Rumor is, Fed is going to lower rates tomorrow by 0.5%. They might do it to try to calm the markets, who knows. We will find out tomorrow :)

Like usually, when panic sets in, swings are out of proportion to reality. The whole financial sector is not in trouble. Granted some big ones are because they took too large of a risk. I hope that other learn from them.

I personally do not think it is end of the world. I guess we will see how it will play out :)

Good news, oil and gas futures were dropping like a rock, I hope that this will soon trickle down to consumers as well...

I am shocked that anyone would be shocked by the fallout of corporate greed and speculation in an unregulated market.

So what is the definition of "too big to fail?". The taxpayer gets saddled with the debt while those in charge take on too much risk but the taxpayer gets no benefit of the upside when profits make history. The CEO of Bear Sterns left the company with a $232 million pay package. When they place risky bets that pay off, they get the windfall, and when their bets go bad they're bailed out with our tax dollars. Corporate socialism at the same time they pretend they dont want any government interference. Frannie and Freddie have been failing for years with no accountability.

Oil and gas futures are down? What a joke! It is based also on pure speculation. So the hurricanes didnÂt damage as much as thought so we can lower the price after we artificially inflated it over speculation. Tomorrow someone could fart somewhere in the mideast and prices rise again. Sorry for that metaphor but enough is enough!

This is only the tip of the iceberg. They donÂt even know where all the bad debt is. Another example of the fleecing of America.

Maggie, I appreciate your rant on corporate greed.

The incestuous nature of financial institutions has created a 'clear & present' danger that whether any of us like it, or not, requires intervention.

Nobody, whether corporations, individual homeowners, and/or investors, yelled "foul" when the profits were rolling in hand over fist. Rather, many Americans spent like drunken sailors. They, for sure, were not saying, "Gosh, we don't deserve all this equity in our home so here...take it back." Nope, instead they remodeled kitchens, took vacations, moved to larger homes, & purchased 60" flat-screen TVs using that equity to fund their purchases. I'm not saying EVERY American did those things but enough did that it tossed gasoline on the fire of escalating home prices. Realtors, home inspectors, builders both large & small, contractors, home centers, appraisers, furniture manufacturers/sales centers, appliance dealers, title companies, HO insurance companies & even your local drapery design center all went along for the ride with no complaints about greed.

So, I'm not so quick as you to lay all of the blame at any one particular segment of society. There's plenty of blame to go around...even into the subprime marketplace. Sure, there was some outright fraud, as always in any boom market. But, there was also a lot of greed amongst ordinary Americans. In fact, if Americans wouldn't have purchased all of those houses & remodeled all of those kitchens...there wouldn't have been all of the mortgages to securitize. Hmmm

All that said, CEO salaries at major US corporations (not just financial institutions) are way out of historical norms. That is the responsibility of Board of Directors Compensation Committees. Personally, I'd like to see shareholders have the right to vote on CEO & officer compensation packages. But, then again...how many shareholders would actually vote? At DH's bank, few even show up at annual meetings much less vote. They are lucky to get 500-750 people in attendance. Can all of us honestly say that we read the shareholder annual packages for every equity we own? Probably, few of us.

Anyway, if AIG fails & you have a 401(k), a pension plan, or own diversified mutual funds...or, any institution you do business with has a relationship with AIG...it's a problem.

/tricia

We are having a major market correction, even though calling it that sounds rather mild :-)

WSJ had the story this morning about the special meeting called by the Fed (Paulson, Bernanke) Friday night that went all weekend - the Feds and 30 Wall Street execs considered all the options and were told what the Fed was willing to do. Lehman being left out to dry on its own and ML running over to BofA were two of the results of the meeting, where the Fed basically put a cap on it's bailing out of any more entities. If it hadn't, there would be no end - including Detroit auto makers coming in with caps in hands.

One of the options posed by the Fed was that the captains firms take on some of Lehman's "most toxic" assets. None were willing to do so. After all, institutional investors, hedge funds and foreign investors were not being asked to do the same.

The Fed had not made any decision regarding AIG as of last night. AIG and Lehman are different situations.

