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.

Originally Posted by gssixgun

Ahhhhhh see Bruno that's what the lending rules should be
...

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

Don't know what that means.
There are basically only 2 types of loans here: fixed interest rate, and variable interest rate.
With fixed, you won;t get the minimum interest rate, but it'll never change.
With variable you get the minimal rate, but it may increase.

However, variable rates have to extra constraints: The % of your wages that you can borrow is lower (i.e. the banks assume the rate will rise). This means that if you can get a fixed rate loan where you pay off 1000$ per month, your variable rate loan will be max 900$ to start with.
On top of that, the banks will also demand that you have 20% (or something like it) of the value in liquid assets. That way they minimize the risk.

My mortage is a hybrid, which is getting more common. Mortgage over 20 years, with a fixed rate for the first 10 years, and then a possible adjustment at 10 and 15 years, up to a total max 2% increase of the starting index rate. For our case, this was the most optimal, and the risk is very limited because the interest rate can never be more than what it is now + 2%.

Btw, all loans are registered (by law) with a central financial database. This is to prevent people from getting themselve into trouble with multiple loans.