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America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

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Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#81

Post by djrogers »

andrewclunn wrote: post #49
roymurdock wrote: post #23

Earlier quoted context omitted.

> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her. Th…

I am incentivized via the tax code to put money into a 401k, which I can take out early only as a down payment to purchase a home, and rent costs more than monthly mortgage payments, especially with the tax breaks for having one. How am I not being pushed to put my money in investment banks or a home?

> How am I not being pushed to put my money in investment banks or a home?

You're being 'pushed' to save money for retirement. The fact that you can take $10k out one time for a first home is a nice little bonus, but it's a rarely used benefit and isn't exactly evil.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#82

Post by TallGuyShort »

rm_-rf_slash wrote: post #69
TallGuyShort wrote: post #54

Earlier quoted context omitted.

People need to stop signing forms they haven't actually read and understand. Make the person stand there while you read and think about it. It pisses them off like you wouldn't believe. If more people were doing that, they'd have to change and have simpler, more straightforward terms.

Ever been to the ER and in a lot of pain? They will give you forms to sign and you will most likely sign every dotted line as soon as possible to get the pain to go away. Humans are not rational economic actors. Never have been. Never will be. This premise underlies the entire structure of consumerism. Watch "Century of the Self" if you don't believe me.

Yes my local hospital has been repeatedly getting an earful on this topic from me. We recently got calls from a debt collector over a bill that was never sent to our insurance, and I have no record of previous correspondence about it either. At the address provided by the collector as required by law, no one knew anything about the bill, because that department bills separately. They have no contact information for that department's billing. They also had no record of the doctor named in the bill. The only further evidence provided once lawyers got involved? My wife's signature on the very form you're referring to from when she was in labor, waiving all sorts of rights to dispute bills. I chewed them out for it when they made her sign it, too. That same provider had known she was pregnant almost the full term of the pregnancy and I had asked for all forms in advance. It's complete and utter bullshit.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#83

Post by Filligree »

snarfy wrote: post #31
rch wrote: post #2

OK - The 'web' search/link isn't working for me anymore. Maybe it's time to start rethinking WSJ submissions. Based on the first paragraph, this is the exact same article: http://www.msn.com/en-us/money/realestate/loan-boom-echoes-s...

From the FAQ: > Are paywalls ok? > It's ok to post stories from sites with paywalls that have workarounds. What about sites that don't have workarounds? The workaround for WSJ no longer works.

> What about sites that don't have workarounds? The workaround for WSJ no longer works.

The exception proves the rule. It's not allowed to post such stories.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#84

Post by NikolaNovak »

John23832 wrote: post #29
roymurdock wrote: post #23

Earlier quoted context omitted.

> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her. Th…

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

Can you elaborate on the homeowners considering their home an investment - and why they shouldn't?

I've moved from Europe to Canada 20 years ago, and I'm still coming up against it all the time - I consider home/condo a utility, a bill paid for purpose; it can go up, but it can also go down. EVERYbody around me thinks I'm crazy and that houses are #1 best investment ever.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#85

Post by refurb »

elastic_church wrote: post #41
John23832 wrote: post #10

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. If I don't have a consis…

Could just leverage up on some 30 year treasury bills for at least 9% annually. 3-4x leverage will get you that.

And what happens if the inflation rises and interest rates follow? You'll be earning a cool 7% nominal interest rate and a -2% real interest rate.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#86

Post by SubuSS »

John23832 wrote: post #58
roymurdock wrote: post #39

Earlier quoted context omitted.

I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table. Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/…

> I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." I think we can amicably disagree. I'm not in the "fuck Wall St." camp. I understand what it is supposed to do and the value it is supposed to provide. > Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable? Yes.…

>Your home is NEVER and investment. A house that you own, maybe. But, I repeat, your home is never an investment.

Can you expand a bit more on this?

Usually it might not directly turn into an investment, but it does act as a 'savings vehicle' in many cases. For example when I moved to US a long time ago, the choice was between a 1200 rent and a 1600 mortgage (assuming I put a down of 25k or so). At that point it felt like a very reasonable investment and the market worked out afterwards where in it turned in a great ROI. If it wasn't for that move, I would've still been pissing off money in rent.

