. For some it will have turned out to be a great deal. But I doubt there are as many proposals to ban this sort of insurance as there are to ban prepayment penalties.
Prepayments aren't allowed in Alabama, either, unless done through a "Hud approved lender", whose rules preempt our state law against them.
I agree w/ Tanta, though. They are generally a bad idea, and very few borrowers are sophisticated enough to understand whether they're getting a good deal.
And since it looks like just about all mortgages will soon be ultimately owed to us, the taxpayers, why not practice a little socialism and just outlaw the things? If we are the ones lending to ourselves, we should be able to make any rules we want about what sort of lending we will allow, and prepayment penalties are a restraint on alienation of real property, which (restraints) have never been favored in the law. It has long been recognized as good policy to limit restraints on alienation, of whatever type.
Oh, and look at Vermont, banning a major pillar of financial engineering - they even elect socialists there, and may not have a single Wal-mart in the state.
No wonder Vermont has such a bad reputation for flinty integrity and personal responsibility.
Damn yankees, in a country seemingly run by good ole boys.
Speed,
Usury should be illegal too
Really, why? Tanta's argument, as I see it, is that the people who use pre-payment penalties don't understand them. What's not to understand about a hugely high rate of interest? If people are that stupid, then we might as well shut down this whole "democracy" thing right now; I'm unwilling to yoke myself to people too stupid to figure out what "APR=115%" means.
Ooops - Alabama joins one of the original colonies, which means that not only yankees are able to recognize their own interests before those of bankers.
Actually, rent_to_own, it would seem to imply that Vermont's elected officials think their constituents are too stupid to figure out what a pre-payment penalty actually means and why you might or might not want to take one on. They need, IOW, to be protected from themselves. Now, this may or may not be the case, but I wouldn't go trumpeting it.
I love how when Joe-Six-Pack finds himself/herself on the losing end of an ugly loan, the solution is always 'class action lawsuit.' Do they think it's some kind of magic wand of social justice?
Paging Erin Brockovich...
OK, what didn't happen at 2:15?
Hell yes, they should be banned - along with ARMs Option ARMs, pick-a-pay. negative amortization, liar loans and all the other crap that has brought our financial system to the brink of collapse!
Their usefulness is far outweighed by the interests of the taxpayers - who are gonna be left holding the bag for this criminal assault on the financial system. I might be willing to consider very close regulation - and I mean VERY close - limiting such crap to the actual circumstance where it is actually justified - and less that 1% of the totality of loans granted by a given institution.
I might consider that - in return for acceptance of much more stringent regulation and oversight of Federally enabled and insured institutions.
Tanta, to answer your question about how big a class has to be to be a class action, the answer is generally a minimum of 30-40.
There is another, practical limitation. It is so expensive to prosecute a class action the class's losses will generally have to be more than $2 million in total before a lawyer will take their case.
For some types of cases, the minimum is usually more like $20 million.
There are actually quite a few states in which ppy penalties are either outright unenforceable or so highly regulated that they're not worth the lender's while. As far as I know it follows no "blue/red state" pattern.
I am curious why all these commenters who always demand no penalty think they've been wise about that. Are you really sure you will end up saving money that way? Have you never had a mortgage loan that lasted for more than three years? Are you sure the one you have will not last more than three years?
None of you morons go nearly far enough. And I will. We should round up all those bastards in banking, finance, insurance and hmmmm, anyone who is subject to be held liable by vote of the majority and shot.
Screw due process, screw fair trial just go in blasting away. We can sort the guilty from the innocent later and send the grieving widows a nice letter of apology.
So now we should ban all financial contracts that the American consumer is unable to understand? That should pretty much eliminate everything.
Simple Solution to unreasonable prepayment penalties that the borrower and lender agreed to in writing - Borrower Default.
Some 30yr fixed mortgages will cost less in real dollars if you don't make early payments, depending on the rate of inflation.
at 2:15 the telephone at the Papa John's in Pasadena exploded.
Corey, the rule should be that consumer financial contracts are either (1) fair (2) easy to understand.
When they are both unfair and difficult/impossible for an average American to understand, then courts should, and often do, refuse to enforce the harsh terms in them.