Interesting times. I am personally looking at it as an opportunity to buy real estate over the next couple of years, as prices continue to fall and consumers are unable to get loans. However, I am nervous about the elections, but won't go into politics.

I believe that Laissez-faire capitalism without government involvement will be the best thing going forward. If there is much more govt intervention and raising of "taxes on the rich" (taxes on small business really), it will hurt the economy and lead us into a real recession.

Those who say Laissez-faire capitalism got us into this are wrong. Let's look at the players and the facts (the italics are mine):

"The Federal National Mortgage Association, nicknamed Fannie Mae, and the Federal Home Mortgage Corporation, nicknamed Freddie Mac, have operated since 1968 as government sponsored enterprises (GSEs). This means that, although the two companies are privately owned and operated by shareholders, they are protected financially by the support of the Federal Government. These government protections include access to a line of credit through the U.S. Treasury, exemption from state and local income taxes and exemption from SEC oversight. A recent accounting scandal at Freddie Mac that resulted in the replacement of three of the company's top executives has led to mounting concerns over the privileged status these GSEs enjoy in the marketplace."

"Fannie Mae was created in 1938 as part of Franklin Delano Roosevelt's New Deal in order to provide local banks with federal money to finance home mortgages in an attempt to raise levels of home ownership and the availability of affordable housing.

Initially, Fannie Mae operated like a national savings and loan, allowing local banks to charge low interest rates on mortgages for the benefit of the home buyer. This lead to the development of what is now known as the secondary mortgage market. Within the secondary mortgage market, companies such as Fannie Mae are able to borrow money from foreign investors at low interest rates because of the financial support that they receive from the U.S. Government. It is this ability to borrow at low rates that allows Fannie Mae to provide fixed interest rate mortgages with low down payments to home buyers. Fannie Mae makes a profit from the difference between the interest rates homeowners pay and foreign lenders charge.

For the first thirty years following its inception, Fannie Mae held a veritable monopoly over the secondary mortgage market. In 1968, due to fiscal pressures created by the Vietnam War, Lyndon B. Johnson privatized Fannie Mae in order to remove it from the national budget. At this point, Fannie Mae began operating as a GSE, generating profits for stock holders while enjoying the benefits of exemption from taxation and oversight as well as implied government backing. In order to prevent any further monopolization of the market, a second GSE known as Freddie Mac was created in 1970. Currently, Fannie Mae and Freddie Mac control about 90 percent of the nation's secondary mortgage market.

GSEs such as Fannie Mae and Freddie Mae, with their combination of private enterprise and public backing have experienced a period of unprecedented financial growth over the past few decades. The current assets of these two companies combine for a total that is 45 percent greater than that of the nation's largest bank. "

The Fed, due to political pressure also instituted laxer laws in lending so that more minorities and those who could not qualify for mortgages historically were allowed to qualify. These articles are helpful in explaining: Community Reinvestment Act and
Thomas Sowell

Lenders took such laxity to the extreme - but they were handed their marching orders along with Cart Blanc from the government. That's not free-market.

Sorry so long - you called? LOL.

Im watching and also am not surprised. Ive said all along that greed and no regulation will collide at some point. There is enough blame to hit every corner of our society from corporate greed to the folks who what it now no matter at what costs .I also dont like the Feds interfering with the free market but maybe the time has come. Who knows where or when it will stop. I also think most bank are solvent or at least I hope so. We are so close to retirement and its pretty hard to watch our 401 sink like a rock. Thankfully its only a small part of our future.

My DH works in the automotive industry and he always tell me most people dont care what a car costs, how much interest they will have to pay, all they want to know is how much the monthly payment is.

Thanks for the heads up about CNBCs special report. We usually watch Fox and I think they are having something on tonight also. Let us know what your DH has to say if you can. I find your knowledge on banking very informative and look forward to anything you can share.

Claudia

It is ironic then that a lasisse faire "conservative" government is overseeing the biggest bailout of private enterprise I have seen in my lifetime. Heck of a job, Brownie. If it is an ownership society we want, then let them own it. I do believe in many conservative financial principals but the talking out of both sides of their mouth policies of the last 8 years are conservative in name only. And the beat goes on and the next generation will get the bill.

There is a high road to capitalism and a low road. Transparency and accountability are keystones to democracy.