Also the actual investment options today are not as cut and dry as it seems either: There is no real 'assured' gain anywhere even though I do see the 3.5-6% returns number touted in the reddit personal finance circles. In the long term, I would ideally split money between these, not eschew home as an investment vehicle. With the right amount of thought and reasonable location choices, it can indeed turn out into a great investment. This is not to ignore the risks people take by overextending themselves / doing 'home flipping' but to each their own.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#87

Post by cc439 »

roymurdock wrote: post #39
John23832 wrote: post #29

Earlier quoted context omitted.

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table. Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/…

>If a homeowner considers their home an "investment" that means they should be willing to liquidate that investment

This is a point which is missed by so many people. Every empty-nester I know and consider well prepared for retirement has made downsizing a key component of their overall strategy.

I get sentimentality but there's as much sentimental value in retaining financial stability in one's later years. Sure, an empty nest, baby boomer household will usually be able to bear the financial burden well into their retirement. However, seniors find themselves facing large, unplanned healthcare expenses all too often. That's where the $XXX,XXX they gained by downsizing around the time of their retirement would prove invaluable. Not only would they avoid the large tax penalty that comes from withdrawing from a 401K, they'd reduce their fixed expenses while retaining an asset (the smaller home) that can be passed down to the next generation.

I've known far too many seniors who have been forced to sell the home they "plan to pass down to the children as a nest egg" just to cover medical bills and it's a sad sight to see.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#88

Post by shostack »

elastic_church wrote: post #41
John23832 wrote: post #10

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. If I don't have a consis…

Could just leverage up on some 30 year treasury bills for at least 9% annually. 3-4x leverage will get you that.

Where are you getting 9% from annually with T-bills?

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#89

Post by bogomipz »

John23832 wrote: post #10

The title made me think that this was going to be about subprime auto loans, which are definitely in "crisis" territory. This whole mess (subprime auto, renovation, and home loans) comes from the increasingly rent seeking nature of Wall Street. It used to be that fortunes were both made and lost on Wall Street. Now, for large investors ("whales"), it's 3.5% or I take my money to another fund. If I don't have a consis…

>"We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail."

Once upon time there were three categories of banks: retail, commercial and investment. Retail banks were known as 3-6-3s. They gave 3 percent interest on deposits, lent money out 6 percent and were on the golf course by 3:00PM.

https://en.wikipedia.org/wiki/3-6-3_Rule

The banks held the loans on their books and had to properly manage their risk portfolio or else go out of business and be out of job. This worked really well for retail banks, they made decent profits and ran a tight ship. Since banking deregulation, risk has been transferred to the tax payer and banks have come to expect outsized returns as the new normal. When regulation tightens in one area in response to a crisis they develop another exotic "product" to exploit some other loophole in order to reach those outsize returns. Its akin to patching a car radiator rather than fixing it. The same tired refrain sold by these folks is always "the market will regulate itself." The US basically has a system of "privatize the profits but socialize risks."

I was struck by this sentence from the article:

"Some local governments that embraced the loans as a way to bring clean energy to the masses didn’t anticipate the messy consequences."

I think "really"? Given the recent history - 2008, unintended consequences didn't enter into your discussions or calculations? More likely is that folks were in the pockets of those with a vested business interest in establishing such program. I have little doubt that lobbyists at least in part helped write legislation that enabled these programs.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#90

Post by Spellman »

NikolaNovak wrote: post #84
John23832 wrote: post #29

Earlier quoted context omitted.

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

Can you elaborate on the homeowners considering their home an investment - and why they shouldn't? I've moved from Europe to Canada 20 years ago, and I'm still coming up against it all the time - I consider home/condo a utility, a bill paid for purpose; it can go up, but it can also go down. EVERYbody around me thinks I'm crazy and that houses are #1 best investment ever.

Because, at least in the US, except for the '08 crash housing has ALWAYS gone up.

Historical Graph: http://www.calculatedriskblog.com/2017/01/corelogic-house-pr...

Now, it hasn't (and hadn't) gone up as quickly as the stock exchange, but it typically is a safe place to park your equity and let it grow. And especially during the height of the bubble and currently, it's growing in value rather quickly, so people (perhaps influenced by HGTV) started viewing it as not only a safe investment but one that, with a little DIY work, could be a rather fast growing investment!

EDIT: added graph/article

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