While we're at it, Cramer says Lehman, Fannie and Freddie are 'slam dunks' for buys right now. That should just about finish them off.
Tanta, to answer your question about how big a class has to be to be a class action, the answer is generally a minimum of 30-40.
My question wasn't really how big a class has to be.
I was merely observing that if an event is low enough probability, it isn't likely to be the sort of thing that happens to so many people that class certification is gonna happen.
SKF up on Cramer's remarks.
at 2:15 the telephone at the Papa John's in Pasadena exploded.
hahahahaha
that took me a moment to make the connection
actually usery IS illegal. if you watch alot of police procedurals, especially back in the day, usery was always quoted as x points over prime (usually like 10-15). It's called loan sharking, except for the very specific exemptions of 'payday loans' (APR 200-450%) and credit card penalties.
NO reason for VInny the shark to get into issues anymore, he just opens a 'check cashing payday loan' company
Shylock and Loans, LLC
I smell a R - A - L - L - Y...
they just opened the discount window to Fannie and Freddie
Anyone know what just caused that upspike in the Dow?
the real problem with both credit cards and payday laons (and heloc's etc) is that the disguse the poverty line. People will putup with lifelong unfair debt before they turn ugly, but starvation and lack of housing will drive serious discussion.
cc's and payday loans allow the wages to stay low
Booooyaaaaahahhahahhahaha
Hope springs eternal
or sumthin like that
payday loans allow wages to stay low?!?
that's the most ignorant, misinformed lack of reasoning I have heard since the Eisenhower administration.
If there is a place for a prepayment fee, it would be a fixed rate loan that is refinanced. I would welcome a ban on prepayment fees on any ARM.
Fannie and Freddie get access to the discount window. Just confirmed. Hyperinflation...here we come.
Tanta...
Maybe they should just structure a prepay penalty as an initial charge that gets credited once a predetermined amount of time has passed on the loan.
It's totally equivalent. Only it makes it clearer up front and then nobody can really cry foul. (It would probably not be taken by the borrower quite as often either.)
Loans should be the greater of $2000 or 1% fees and APR. $200k loan initiates at $202k at whatever rate can be negotiated. Face it, everything, absolutely everything can be distilled to those two items but they aren't in a deliberate strategy to make it impossible to shop a loan.
Tanta
I have a modest proposal to make on the theory that no one should ever be helped unless they 1) pay for it themselves, and 2) deserve it based on their own personal morality, integrity, and self-responsibility.
Swiftly, so to speak, you and CR should stop providing the services of this website free of charge and without regard for the intelligence, morality and integrity of its readers.
Even more Swiftly, you should 1)institute a pay-per-reading fee scaled to the potential profitibality of your posts, and 2) you should require readers to pass a battery of intelligence, integrity, and morality tests before letting us enter your wensite . . . and most definitely before letting any of us post on Haloscan!
I fail to see why the value of your blog should be diminished for the brilliant by allowing it to be shared and diluted by those who undertands things differently or to a lesser degree.
Likewise, there should be no public education or police or fire services. Let us each teach ourselves and defend our lives and property and homes from criminals and fires. We should not pay for others.
With a wink and a nod and many thanks.
Ladies and Gentlemen, the printing presses have begun. Bubbles Bernanke's helicopter will be making a special delivery of hundreds of billions of Zimbabwe dollars to Fannie and Freddie tonight.
Hey,
Thanks for sharing the list of info. Its really means alot for me. :0
Cheers,
Quickbook Software
Nypost
"50th and 7th, there appears to be a shiny black helicopter that has landed on the roof"
I have a mortgage. Can I have access to the emergency discount window?
Rob Dawg writes:
I have a mortgage. Can I have access to the emergency discount window?
Application : DEnied. You are not too big to fail.
The discount window won't save FRE-FNM. It will only slow the process.
Discount window! What a terrible idea. At least in conservatorship, the equity would probably be wiped out. Now, the taxpayers get stuck with declining assets (even if it's only a few hundred billion) and the shareholders get paid!
Party on, dude!
