Minimum-Payment Loans Get Maximum Crackdown
Submitted by
CalculatedRisk on Fri, 12/09/2005 - 4:27pm (9 comments)
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A jaw-dropping case from Ben Jones' scrapbook:
"They don't have jobs, but their lives appear to be a whirlwind of work. They don't have incomes either, though they maintain middle-class lifestyles. Sacco estimates that along with McCook's mother, they've made $1.3 million since they began their buying spree, but all of this is still in equity on their properties. Their monthly reality is more sobering. They have $2.3 million in mortgage debt and negative cash flow that ranges from $5,000 to $15,000 monthly depending on the season."
"So how do they pay the bills? 'We sort of count our equity loans as our income,' she says, with the slightest wince.'"
Doesn't drop my jaw. But it sure elicits a small "wow".
This does sound promising: cutting back those high risk loans. I wonder how enforceable it is.
If as a bank you start to lose mortgage income streams due to rising rates or housing market recesses, are you likely to pass up iffy loans that may or may not help your position?
GM persuaded their iffy customers to go deeper into debt and I don't see the pattern changing for the banks.
The flexibility and resilience that the Fed attributes to their management and the economy in general may apply here to the banks as well.
Or it could merely be a premature judgement on a brittle system that will fail catastophically because there really are no options for the banks: housing or housing.
This does sound promising: cutting back those high risk loans. I wonder how enforceable it is.
I agree calmo... snd if the regulators don't enforce it then who regulates the regulators? Isn't there a latin saying to that effect going back to the period around the fall of the republic...
Quid custodiet ipsos custodes?
...who will watch the 'watchers'... or something like that.
Dugan seems like a serious player. He left his private law practice in August to join the OCC. He worked for Treasury on the S&L cleanup under GHW Bush (relevant experience?).
It might be too little too late, but he is saying the right things - and I think he means business.
Best to all.
Dugan seems like a serious player.
It will be intersting CR because if he really does clamp down he will be taking on some well entrenched interests... and some of those interests have friends higher up the ladder than he is.
My guess is the WH will want him to sound scary & act scary but not actually scare anyone (no one important anyway... no one who donates money to campaigns)... that seems to be the Bush MO on all things relating to business regulation.
I know I sound like a cynic... but Team Bush has a habit of doing that to me...
Dugan bared his teeth. End of story. Extrapolating doom scenarios from that is silly.
There will be pain.
It is about time.
The whole real estate game needs a good wash down.
.
When I read about the Saco's, I immediately saw homelessness in their future. After the market corrects....With bad credit, no income(re-jobs) and no home to live in, the irony is that the extreme speculator who overconsumed and overleveraged in the housing industry will go from "owning"-i use this term loosely- 10+ homes to using public shelters.