Let us make no mistake that Fannie and Freddie were private institutions with government insurance just like commercial banks. They have had no oversight and severe accounting/accountability issues for the last 4 years with no intervention. Again, this is a pure example of the taxpayer taking the risk and investors bearing the gain. The heads of Frannie and Freddie should be at the least sued at the most prosecuted.

While it is true that the wealthy need a bubble to gain wealth and it is the bursting of the bubble and the downturn where they gain assetsso yes, if you have the capital swing away in the real estate market. But, the fact is that it is the shrinking middle that gets hurt most with stagnant wages, growing unemployment, inflated food, energy, and health costs and jobs going oversees.

We can spread the blame around. No problem. But it is not equal. Joe Smoe trying to live the American dream and maybe "get what he can get" in a market that bore out of whack costs does not equate to the architects who knowingly packaged bad loans and sold them as securities with nair a hint of RESPONSIBILITY PERSONAL OR CORPORATE. Money was cheap with the feds help and mortgage companies took to predatory lending and they preyed on the lower segment of our society. Some were playing their own game of speculation and flipping but most were just trying to own a home and provide for their families. Isn't that what most of us want? To provide for a families and live a decent life with a secure retirement?

All the bailouts in the world won't buy trust and it is trust that the markets feed on and what is needed for a recovery. I believe that transparency and accountability would do that.

Did I not see that Lehman was left out of the deal and BofA only bought Merrill on this am's news?

Did BofA feel it was to much of a risk to purchase both?

Sometimes I think I'm better off with nothin..versus..the chance of loosing everything in a moments market notice.

Ok, I admit I'm not up on all this, but I thought BofA was having problems of their own. Did I dream that?

DH says "Biggest casion in the world is called Wall Street." And yet for the last decade+ people have acted like the numbers would only go higher and higher, never lower. So, no, I'm not at all surprised about the recent problems. I think it was almost inevitable given all the reasons Tricia's already outlined.

Some people are going to be hurting. My MIL is freaked. She can't tear herself away from the numbers and is making herself sick over them. I keep telling her investing is a marathon, not a sprint. Still, what do I know? We're not of the class that can play in that casino.

This is not a correction but a collapse. In a correction the value of the market changes but not the businesses being invested in. In a collapse the market is responding to failure of the businesses being invested in. We simply have a situation where there were more people stealing then working. Now we are at the point where there is nothing left to steal.

: )
lyra

IMO neither party when in power has been Laissez Faire. This government intervention in markets has been going on since government was formed, unfortunately, and isn't going to end in all probability.

People do not need a bubble to gain wealth. I do think plenty of people will be hurting, and don't mean to downplay it by any means. But on the other hand, I don't believe the sky is falling or that a new depression is coming. Prices have been artificially low for many, many years and we've all benefited from that. Unemployment is going up slightly but still below historical averages, and much due to the real estate industry slump. The GNP is chugging along albeit with some industries like automotive and banking tanking for different reasons.

The middle class is not shrinking:

"True, fewer people today live in households with incomes between $30,000 and $100,000 (a reasonable definition of "middle class") than in 1979. But the number of people in households that bring in more than $100,000 also rose from 12 percent to 24 percent. There was no increase in the percentage of people in households making less than $30,000. So the entire "decline" of the middle class came from people moving up the income ladder."

The past generation has seen huge growth in personal income, buying power and standard of living. Our children have enormous opportunities. We are a very rich nation with opportunities for its people that astound and confound most other countries. Our growth has lifted the whole world, whole nations out of subsistence living. When the nation went through the Great Depression, we rebounded. Through world wars we came, through oil crises, through Republicans and Democrats, through the dot-com bust and 9/11. We will rebound from this real estate mess too. I'm a bullish person, bullish and proud of this country, and as a business owner and employer (and tax payer, LOL) a proud "player" in our economy.

Thanks Gina!

You have echoed my thoughts perfectly, but explained the whole situation far better than I could have.