Next week on the rack: WAMU, BAC, LEH or C?
We tend to think that people who obsess about very low-probability, very high-severity events are, well, obsessives.
That's because pragmatists are poor systems thinkers. In game theory, you need to multiply the probability times the payoff to make a mathematically sound decision. Pragmatists tend to disregard the payoff component.
yes... nypost has confirmed a nice sikorsky has in fact landed at lehman, and men in pinstripes are now on the roof, taking out what , ominously, looks like casino chip carriers. but instead of chips, it appears there full of usb flash drives....yes folks, we can confirm Digi dollars to the rescue!"
Only way this could be a worse short burn is if today were options expiry... not like the generous Mr Bernanke hasn't pulled that one before.
How's BUCKY!
U.S. Credit Rating `Well Within' AAA, Moody's Says
Shit. We all know what that means.
Hot News *******Rumor?*******
Indymac shutdown. heard from an emplpyee's spouse
Look inside Daddy WarBucks Bernanke's magic trick bag... getting a little depleted.
rent_to_own wrote: [i]But then, Germans don't understand how educated people could believe in creationism either.[/i]
I don't understand how anyone gives a damn what those mass murderers have to say.
IndyMac has branch hours til 6;00 pacific time. Wait until then.
Oh my... dollar tanking already?? That was quick.
Bank closures and FRE, FNM hanging by a thread... This FDIC, Fed & Hank might miss a tee time this weekend ?
"Ooops - Alabama joins one of the original colonies"
Rent to own: Not a Green Mountain Boy I see. Vermont fought it's own war against the original colonies (at least New York) for it's own independence, but then joined right in, even without partaking in the Continental Congress. I certainly go along with the rest of it.
Today's Dow chart looks like an artistic representation of endemic failure. Even more so than a cliff-diving crash would.
BE a good American, email the federal reserve and tell them what you think.
Federal Reserve Board: Contact Us
Maybe the FED will raise rates this year to try to salvage the dollar... but i seeerriously doubt it.
Anything else out there that is too big to fail?
get well Tanta
pass the crack
UPDATE: US Sen Dodd: Fannie, Freddie 'Fundamentally Strong
Market not buying it
so why hasn't anything been reported about IndyMac?
The government is the next one that is too big to fail.Who bails them out?
Massive Debt Fueling What Looks Like a Long Recession
Economic Recession: Massive Debt Fueling What Looks Like a Long One - CNBC
"Ultimately the US is just highly indebted to the world. Until we enact some more longer-term prudent fiscal measures that contain spending and we don't listen too much to special-interest groups ... until we put some kind of fiscal restraint on our government, it's going to be a challenge for the country," he said.
From an investment standpoint, Leburn said stocks will be highly risky. He recommends high-quality bonds, traditional Wall Street leaders and some commodities. Only after the debt crisis unwinds will it be safe to get back in the market.
"The issue we have is the massive amounts of credit in the system," he said. "However you measure it, private debt is off the charts."
Bruce Wilder writes:
Using a pre-payment penalty to put risk onto the party with limited or no capacity to bear or manage risk just does not make any sense.
Well of course it makes sense, if you're the party sloughing off the risk.
But aside from that, I think you've cut through the bull very effectively here and gotten right to the heart of the matter. Thanks.
The government is the next one that is too big to fail.Who bails them out?
You. Be a good patriot and go spill your blood for the pragmatists.
Discount window access is an interesting and relevatory choice. Collateral must be pledged at the window so it won't affect their capital issues. What it does affect is that assets which would have to be firesold can be pledged at higher rates.
The implication is that F&F were about to have to sell a lot of assets well below par value. Hmmm.
wHAT THE HELL happened at 3:00-3:10.Market went a little pos. and then BAM Dow down 50 and then 100.Dow,S&P and Nas. went from even to 1% down in a few minutes.????????????????
