US Subprime

chichi · May 15, 2008

We have been getting a lot of media here about the subprime market.
It is affecting our currency and the stock market but not at a level that is of major concern.

What I want to know is the following:
How can the banks lending practices be so ridiculous that they lend 100% loans to people with no stable income, people who have been bankrupt and people with very poor repayment history. This is not fair to the customers and is stupid on the banks's part.

I have been concerned about the 100% home loans here but at least here we have mortgage insurance which the homeowner pays if they have less than 80% deposit - this protects the lender and usually results in minimal if any losses if the client defaults.
Also lending criteria is strict here (but have to say not as strict as it used to be)

Also no recourse for the banks - home owners can just walk away??? here apart from the mortgage insurance the bank can still go after you for whatever else you owe.

Maybe someone can enlighten me.

Also 2% cash rate?? That is the lowest I have ever heard of - its just such a strange scenario when we are paying nearly 9% for variable home loan rates (7.25% cash rate)

Jo

Trader333 · May 15, 2008

How can the banks lending practices be so ridiculous that they lend 100% loans to people with no stable income, people who have been bankrupt and people with very poor repayment history. This is not fair to the customers and is stupid on the banks's part.

It is worse than 100% as some have been lending 125% of the value of property. The reason was that it was presumed that property values would continue to go up at the rate they have done in recent years. If they had then if people had defaulted on the loans then the lender gets the property which should now be worth the amount that they lent. But the opposite happened and as such when loans were defaulted on the lenders found themselves with properties worth a whole lot less than the amount lent. (In reality it is a bit more complex than this but this is the gist of it)

Paul

0007 · May 15, 2008

chichi said:
We have been getting a lot of media here about the subprime market.
It is affecting our currency and the stock market but not at a level that is of major concern.

What I want to know is the following:
How can the banks lending practices be so ridiculous that they lend 100% loans to people with no stable income, people who have been bankrupt and people with very poor repayment history. This is not fair to the customers and is stupid on the banks's part.

I have been concerned about the 100% home loans here but at least here we have mortgage insurance which the homeowner pays if they have less than 80% deposit - this protects the lender and usually results in minimal if any losses if the client defaults.
Also lending criteria is strict here (but have to say not as strict as it used to be)

Also no recourse for the banks - home owners can just walk away??? here apart from the mortgage insurance the bank can still go after you for whatever else you owe.

Maybe someone can enlighten me.

Also 2% cash rate?? That is the lowest I have ever heard of - its just such a strange scenario when we are paying nearly 9% for variable home loan rates (7.25% cash rate)

Jo

Where finance is concerned there will always be instances where greed and stupidity over-ride common sense - that's why we have losers. Banks and mortgage borrowers are no different. (have you ever thought that 50% of people are of below-average intelligence?)

You obviously find it hard to understand how such things are allowed to happen - so do I !

At the root of all this is human emotion: when it takes over, logic and common sense are dumped. Finance is just one of those areas affected; another is personal relationships.

US Subprime

chichi

Newbie

Trader333

0007

Senior member

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