Alexa

But, of course, we are not talking about both parties. We were speaking of the party that lay claim to the term and have had absolute power for 6 out of almost 8 years. And we are not talking about the bottom feeders who took advantage of the wild west market but companies like Lehman Brothers that have existed for over 100 years. 30,000 jobs lost in New York with that company alone and small business owners that support the industry suffer and are left out on their own because they are small and it is okay to fail. That is the message. Corporate socialism. These same small business owners that have followed the rules and expect accountability and transparency from their employees. Eight years of failed economic policies have brought us here today. If we preach (and boy do they preach) responsibility and an ownership society, then they should OWN it instead of passing it on to future generations. We can preach no government interference unless oops, we need a bailout or when it comes to what we do with our own bodies. Households earning over 100,000 are not middle class but then that points to how out of touch with reality some platforms are and within the "definition of 30,000-100,000" I dont think the person earning $30,000 is living next door to the person earning $100,000. Real wages are stagnated or declining and healthcare costs are burying small businesses and bankrupted individuals (that is if they can claim bankruptcy since it is much harder for an individual to do so than a business.

I respect all views, but throwing up patriotism and 9/11 ends the conversation for me.

I have kind of been watching through my fingers. I keep hoping that if I ignore the situation, it will go away. Doesn't seem to be working.

I am impressed with how well-informed you all are and also how articulate. Makes me vow to start having an opinion. Now, don't get me started on certain presidential candidates -- I've got plenty of opinions there!

I start to worry when I hear media-guru Suze Orman telling people it's not a good idea to keep all your cash in a shoe box in the house. Yikes.

My financial advisor is at Merrill Lynch. I've always had a certain uneasiness with this, but unless you are worth a great deal of money, the private advisors aren't interested in you. My money is not invested IN ML, just through them. Well, I guess it's now through BoA. Ugh.

Terri, you made me laugh. I remember when I was young and living paycheck to paycheck. Invest? Ha ha. Invest what? Looking back, it was kind of nice not to have the worry of what to do with my money! Of course, there was the worry of running out of money before pay day.

I agree, maggie2094. I detest that patriotism is stolen from those of us who dare to think differently, dare I say democratically, whether about war or economics. And don't forget the cost of those education bootstraps we are all supposed to use to raise ourselves up. On an income of $30,000 you can't afford college.

It's a lot easier to cut back a little if your net worth includes a big boat and a house and summer home than it is
if you only have the house you live in. And to those of you who say money was cheap and we shouldn't have our flat screens, don't forget it was dubya who told us we were the backbone of the economy - BUY, BUY, BUY!

I am angry, but worse I am disappointed in my country. I can't believe thinking people fall for chants and lies and platitudes. It can't be long until our economy is like Mexico's - a ruling elite and unemployed masses.

Have you tried to go to college when earning little money? Do you know that government helps to pay a large part of it that you do not have to pay back? When it gets hard is when you are middle class, not rich enough to really afford it but not poor enough to get any government help.

I know this is off topic but it really bothers me when people spread misinformation.

What a wild spin I hear these days on employment. While "unemployment" may be "low" underemployment is rampant. People in prison don't count as unemployed nor do students and those that quit looking for work. Herds of highly educated idiots have invaded our business world... certainly the automotive and banking industries... perhaps we should not forget Real Estate, Education, and a few other idiot pastures. There is an "elite" class running around that has no idea what real work is. I deal with them daily in the automotive world... MBA is not supposed to stand for My Big A..!

Part of my schooling was working nights welding thermostat housings for a Ford supplier and reading Aristotle while hunting deer. I spent time sleeping in my car and eating from garbage cans. In four years of school I attended two parties and had one date.... was rich enough to take my date out for coffee. Graduated still wearing my military field jacket and combat boots... not for fashion but it was what I had to wear. A "C" GPA but 66th percentile on my only and uncoached LSAT exam. There ARE some of us that know how hard it is to get an education when not born with a silver spoon in their mouth.

Sorry if I'm ranting... read the wfd thread to see where I was last night. Not really aimed at Gina but I've encountered the same "wonderful world" spin recently and I'm a bit flabbergasted. Either my brain rotted or the economy is not ever going to "recover". This is not a cycle nor spin of the "liberal" press. Oh well... the next few months will tell much about where reality is to be found. Won't it be wonderful if I'm so wrong and we again enough a strong vibrant economy?