Forget mortgages...just use your cell phone:
Finns Ring Up Debt as Gamblers, Party-Goers Send Texts for Cash
July 11 (Bloomberg) -- Veli-Pekka Kaipainen needed cash in a hurry to pay off gambling debts. So he started texting. The Zamboni ice-resurfacing machine driver used his mobile phone to contact Finland's text-message lenders. The only catch was he had to pay fees equivalent to an annual interest rate of as much as 1,600 percent...Text-loans account for 20 percent of problem debts in the home of Nokia Oyj, the world's largest maker of mobile phones. That's prompted the government to start drafting rules regulating text lending, which emerged in Finland three years ago and is now spreading across Northern Europe...
...To get a loan, Finns send a text message containing the amount requested, their address, personal identity number and bank account number. The lender checks an online credit database, transferring the cash if the details check out and the applicant has a clean credit record.
Borrowers receive the money in as little as three minutes and typically must repay it within a month, said Kari Kuusisto, who heads an association of six text-message lenders. Finns took out 270,000 text loans in the first quarter, according to the country's statistics bureau, which released its first data on the topic on July 4...
...Interest is charged as a flat fee, usually about a quarter of the amount borrowed. That translates to a median interest rate of 621 percent on a 100-euro ($157) loan...Pawnshops charged the equivalent of 122 percent for 100 euros, the survey showed....
...A promotional video for lender VipMoney shows a man at a bar table full of empty bottles who receives a text-message loan after his debit card is refused...A television commercial for J.W.-Yhtioet Oy featured a man running out of chips at a poker table. A text message later, stacks of chips appeared. The spot was withdrawn in May after the Finnish Consumer Agency deemed it ``inappropriate.''...
...Finns have been quick to adopt new financial technology. The nation uses less cash per person than any other country, with about 95 percent of payments made electronically, government figures show...
Americans struggling with mortgage payments seem like pillars of financial rectitude by comparison.
That spike we just had looks like it was short sellers taking profits. Not actual long investors.
PPT is in big trouble!!!!!
IndyMac has branch hours til 6;00 pacific time. Wait until then.
They also have 4 branches in Oahu, 2 in Kauai and one in Maui, Dawg.
from TF, is that the Fed is denying that GSEs have access to the window - and major news are pulling that story.
Business Spectator - Page Not Found
WASHINGTON -- Federal Reserve Chairman Ben Bernanke told Freddie Mac chief Richard Syron that his company and Fannie Mae could take advantage of the emergency discount window, said a source familiar with a conversation between Mr Bernanke and Mr Syron.
Mr Bernanke and Mr Syron spoke by telephone Thursday afternoon and in that call the central bank chief said he intended the discount window to be open to the two companies, said a source familiar with the phone conversation.
The Fed declined comment on whether its discount window might be opened to GSEs. Freddie Mac spokesman Douglas Duvall declined to comment when asked about the phone call.
from TF, is that the Fed is denying that GSEs have access to the window - and major news are pulling that story.
That is for after the market closes geeze.
Fair Economist poses an interesting question about the implications of opening the discount window to F & F.
More information and enlightened discussion would be good.
Greg Weston, in the instant case, the borrower admits she understood the terms. So presumably it was clear enough. As to the issue of "fair", well, that is largely subjective. But in this case, she apparently believed it was fair until it came time to pay up.
"Fair" and "easy to understand" are constantly moving targets, as education gets worse, American consumers get dumber, Government tries to become the the financial caretaker of us all, and the entitlement mentality gets more entrenched.
Half the people I meet cannot even calculate 15% of a restaurant bill. Banning financial contracts that they can't understand will return us to a system of simple barter, at best.
So do they or don't they? Do they have access? Damn rumors.
Pre-payment penalties are only a tool. Like any tool it can be misused in the wrong hands. They come in 1,2, and 3 year varieties and soft and hard (no sale or refinance). You can decrease your loan interest rate by 1/4 point or more using a PPP.
The bet is you will not HAVE to sell your house or refinance in the given period for a cost savings that can add up to tens of thousands of dollars over the life of a loan.
Any reputable mortgage originator can run the figures for folks.
Variable rate loans the same thing, savings over a period time with a bet on being able to refinance, sell, or a drop in rates in that period of time.
All those folks with a fixed rate are paying a premium for that in most markets. If it makes you feel superior or safer, so be it, but understand it is costing you more to have a fixed rate.
