Archive for the 'subprime loans' Category

US Mortgage Meltdown and Financial Crisis Stats to be Released Soon

The United States Senate is all set to reveal its findings from a probe into the US mortgage meltdown that triggered the international financial crisis in 2008. Experts are predicting that Goldman Sachs will take the bulk of the blame and will face more major embarrassment for its hand in the meltdown.

The high profile investigation was headed by the Senate’s Permanent Subcommittee on Investigations. During the course of their investigations the inquiry subpoenaed executives from multiple financial and mortgage institutions including Goldman’s Sachs.

According to sources familiar with the investigation, the Senate will release its findings along with emails from security firms that developed or sold mortgages that were subprime and also financial vehicles that include collaterized debt obligations (CDO).

Before the mortgage meltdown and the financial crisis Collaterized debt obligations were used to help firms hedge their bets with respect to the housing market. However when the bubble burst it took the CDO’s down with it. Overnight their values fell dramatically and they became junk.

Goldman is believed to be at the forefront of creating CDO’s in 2006 and 2007. The company has been accused of making huge bets against the housing market while also offloading bullish position to unsuspecting buyers who had no idea that the market could fall.

According to people with knowledge of the report, both Goldman and Deutsche Bank will be heavily criticized for their role in the mortgage meltdown. Both these firms have been accused of misleading investors about the market.

Also expected to be revealed in the findings is a nasty feud between Goldman Sachs and Morgan Stanley. Morgan Stanley was also a Wall Street Giant and they had a bitter dispute with Goldman Sachs about a deal involving a particular collaterized debt obligation. The particular CDO is believed to go by the name of Hudson Mezzanine Funding 2006-1.

While the report is expected to bring closure to some people who were on the wrong side of this crisis it is expected to bring to light new controversies and bad blood between firms.

Subprime Mortgage Refinance

Subprime mortgage refinance refinance options keep shrinking, and for those that are in subprime mortgages, they may have a tough road up ahead. Think abou this. There is currently teh Obama plan to help save homes, but what is happening is that banks are so inundated with people trying to get bad credit refinances, or trying to do what they can to get a mortgage loan modification, that they are actually not able to help everyone.

Because of this, many people that could have been helped find themselves in forclosure in stead of getting help with the making home affordable program.

The big problem looking out on the horizon is the adjustable rate loan recasting that is going to start happening in 2010.

We are going to see a huge influx of mortgage loan defaults becauxe of people who got subprime mortgage loans and were not able to make the payments when the payment balooned.

For many, the mortgage teaser rates got us in the first wave of financial crisis, but the recasting that is coming up, will make matters worse. Every year starting this, we will see mortgage rate recasting, and many people unable to make their payments.

In a recent article from msn.moneycentral.com

Lenders have abruptly stopped offering the most popular type of subprime mortgage refinance. Credit-challenged borrowers suddenly have fewer options.

“Many borrowers are not going to be able to refinance,” says Deborah Goldstein, the executive vice president of the Center for Responsible Lending.

The consumer watchdog group has criticized loose standards for subprime mortgages, which are home loans for people with problem credit — generally, with credit scores below 620.

Over the past few years, the most common type of subprime loan has been an adjustable-rate mortgage known as the 2/28 ARM. Since mid-July, five of the six biggest subprime mortgage lenders stopped offering 2/28 ARMs. Suddenly, there’s a shortage of the type of mortgage preferred by about 60% of subprime borrowers.

“We think it’s a good thing for consumers,” Goldstein says, because too many 2/28 ARMs were underwritten without regard to whether borrowers could afford to repay them. “So we think it’s positive that lenders are going to stop offering that product. It doesn’t mean they’ll stop offering subprime loans.”

A 2/28 subprime ARM has a low initial rate that lasts two years. After that, the loan resets, which means that the rate is adjusted upward or downward. At the first jump, the rate can conceivably climb 2 to 6 percentage points, causing monthly payments to skyrocket. (In practice, the first rate jump is usually on the smaller end of that scale, but it can keep rising every six or 12 months after that.)

So, the question on everyone’s mind, is what is going to happen to all those people who are currently scraping by, and able to make their payments, and don’t really understand what is going to happen when the mortgage rate recasts and suddenly they can get a subprime mortgage refinance?