I'd call in sick and go drink whiskey in the field but I have statistics to explain to a couple engineers.

: )
lyra

Yes, I'm watching my retirement dwindle away, but hopefully it will rebound before I retire.

From an article in Fortune magazine today:

"But if the firms made bad bets on mortgage-related securities - and all three made lots of them - something else that's striking is the degree to which the companies simply expanded their balance sheets in a bid to grab lush profits without taking precautions to make sure they could shoulder any losses that arose.

This diet will hurt
In a sense, the firms got fat during the housing bubble that sprung up in the early part of this decade, by trading debt tied to the massive expansion of consumer indebtedness in America, and they - and pretty much everyone else in this country - are now paying the price for it.

"The problem that has overcome the economy has its most recent roots in the creation of nearly $7 trillion of new residential real estate and consumer debt during the first 6 years of this decade," Daniel Alpert, managing director at investment bank Westwood Capital in New York, wrote in March. "Simply put, this level of debt creation was unprecedented - more than doubling the amount of homeowner and consumer (credit card and auto loan debt, for the most part) debt that existing at the end of 1999."

And what bothers me is that this analysis and concern doesn't even include the NATIONAL debt which the party in power is using to finance the shelling out of 500 buck tax rebates and financing all kinds of corporate welfare and the occupation of Iraq, on money that they/we do not have. So not only do we American citizens have unprecidented consumer debt, we have huge national debt. Yes, that's our debt too folks!! Yours and mine. All these things have costs and bills due, and we are the customers. Your representatives in Congress are paying for these things on credit, they are signing you up for credit that will have bills come due someday! Are you prepared to pay them? This from a party that is supposed to be fiscally conservative. I don't see any conservatism at all. And it doesn't matter democrats or republicans in power at this point, since the debt is already there. No matter what the talking heads say, there is no money to finance some governement program to help spend our way out of this debt. That's like the strategy of getting another credit card to pay off the first one. Are we enabling them/ourselves? We're the ones who took out the mortgages and credit cards. Can/will we stop?

Now I would gladly help pay off this debt, except for one little problem, I'm unemployed and living off my savings. Which puts me in the "below 30K" tier after years of sitting unmovingly on the bottom half of the middle class rung, and inflation due to rising materials/resource costs is eating that away. As Lyra points out, there are a lot of us "underemployed" folks who the talking heads just conveniently don't include in their metrics.

There are many more chickens to come home to roost, IMHO. And these talking heads always say it was "surprising" and "unexpected."

I agree with Gina that Amecian ingenuity will eventually find a way out of this, create wealth/capital out of our brains, guts and determination and hard work. A lot of institutions and people are just kinda going for Pam's "cover your eyes" stragety though!! :)

I only wish I could.

We are doomed. Plain and simple. Okay, maybe not...but still I wonder why sometimes I think living in a cabin in the hills would be more actual 'living' than the consumer oriented society we have become. And yes, we will become a nation of have and have-nots before too long. Then social unrest which could spell the end of this country. Nobody promised that America would last forever. Read your history books. Countries evaporate and change all the time. I don't like where we are headed. But at least a few families will have it made. King George and Nazi Cheney.

Duane

This may help explain how we got here....

***************************************************

How We Got Here: It's Housing, Stupid
by Chris Isidore
Thursday, September 18, 2008
provided by

The Wall Street crisis has been caused by plunging housing prices. So despite the billions of dollars being thrown at the problem, experts say more trouble lies ahead.

The nation's financial system is in the midst of a massive shakeup and many on Wall Street and in Washington are pointing fingers and looking for someone to blame.

But in the end, it all comes back to one issue - housing.

Earlier this decade, it was much easier to get a mortgage. Home prices soared about 85% from 1996 through 2006 in inflation-adjusted dollars, creating a bubble.

Then the bubble popped. And the fallout isn't over yet, experts say.

In the past two weeks, the government took over Fannie Mae and Freddie Mac, Lehman Brothers filed for bankruptcy and Merrill Lynch sold itself to Bank of America.

If all that weren't enough, the Federal Reserve announced late Tuesday night that it was loaning $85 billion to insurer American International Group.