Variable rate loans are not a smart loan for the sub-prime crowd, because of their lack of credit scores and reserves to handle the bad times, like now.
As to the women, she knew she had it, and she benefited from having a lower interest rate (presumedly), but she made a decision to sale the house, take her profits and pay the penalty. No big deal, her decision.
Pretty pathetic when major news outlets are reporting rumors...
Yes, it was pathetic back in 2002 when they reported the rumors that Iraq had WMD...
Any which way a bailout is initiated on institutions that are too big to fail almost inadvertently means pumping liquidity which is borrowed or created, into the marketplace.
How can this be a strong dollar policy, one wonders.
Indymac under control of FDIC. Rumor?
The Mortgage Lender Implode-O-Meter News Pick-ups: Imploded: IndyMac Bancorp
I just read a news report that the Fed is going to allow Freddie and Fanny wear khaki suits and white after Labor Day.
Unbelievable.
Thats got to be a rumor because it makes no sense. None at all.
This discount window has been open for WS for, what, at least six months now? At best, it seems to have slowed down their rate of descent, without really saving them (see LEH). So why should we expect it to save F&F?
FRE, which was briefly positive, is now decidedly negative. Nice to see that my future wealth is dependent upon unsubstantiated prattle.
We should all take a little vacation at Wormwood Scrubs until Monday:
Bankers Use Secret Clinics, Nurses to Beat Breakdowns (Update1) - Bloomberg.com
The problem with prepayment penalties is not that they aren't understood but that they are a restraint on alienability. I have zero sympathy for Wallace, who is, clearly, just foolish.
But I can understand that as a matter of public policy we might not want to lock properties out of the market with loan prepayment penalties.
kung fu,
it's pretty pathetic when us senator's pander( to whom i have no idea) about the solvency of f&f, when a fed dude called them insolvent 48 hours ago.
Stops got taken out on the whipsaw. Difficult to set stops on ultrashorts when intraday is $15. Sure I'm not alone. Tough market to avoid getting clobbered.
Shanondoah hit it right on the head.
Also, you can bet your last dollar that the window will be available to FRE and FNM if they need it.
Its a non-event - they have an "implicit" backing from the government so why does the window access mean dick.
It doesnt and people are just scared. The worst for the market is far from over.
In other news Charlie Gasparino reports that a LEH bailout is just around the corner. He says that he can actually hear the fleet of helicopters coming.
We're going to see a 50+ point run in the Dow in the last 10 minutes. Have no idea which way though....
Why is the window even necessary in this situation--why can't the Fed simply buy the MBSs for their own portfolio, if they want to inject cash? This was routine until ten years ago or so, if memory serves....
barely,
no doubt.... whipsaw , jsut get smaller and faster.
long short long short ...my head is spinni
"The government is the next one that is too big to fail.Who bails them out?"
Higher taxes.
On another subject, I'm curious; if you don't mind, why the anonymity? Why do you use the pseudonyms Tanta and Calculated Risk?
Bailouts completed:
Countrywide
Bear Stearns
Bailouts in the works:
Lehman.
Fannie Mae.
Freddie Mac.
IndyMac.
First big wave of stimulus is over - $92 billion
Last of the planned stimulus checks are in the mail - Jul. 11, 2008
"If it helps avoid a recession, it will have been well worth it," said Vitner. "If the economy falls into recession, then it will pretty much have been a waste."
Future Bailouts:
Anyone with a tin cup and a donation to your local banker.
I don't doubt that everyone on this board is sophisticated enough to understand prepayment penalties, weigh the probabilities, and make an informed decision.
But your Aunt Sally in Toledo cannot do such analysis.
I would take it a step further, and say that unless you are "accredited", you can only get a fixed rate, level payment mortgage. Only those who can show financial acumen (maybe using SEC definitions) can get ARMS, lockouts, IOs and the like. Because while the posters here might think these are not very exotic products, for your Aunt Sally this is some pretty heavy sh*t to understand.
The Market and the Intertubez has played out like a bunch of 17 yr. old kids in High School today. Rumors, people freaking out and the hokey Principal Bernanke all over the place to try and calm the situation.
