Thursday, December 27, 2007

Where have all the adults gone?

The sub prime bailout being discussed is disappointing on many levels. After reading articles off-line and online I've come up with my own categorization process. With regard to the defaulting borrowers there are 3 buckets.

1. The Shim-shamed - These are borrowers who had mortgage brokers et all falsify documents or outright lie to people to make the loan (purchase) happen.

2. The Speculators - These are borrowers who borrowed with the goal of making money on flips. Some used no-doc loans etc to buy homes to fix-up and sell quickly. Which works in rising markets, but "when the musics over turnout the lights. " The Doors

3. The Over-extenders - These are borrowers who bought as much as they could assuming some other positive economic shock (raise, etc) would occur that allowed them to re balance their finances. Or they weren't expecting a negative economic shock such as losing a job.

I think I've got the borrowers covered with these three segments. Now for the lenders.

I found a great article today on WSJ.com which had a link out to a graphical explanation of how the CDOs worked. It's a great visual that let's you go step by step. Take the time and follow the flow of the money and the securitized mortgages, you'll be shocked.

Reminds me of Enron.

The United States needs to re-examine it's priorities and citizens need to step-up and be adults. Take ownership for your mistakes (translation: don't expect the government to always come to the rescue if you're in category 2 or 3) and take care of yourself (translation: save for retirement).

2 comments:

john demayo said...

Keep in mind of those that make plenty of money and bought a primary residence with little down, who probably could make the mortgage payments if they stretched and tried, but find it easier to turn the keys in to their mortgage company because the property value is under water. No bankruptcy required for most of these guys, the banks would prefer to take the keys a few months earlier with the house in good condition then run the risk of repo'ing and getting the house later and possibly in poor condition. I've met a number of these people in reno and vegas.

Brian T said...

Was the "shim-sham" the official government term?