None of this would have happened if the housing market had not imploded, leaving all these firms with staggering losses from their investments tied to mortgages.

"These institutions, which weathered all kinds of calamities before, including depressions, are being knocked out," said Lakshman Achuthan, the managing director of the Economic Cycle Research Institute. "It's a testament to the significance of the problem we have here."

Thus, experts agree that there are likely to be future shocks to the financial system until the housing market finally hits bottom.

Even Treasury Secretary Henry Paulson, the administration's point man in the many rescue discussions of the past month, admits this.

"The housing correction poses the biggest risk to our economy," Paulson said the day he announced the Fannie and Freddie seizure. "Our economy and our markets will not recover until the bulk of this housing correction is behind us."

The Problem of Falling Home Prices

But because of the depth of the housing problems, it may take a long time before real estate prices head higher again. Here's why.

Home prices, while sharply off from the 2006 peaks, are still high in comparison to long-term gains in income, rents or overall prices, suggesting that they still have a way to fall, according to experts.

The reason housing is wreaking havoc even on insurers like AIG and big investment banks, who do not make mortgage loans, is that during the boom, trillions of dollars of mortgages were packaged together into securities that promised to pay investors with the proceeds of those loan payments.

Those securities paid better rates than other types of assets during the boom years. So many investors from around the globe poured as much money as they could into those securities.

Faced with this demand, lenders starting making more loans to riskier borrowers, including people who might not be able to afford their mortgage payments in the future and even many with no proof of income.

When prices were rising, this wasn't a problem. The risk of loan foreclosure or default was limited because many homeowners were able to sell their house for more than they owed and make a profit.

But once prices topped out and began falling, loan defaults and foreclosures started shooting higher as homeowners found it more difficult to sell their house. This created problems not just for subprime borrowers but even for those with good credit and income.

When foreclosures rose, the value of the various types of securities tied to mortgages started to fall, causing huge losses up and down Wall Street. It also made banks less eager to extend credit because of the risks involved.

A Downward Spiral

This credit crunch in of itself slowed the economy, leading to job losses and more defaults, feeding a downward spiral that has been difficult to stop.

"A really bad situation -- a home price bubble bursting -- was made significantly worse when the recession began," said Achuthan. "Now we have to let this thing play out."

Some experts even argue that the steps being taken to rescue firms like AIG could make a recovery in housing and the broader economy more difficult, as financial firms and investors become more reluctant to lend money.

"We are certainly taking credit and squeezing it tighter and tighter," said Kevin Giddis, managing director of investment bank Morgan Keegan. "Housing needs buyers. Buyers need credit."

Achuthan said that even though rates for mortgages and other types of loans have fallen in the last two weeks, those loans are becoming more difficult for many consumers and businesses to get because banks are severely tightening their lending standards.

And if housing prices do fall further, that will only cause more losses in the financial sector and perhaps more failures of banks, insurers and securities firms.

"I would hesitate to say the worst is behind us," Achuthan said.

So even with perhaps hundreds of billions of tax dollars going to AIG, Fannie and Freddie, one expert said the only real solution to the housing problem is for the correction in housing to finish running its course.

"We want home prices to return to normal," said Barry Ritholtz, CEO of Fusion IQ and author of the upcoming book "Bailout Nation."

"Until that happens, you can throw as much money at the market as you want at the situation....and it ain't going to make any difference," Ritholtz said.

Copyrighted, CNNMoney. All Rights Reserved.

A brilliant thought from a poster on another forum....

"I think that the lending institutions and deadbeat borrowers should be forced to refinance the mortgages into 50 year mortgages with no reduction in the principal. For instance, if the debtor paid $300,000 for a house that is now worth $200,000, the new mortgage is still for $300,000.
By extending the term of the mortgage, the monthly payments would be lower and more affordable. The mortgage will be at a 50 year fixed rate. As with anyone else, extra mortgage payments could be made to reduce the principal and shorten the term of the mortgage. In 50 years, the house will be worth at least the $300,000 due to normal increase in property values. The lending institution does not have to take a write down on the value of the property because the paper they are holding is at the inflated rate.
Now, I know you think that my idea sounds cruel. The borrowers will never own their homes in their lifetimes. Well, they aren't going to own them if they default on their mortgage now, are they? And if they default, they won't get another opportunity to buy a home in the future (unless the Federal housing fairy intervenes) because their credit will be ruined. If they are serious about keeping their homes and paying off their mortgages, they can devote more of their discretionary income to the house payments."

