386d58d9   
   From: one-if-by-land@concord.com   
      
   "Pat"> wrote   
   > "Don"> wrote:   
   > Sitting here churning out a set of construction drawings and my mind   
   > wanders   
   > as its want to do and I thought about all these home mortgages in default   
   > across the fruited plain.   
   > By extension I wondered why the lenders were in dire straits if PMI   
   > (private   
   > mortgage insurance) was there as a buffer.   
   > I pulled my real estate books and perused but could not find a reference   
   > that PMI was required by law.   
   > (I'm aware of the 20% / 1 yr rule)   
   > So I emailed a real broker friend and asked him if PMI is required by law.   
   > He told me PMI is not required by law and is applied at the lenders   
   > discretion.   
   > Further, subprime loans rarely require PMI.   
   > Say what???   
   > The loans MOST likely to default do not have the safeguard of PMI.   
   > This is like a cruise ship with a bunch of holes in the bottom setting to   
   > sea with no lifeboats.   
      
   All mortgages aren't the same.  If you've got PMI, it is a "prime   
   mortgage" that meets certain underwriting criteria that allows it to   
   be easily sold in the secondary market.  This is the world of Fannie   
   and Freddie.  The problem is the underwriting standards.  Most require   
   20% to 10% equity (80% or 90% LTV), an appraisal, income documentation   
   and there are caps on the amount of the loans.  If you are over the   
   cap, you are a "jumbo" mortgage.  In places like California, almost   
   all mortgages are "jumbos".  From there, it went downhill.   
      
   These subprime mortgage bear a higher rate.  Bank buy and sell blocks   
   of them.  They buy if they need a return (investment) and they sell   
   when they need liquidity.  That's the problem.  They are now   
   discounting the heck of these morgages to compensate for losses.  Say   
   you are a bank and you are worth a billion dollars.  Say you are   
   required to keep 10% equity (say $100 million).  Say you have $40   
   million in subprimes and they are devalued to $30 million.  You need   
   to find $10 million in equity --FAST.  But who wants to invest in you   
   because you just lost your but in the subprime market.  Now you're   
   facing duel problems of equity and liquidity.   
   +++++++++++++++++++++++++++++   
      
   Well yeah Pat, that was my point.   
   Prime and Jumbo's aren't the problem, because the borrowers in those groups   
   have proven through past experience that they have the means and discipline   
   to carry the thing through, yet they are still required to have PMI until a   
   predesignated amount of the loan has been paid.   
   Prime and Jumbo's aren't defaulting to the degree that Subprimes are.   
   People with Subprime loans weren't required to put down the higher   
   downpayment and received higher loan to value mortgages inspite of their   
   record of having worse credit experience.   
   Thats why I was sort of amazed that such a condition was allowed to happen.   
   Given that, its no surprise that it did happen.   
   However, a link that Rico provided awhile back gave some insight as to how   
   this happened and Eliot Spitzers (NY ex-Governor) attempt to hold certain   
   republican politicians responsible for the fallout, which is the implied   
   reason why Spitzer got taken down, *disappeared* as it were.   
   All of this has been established, the next step is to figure out WHY the   
   republicans did this and how it plays with the larger picture of whats been   
   going on in the long march to a police state.   
   Consider, 10% of the US populace is already in some sort of physical   
   incarceration and this current real estate debacle has reduced 10% more to a   
   financial prison and maybe 50% more are struggling under the strain.   
   Where is all this going?   
      
      
   +++++++++++++++++++++++++++++   
   If you think this is a problem, the problem in the muni markets are   
   worse.  Wait until they hit.  They you'll be ducking for cover.   
   +++++++++++++++++++++++++++++   
      
   I won't, directly, because I'm not involved, but I get your point.   
   We're all in the same boat, and its sinking, and there's little any of us   
   can do except jump overboard, hideout, and tread water until another boat   
   comes along, if ever.   
      
   --- SoupGate-Win32 v1.05   
    * Origin: you cannot sedate... all the things you hate (1:229/2)