Thread: Credit crisis

I'm a bit surprised noone brought this topic up yet, considering that a couple of financial Icons were shattered.
Anyone here got hit by the smurf?

Found this today:
subprime works - Google Docs

My neighbour works for Lehman and he has been pretty stressed and depressed for months. When the sh1t hit the fan it was like a load off his shoulders. He was slightly more fortunate than others there as he works for one of the two divisions which were not part of the bankruptcy -- asset management. He has been spending the last week chopping up bits of the business and selling to Barclays.

Barclays have just approached him to say he's on the shortlist for a job with them. I'm keeping my fingers crossed for him as he has a young family (our kids go to school together).

I didn't think it would affect my situation much since I work for a fairly recession-proof industry: academic publishing. We don't rely on advertising or other market industries. We make money from selling to university libraries. I was wrong... today we felt a direct effect of the crisis.

For the last three months a private equity group has been trying to acquire our business and we have fought hard to persuade the shareholders not to go for the offer. (If we were acquired and merged with another publisher, there would be a lot of redundancies). Well, this morning the private equity group, led by Provident, said they were giving up and cited the fall of Lehman as the reason. Apparently, leveraged buyouts are now off the agenda.

So I'm breathing a sigh of relief, until the next group tries for a bite at the apple.

This particular thread directly concerns what I actually do for a living (and you thought I just restored razors )
Being a Finance Manager at a Ford dealership I deal with the lending institutions on a daily basis.... Since April of this year there have been more changes to the lending industry then I have seen in the previous 6 1/2 years combined....
Long term loans ie: over 72 months are pretty much a thing of the past...
High LTV (loan to value) loans are harder and harder to get bought I don't care how great your credit rating is....
I have seen a 25% drop in LTV allowance in 3 months time...
Rates are all over the place even though the banks are getting money at a lower rate then they have in the past...
I have processed more repo requests than I ever have in the past, just yesterday I processed a repo that was actually sold in 2003, think about that for a second, the loan was in the last 6 months of term, and they repo'd out of it !!!!!!! that makes no sense.....
Banks that I deal with (16 different ones) that are not exclusive automotive lenders are the worst right now, any bank that has a housing loan dept. are raising auto rates, to offset losses in their home loan portfolio, it is an interesting time right now....

The things you mention seen alien to me.
Over here, the loan to value ratio is always <= 1
There is not a single bank here which will loan you more than your collateral is worth.

If you buy a house, there are very few banks that will provide you with a loan if you cannot pay at least 10% of the house in yourself. To get favorable rates you have to go up to 20%. Which is why we ate spaghetti for half a year when we started looking for a house

The value of the house is determined by a certified expert, and you can only borrow for the realistic amount. Then you have to show official pay statements to prove that you can pay off the loan. Your max payments are x percent of your combined salary, and from there follows the max amount you can loan.

Defaulting on mortgages is very uncommmon, and banks are very careful about loans.

Ahhhhhh see Bruno that's what the lending rules should be, and were in the past but when you have an real estate balloon market, creative financing and "certified appraisers" working off of each other, this is the outcome that should be expected.....Add lawmakers that want "everyone" to have an equal opportunity to own a home and the person left "holding the bag" so to speak is the bank holding an un-paid mortgage that is on a home that really isn't worth the money that was lent in the first place...
Now if you look deep enough, at what caused this, you are going to find the truth in there..... However many people might not want to admit what the real problem was...

I would almost bet that you have never even heard of ARM & Balloon loans where you are at?????? Other than in the news????

Between the greed of the banks and everyone trying to live beyond their means, it had to happen sooner or later. That and the fact that we have lost our manufacturing base, with out it you cannot create wealth.

I didn't know home loans were ever given for more than the value of the home! even 3 or 4 years ago I never saw any offers for more than 100% financing

Glen works in auto finance and I work in home finance so we see all this stuff first hand.
As has already been said there were banks lending 125% of the value of a home. Not the one I work for but others did it. Not to mention the shady appraisers some of the sub prime lenders used; ameraquest comes to mind.

Couple all this with; greed, keeping up with the Jones', and the inability of the public to read or focus on something for more than 5 minutes and we have what we are left with now.

Now as far as the bailing out of the sector by the Fed... I hate that we have to do this. If it weren't for FNMA and FHLMC people would not be able to qualify for a home. If banks had to go back the the 5C's of underwriting (or was it 4?) they'd be so lost on what to do now. We've relied for far too long on things like credit scores as the end all and be all and this is coming from a guy who looks at > 100 credit reports a day!

Haven’t bought a house yet, but me and my fiancé did buy 15 acres of land a while back. The Seller (my uncle) had the land appraised and it was valued at $40,000. Four months later my girlfriend and I went to get a loan from the bank to buy the property. The bank sent out their appraiser and he valued the land at $65,000. The appraiser did not even get out of his car to examine the property, which is funny because you can only see about an acre of my land from the road. Undoubtedly the appraiser valued the land more than it is worth, possibly even $25,000 more than its real value. The bank said it was worth $65,000, the seller was only asking $40,000, we got the loan no problem. Does this happen often? If so, I can certainly see why there is a credit crisis.

Capping a week that has reshaped Wall Street, U.S. Treasury Secretary Henry Paulson urged Congress to quickly agree on a program for huge purchases of bad debts held by banks and other financial institutions.

Isn't this excellent!

Now, we as US taxpayers own huge purchases of BAD DEBT.

Fantastic financial minds at work! Genius even...

Spend most of our tax money on two wars, and the rest on bad financial debt.