From what I understand the mortgage problems were created by the subprime mortgages. Maybe one of our Active Rain mortgage specialists can answer a question for me.
I don't understand all the details of the subprime mortgages but I know there are a lot of foreclosures for differing reasons. In many cases people could get 100% and greater in their loans. In addition could get assistance with closing costs. Did these people not have to pay for PMI (private mortgage insurance in their monthly payment?
1st Question
If they have to pay PMI what happened to that insurance covering the default? PMI is paid by the home owner to cover and hedge the default risk for the mortgagor. I would like to know where that money is?
Alan Greenspan made comments a couple of days ago of how he thought the banks would do a better job protecting themselves. That is the dumbest statement I have ever heard by someone who is supposed to be so smart. He stated he couldn't see this problem coming. They regulate everything and they knew what was going on. Everything being told to us by politicians and the federal reserve is a lie. There were a lot people responsible for oversight in these issues and they either had their hand in the pot taking money or was looking the other way while their buddies were looting our system. I have nothing but disgust for the whole group promoting this bailout.
2nd Question
If the PMI restriction doesn't apply any more, then why should anyone have to pay it? Once we get this absolute financial bank robbery by our fed government behind us, I think I will look for a subprime mortgage soak up my equity, blow it all and then file bankruptcy. (not really). That is how I want to respond to this. Why should anyone have to pay PMI if others don't?
I don't know what is going to happen in our Huntsville Alabama real estate market but I will certainly be looking for banks and Huntsville mortgage companies who held to appropriate standards. From what I can see Compass Bank kept their nose clean in this process.
I would really appreciate other comments on this. Especially if you can explain what happened to the PMI.
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Bryan - My understanding is that the bailout was precipitated by activities further downstream. When subprime loans were packaged and resold into MBS or other securities, the risk was not properly allocated. This was somewhat due to the nature of the beast and somewhat due to shoddy or deceptive practices. Anyway as banks passed loans to Fannie, Freddie, etc and as AIG and crew insured them the risk seemed to diminish at every step. By the time the shaky loan reached the investors who ultimately drive the housing market, it was being sold as a near equivalent to a US Treasury note. When people started defaulting, investors discovered they were losing money on 'safe' investments. Because no one could discern a proper level of risk, the MBS market dried up. From there, the dominos started to fall. With all this in mind, the bailout has little to nothing to do with the actual person who stopped paying their mortgage. There are always people who will invest in high risk items as long as they can reap high rewards. However, no one will invest in something where the risk is unknown. The bailout is intended to restore investor confidence.