Brilliant NO! It only works if the home owner is young and able to make payments for 50 years. People were tapping into that "extra" value and spending it. That drove an economic bubble that provided jobs. Now that people can no longer spend money that was never really there the jobs they supported are gone.

No easy fix. Perhaps everyone will have to work every single day of the week... like I do. Michigan is a leader in economic collapse so you can look at what has been happening here to see what will happen as it spreads. Michael Moore's film Rodger and Me is a good look at how things are going to be. I don't have to guess about what next... I've been living it for all of my adult life. Bitter? no.... I have it so much better then many do. Ulcers and sleep with a pistol... yes.

: )
lyra

Lyra, is your pistol a weapon or a significant other?

My mama was a pistol......and I'm a son of a gun!

Duane

"It only works if the home owner is young and able to make payments for 50 years."

Lyra my dear, reread the last paragraph... living in a house you have a vested interest in is better than getting kicked out and having your credit ruined to boot!

Duane - that is hilarious!

Alexa

We can hardly expect banks to write mortgage terms that let most people die before paying off the home. On edge to write 50 years for a 20 year old, flat out risky for a 30 year old, and stupid terms for a 40 year old borrower.

A bank is a bank not a landlord! Very possible that home rental companies will spring up to buy homes and rent to the evicted former owners. My father was a slumlord for some years and I know the job is not an easy one. Banks are certainly not in a position to offer that service.

Land contracts can be very profitable... basically a rent to own mortgage. With a land contract the home "owner" has no equity until the last payment is made. Failure to make payment results in the lender getting the home back with no obligation to the "renter". A common means of buying a home for those that don't have credit enough to qualify for a mortgage.

A fair chance I may buy an extra home or two to sell on contracts. Depends on how low prices go. Differs from renting in that the occupant must maintain the home while they live in it. Failure to fix the roof means you evict them and take the whole house back. When renting the landlord must keep the roof fixed. Land contracts are often written at the maximum interest rate possible to compensate for the risk of having to take the home back. If the occupant happens to get a good job they can get a regular mortgage and pay off the contract. If the occupant makes all the payments upon making the last one they then own the home.... even one payment short and the lender has the whole house back.

My guess at what will happen with all those homes out there that people can't afford.

: )
lyra

I do not necessarily see a problem having a 50 year mortgage. How many people now a days actually stay in their house for the whole 30 years and pay it off? Very few. So most likely those 50 y mortgage houses get sold eventually as well, if not sooner, then when the owners die. Even if it is 20 years down the road, then the housing market has recovered by that time. Most people stay in their house average, what?, 7 years?

The large problem that currently is plaguing the big banks and brokerages, is not the defaulted loans as much as they have hard time VALUING their portfolios. This is where the problem is. Now the Feds are setting up the fund that is going to buy the "pork in the bag" and hope that they ( meaning us, the tax payers) will not loose the pants :)

Well, I'd started this thread hoping to discuss the AIG failure & its far reaching tenacles into America but it's been all about housing. I've got one arm tied behind my back in that area but I can discuss 50-year mortgages.

Fifty year mortgages are typically 5/1 ARMs at a quarter percentage point higher than a 30-year loan. Over the first five years of the loan, the borrower pays about 0.25% more than a typical 30-year fixed rate mortgage, but after that, the rate adjusts annually to match the prime lending rate.

Since we have no idea what will happen with interest rates five years down the road, the only way to really evaluate the 50-year loan is over the first five years.

Lets say that were buying a $250,000 home and we have a $50,000 down payment. We can either take a 30-year loan at 6%, or a 50-year loan at 6.25%.

On the 30-year mortgage, your monthly payment would be $1,199.10. With the 50 year mortgage, your monthly payment (for the first five years, as mentioned above) would be $1,089.95. So far, so good for the 50-year mortgage but if we keep comparing it's not so great going forward.