Inevitably, this led to a night of underage drinking and trouble...I'm afraid that's where we are going this weekend.
Have they started taking down the signs and putting up new Walchovia signs yet ?
To fill out the day, there's a video on wooden rollercoasters at the NYT.
Tanta,
Where's bacon dreamz?
This is not the first post of yours recently to which he hasn't posted a comment.
Prepayment penalties are simply a form of insanity and way to "insure" cash flow for the holder of the mortgage... assuming that debt = wealth and all that nonsense.
In a culture being crushed by debt on all levels, we should be looking for ways to encourage people to pay off their debts, not drag the payments out forever, IMHO.
ScoPro... you mean tonight we're going all the way????
No Fannie, Freddie Bailout, but Fed May Step In
No Fannie, Freddie Bailout, but Fed May Step In - CNBC
well....there will be a lot of mixed signals, for sure. Who really knows whats in all the crazy kidz heads anywho.
One thing is for sure, it will be all over school come monday!
Well...Bush certainly isn't making any new friends overseas...
The American leader, who has been condemned throughout his presidency for failing to tackle climate change, ended a private meeting with the words: "Goodbye from the world's biggest polluter."
He then punched the air while grinning widely, as the rest of those present including Gordon Brown and Nicolas Sarkozy looked on in shock.
President George Bush: 'Goodbye from the world's biggest polluter' - Telegraph
One reason for banning prepayment penalties might be that they were used to write loans with below-market initial payments, and borrowers were qualified on those initial payments.
So prepayments really aren't optional for such borrowers (who need the below-market rate to qualify), and since they aren't making a choice between options, they are taking a risk they don't understand, and furthermore it creates a systemic risk which is hard to quantify or assess. Like DAPs and OAs, markets that have a lot of these loans seem to see heavy forced selling, which pushes risk onto traditional mortgage investors and borrowers.
Does this ban include "soft" prepays as well (no prepayment for selling)? Giving up your option to refinance for 3yrs for a lower rate today seems reasonable to me.
Bush -- makes sense. He's a joke we've been sharing with the world for many many years.
Re: Prepayment penalties. I read a paper last week (sponsored I think by the NBER)which, after many gezintahs, came to the conclusion that ppp's really don't do any harm for "sub-prime" borrowers. They admitted that they only looked at 30 year fixed rate loans for their study and that they didn't take into account whether or not these borrowers were doing cash out refis. So.... worthless study. Question is, why bother to do this study and then publicize it?
Because some people that make the laws or the ones that fund them needed some academic hieroglyphics to make it look like ppp's are just fine.
That alone makes me want to abolish them.
What can you do with prepay penalties you can't do with points? Seems like a better way to discourage early refis.
I think that the 3-year Prepayment penalty is the problem. 1-year I can deal with, but everyone's lives will change in a 3-year period.
Sometimes there is a benefit to the borrower if they take a one-year PP. The lender is willing to do a little more if they know that the loan will be on the books for a while.
In a 3-year PP it's a different story. My experience is that the only difference between a 3-year PP and 1-year PP loan is that the margin is higher and the broker gets paid a lot more. There is no benefit to the borrower whatsoever.
As the earlier poster said, the 2-year fixed loan with a 3-year PP was a criminal act, and the Option ARM with such a low payment that it would recast in the middle of year 2 was another one.
Fair Economist, that's a really good point.
o prepayment penalties in TX either. also HELOCs limited to 80% or 85%. no HELOCs at all until about 10 years ago.
Bankers giving loans and mortgage companies giving mortgages should be made to feel the pain their greed causes to average consumers. It would serve them right if they all suffered serious losses for their greed. Not a single consumer would feel the slightest bit of sympathy for them.
There are prepayment penalties in TX, just not on cashouts of homesteads. Texas homestead equity loan laws are very specific and very restrictive. Other than that, pretty much anything goes.
Frankly, the smug folks who made sure they didn't get a prepayment penalty still did not get a guarantee that they would not be forced to sell their home at a loss in two years because of a hardship.
No, I didn't. I took a...... Calculated Risk.
