Episode-110- The Second Economic Minefield — 6 Comments

  1. This file is about 2 times larger then most days because it was recorded with Audacity and with out compression.

  2. When I dig my bunker it will be a family project and will double as a root cellar ,but you are right it is way down on the list.

  3. Jack,

    I work in the mortgage industry and have for 13yrs, I am in secondary(commitment desk). Though the end net result is the same, there are a lot of reasons for the “mortgage crisis” we have.

    I can see the reduction in subprime loan programs available, I can see the elimination of “Option Arm” loans even, but the crisis we are in should not be. It is mainly a result of the “market to market” accounting rules and inflamatory media coverage by people that don’t know what the heck they are reporting.

    A marjority of these loans are still performing. The problem is when the “ALT-A” loans or “Option Arm” loans come to their end, there is no “take out” loan left.

    There are borrowers out there who can still make the payments on their loans and want into a fixed loan, but:

    1. Their income is not verifiable or their loan amounts via the way mortgages are traditionally underwritten(using tax returns). The simplest way to explain it is, we all know the self employed guy out there that has so many “write-offs” that the tax returns he has makes $20k/yr. when from a cashflow standpoint he makes more like $200k. – These loans are gone.

    2. Their loan is a “jumbo” loan or over $417k in most areas. These rats were .250-.375 over conforming fixed pricing. They are now 1.5-2.0% over conforming pricing. Even prohibative for most conservative borrowers.

    3. Their Equityline or 2nd mortgage was suddenly closed or won’t subordinate to a new fixed 1st mortgage lien. 100%financing(which is/was not advisable) was common. So lets say you bought a $600k home with 10% down and did and 75-15-10 loan so you could have a lower rate conventional mortgage and a 15% 2nd mortgage. But lets say you decided to have an adjustable rate 1st mortgage(hey you can just refinance later). Well now the 2nd mortgage will not subordinate and you don’t qualify for a much more expensive “jumbo” loan.

    4. Credit….I just did this scenario tonight. 24mos ago I could have gotten an 80-20 zero down loan for someone with credit scores of 620. Today if you want to do a cashout refinance to 80% with scores of 719(supposedly good, really good), it is about .375-.500% higher in rate than a purchase/rate-term loan at 80% with a 720credit score.

    In conclusion(I know this is long). There are a lot of dirt bags out there that deserve to lose their homes, but you would be amazed how many folks are going to lose their homes that can/could pay for them if a product was available to them.

    I personally have a 30yr fixed and I have seen my income drop by 65% in the past 2-3yrs, but I live below my means and try to live the survival type lifestyle(don’t get me wrong I have my vices, I’m not a saint).

  4. I would like to bring a very important bit of information to your attention that relates the this economic crisis that was overlooked until now.

    On Sunday, 12/14/08, CBS 60 Minutes aired a segment “The Mortgage Meltdown”.

    Scott Pelley’s piece on the 2nd Wave of Foreclosures overlooked a critical fact. The next wave of Foreclosures in 2009 Will Take Self-Employed and Smaller Businesses who have these TOXIC mortgages. In fact, ALT-A, Option ARMS, Interest-Only, the TOXIC Mortgages that are considered the “Troubled” assets in TARP were marketed to the self-employed who fell prey to them. The upcoming defaults on these risky “Toxic Mortgages” will result in an increase in foreclosures. But worse, once these small businesses fail, the resulting loss of jobs will cause millions to add to the ranks of the unemployed. Note that self-employed business owners (16.2 million according to the SBA) employ between 1-10 employees.

    An NASE survey,, was the first to provide compelling evidence of small business involvement in the upcoming toxic mortgage crisis. The survey was created by Prof. Samuel D. Bornstein and Jung I. Song, CPA of BornsteinSong Consultants in Oakhurst,NJ,and was conducted by the National Association for the Self-Employed (NASE) which issued a Press Release on November 21, 2008.

    According to this survey, it is estimated that 3,709,800 small business owners hold Alt-A and other toxic mortgages, and 1,279,800 are already delinquent as they have missed one to three or more monthly mortgage payments at mid-November, before the expected Resets that are scheduled to begin in 4th Quarter 2008 through 2012. These small business owners will be at-risk of payment shock and default as their monthly mortgage payments skyrocket. Small business owners were especially targeted for these Alt-A loans which required little or no documentation of income which appealed to many small business owners who previously were unable to qualify.

    The resulting defaults will be the cause of the upcoming second tsunami wave of foreclosures that will dwarf the subprime crisis and will take many homeowners and small business owners.

    I would be happy to discuss the implications of the NASE Survey, since I created it and NASE ran it to its national membership (250,000). See the NASE website under NASE NEWS for the Toxic Mortgage Survey.

    Thank you,
    Prof. Samuel D. Bornstein