Lets say that in 5 years youre ready to sell the house and move on. Also assuming that your house value went up 10%, so now its worth $275,000. For the 30-year mortgage, you still have a balance of $185,840, which means that you now have $89,160 in equity in the house. On the other hand, with the 50-year mortgage, you still have a balance of $196,544, which means you have only $78,456 in equity in the house. With the 30-year mortgage, you have $10,704 more in equity after five years.

Now, the difference in your monthly payments is $109.15, so over 6-months, youll pay $6,549 more with the 30-year loan, but you end up with $10,704 more in home equity. Thats a 63% return over five years, or about 11% a year. I dont know about you, but if I can afford an investment that returns a guaranteed 11% a year, Im quite willing to dump $110 a month into that investment.

In short, a 50-year mortgage simply isnt worth it. A 30-year mortgage is actually an extremely good investment versus a 50 year, and were not even considering the bad things that can happen when your rate adjusts with the 50 year. Theres pretty much no reason to ever consider getting a 50 year mortgage unless you enjoy handing a lot of money to your mortgage company with nothing in return.

I watched CNBC last night until 9:00 p.m. The future were at +215 when I got up at 2:00 a.m. to use the facilities. Now, since the announcement of the MM fund guarantee they've jumped to +338. It's going to be another interesting day. This is a very far-reaching legislation. I know there was a run yesterday on MM funds & something had to happen quickly but I sure hope they take the time to think this thing through carefully...sometimes, the cure is worse than the disease??

Blocking short sales is draconian, IMO, & really interfers in the free market. Shorts help us to spot problems (remember Enron?). Don't like this blocking short sale business at all. If somebody's spreading negative rumors & then short trading on those rumors...that's already illegal. Gosh, I've traded short several times over the past year & I'm certainly no "corporate raider". Anyway, there's LOTS to digest this morning & probably more to come...

/tricia

D@mn, I KNEW better than to try & do math this early!

"Now, the difference in your monthly payments is $109.15, so over 6-months,..."

That's a typo...it should read, "...over 60-months,..."

/t

Tricia I respectfully submit a quote form the piece I posted above: "The mortgage will be at a 50 year fixed rate."

Not an ARM: "Fifty year mortgages are typically 5/1 ARMs at a quarter percentage point higher than a 30-year loan."

This would result in a significantly lower monthly payment than a 30-year fixed mortgage at the same rate. Also, given the alternative between refinancing for a longer term fixed rate mortgage OR foreclosure and/or bankruptcy I think most people would choose the former.

Monthly payment: 30 Years
Interest rate: 6.000%
Loan amount: $ 200,000.00
$ 1,199.10 a month

Monthly payment: 50 Years
Interest rate: 6.000%
Loan amount: $ 200,000.00
$ 1,052.81 a month

Which nets out to approximately a $150 per month lower payment, a chance to stay in your home and still protect your credit!

I can't imagine for the life of me any lender voluntarily making a 50 year FIXED rate loan to anybody for any reason. It's SURE DEATH to the institution.

I don't know who wrote that article but I don't think they're bankers. Although the way our government is going today...maybe the Feds can make those loans cause no bank will.

/t

Looks like the attack on short selling was to force shorts to cover. That put some pressure on the market to make it look like sticking the taxpayers will all the bad home loans is a good thing. How long before people catch on that the plan won't save homeowners from foreclosure? That leaves the question of who does it save... maybe some oil companies?

: )
lyra

Interesting times... alas.

Seems the capital markets panicked last week.

Going to be very interesting these next few day. I'm watching by the hour like any other major disaster. Good thing is now getting the attention it should have had back in '03. All that work to get into a good fixed rate mortgage may not have been enough to save my house. Tuna was so wise to demand lots of steaks back when times were good. If things don't change I'll be out of a job by christmas.

: )
lyra

Oil trading has been temporarily halted due to volitility in the marketplace. It'll remained closed for five minutes. Oil's up over 11 at the time of the close to about 115.45.

Also, wheat went limit up today.

Interesting times indeed, lyra.

Wishing you the best with the job!

/tricia

The October oil contracts ends today. It's a short squeeze. The November contract is selling for around 109...about 5.00 over today.

/t

Oops, should be, "about 5.00 UNDER today."