Tanta, your baffling posture on prepayment penalties confirms your lack of knowledge on the subject or betrays your lack of understanding.
She could take them to small claims court for $5000 - you're not allowed to have a lawyer in SCC, and she could get back most of her money, they would likely not send anyone down to take care of it and she would win by default.
I would normally agree as to the ignorance of the average borrower, but I must disagree with the understanding of ppps. After closing 1000s of loans, the most likely questions of borrowers were about prepayment penalties and also, fixed vs adjustible. I think the thing most understood by the borrower was ppps or not. I never saw any corrolation between the presence or absence of ppps and the interest rate, in real life.
When couseling about foreclosure, I ask how much the mtg balance is, and most often they tell me what their payment is. No, no I say how much do you owe. More than 50% don't know.
Ok I say, how much was your loan when you bought? Often they don't know that either.
But in the last 5 years or so, I would say 90% asked about ppps.
Four years ago I refinanced a 2000 vintage ajustable mortgage. The prepayment penaly was $7,000.00 on a $60,000.00 mortgage!!! In a class action lawsuit I recieved $1,800.00 I presume the lawyers got another $900.00 for their efforts. So a class action suit is definatly a possibility.
Bitter Renter -
'I don't understand how anyone gives a damn what those mass murderers have to say.'
Actually, it looks like many people don't, really. After their experiences in mass murder and failed conquest, Germans of all political stripes attempted their best to prevent the U.S. from following the same path that eventually led to German mass murderers being hanged for waging offensive war and other crimes against humanity.
Luckily, America was able to ignore people who themselves, or their parents or grandparents, destroyed their entire nation in a war of stupidity, led by evil and deluded figures who cloaked themselves in patriotism and historical necessity to defend the homeland against the hordes of evildoers threatening the very existence of the nation.
Hmmm - did I just write 'homeland?' And to think, in all my years growing up in the U.S. near DC, I can never remember anyone using that term to describe America. But then, 'enhanced interrogation' is a word perfect translation of the German term for torture used by the Gestapo, so why not use 'Heimat' when talking about a government agency concerned about 'security.'
ratefink writes:
'Not a Green Mountain Boy I see'
Nope, but I was cautious enough to write 'original' instead of 13, because Vermont is pretty unique. Nonetheless, it most certainly is part of the original American states in the sense of joining during the original constitutional period, though now looking at wikipedia ( List of U.S. states by date of statehood - Wikipedia, the free encyclopedia ) I see that Kentucky (and possibly Tennessee ) can also claim to be in that group.
'I have zero sympathy for Wallace, who is, clearly, just foolish.'
Wow - getting cancer is just foolish? Wonder what you think about death, and the hole that rips into a corporate bottom line.
Oh wait - some companies make money from the death of their employees. Capitalism can find a way to benefit from anything, even including the death of employees. Not that the employees receive anything for the death, but then, they were foolish enough to not only die, but to work for such a company.
If it is, as you say, a "low probability event," then why do we need to throw the baby out with the bath water?
My wife is an estate planning attorney who always thinks about unlikely and macabre possibilities, but before I met her I never would have thought about what would happen if I got cancer and had to sell my house.
I can't fathom what it would be like to have a grave illness. I think, though, that it would put the $6,000 payment in perspective. The $6,000 would be at the bottom of my priorities, especially compared to cancer. It's sad that she is leaving instructions for her kids to carry on the fight for the $6,000 in her name. It's just not that much money.
It's just not that much money.
After my husband read me his previous post on this topic, I reminded him that $6,000 just may be a substantial sum of money for a women battling cancer and her mortgage holder. Her co-payments on treatment could be staggering. Also, cancer is certainly something that would dominate one's thoughts, however, former clients of mine in similar situations were much more concerned about leaving their final affairs in order for their loved ones. I admire this women for addressing these issues and making plans. Too many people cannot face mortality, and their surviving loved ones pay a huge emotional price.
I don't understand why she paid it. If I have a terminal disease, the last thing I would do would be pay a bank their usurious fees. What are they going to do, sue her for $6000? Ruin her credit rating? She should have said "here's $500, be happy with that, now leave me alone."