Morgage=a lone bakked bi the hous yu bi. The hous is "sekerity".
If yu get behind on the morgage, banker kan take bak the hous.
This "tangabel asset" meen less risk tu banker, so him charj less
(smaller) % interest.
In the old daes (til bout 1970) all morgages was R same: evreethang fixed.
fixed % interest, fixed paement eech month, fixed "term" (banker talk for length
=time span=30 yeers). The lone is "amortized"...at the end av the "term",
yu bern the morgage=yu paed off the lone & now oen the hous.
Guvt kall yu a "home oener" if yu hav a morgage.
Now Bankers hav a bewildering array av lone tipes & variashuns on eech.
& as alwaes, bankers talk in a straenj lingo with terms yu never herd.
*********** banker talk
3 c's Kollateral, karacter, kash flo
In the old daes, banker yuzed the 3 c's tu deside if tu lone yu munee.
ABS: asset based sekerity
ABS Asset Based Sekerity...yuze home tu borro munee=hous as ATM masheen
also: banks invent papers so em kan bi/sell leveraged debt
based on morgages. Leveraged 30:1 so make enormus profit
til em bankrupt USA taxpaers.
see also...CDO, MBS, SIV
acceleration klauz...werds in the fine print that sae if such & such happen,
yu gotta pae banker evree penee yu oe NOW. zampel...if yu get 90 daes
behind on the morgage, banker sae pae up or I'll take yer hous.
add-on method: 1 wae tu kompute interest=a bad wae=bank get interest up front.
zampel: yu borro 1,000$ at 8% for 1 yeer. Interest=80$ (8%*1000*1).
Yu gotta pae banker 1080$ wen him lone yu 1000$.
If pae eech month, eech paement=1080/12=90$.
Plug this intu program 10, output 1 & yu find interest rate=14.2%
see rule av 78 (program 31)
adjustabel rate...
see: ARM
ajency semi-guvt orgs that provide lones
=Fanee Mae+Freddee Mak+Ginee Mae, FHA
ALT-A nu tipe morgage grade invented bout 2005...not prime, & not subprime.
prime=first klass=klass a. subprime=risky. Alt-A is in tween.
Most alt-a is a borroer with good kredit rekord but not perkekt fico skore.
Most alt-a lak sum av the "documentation"..."lo-dok". If yu kan get
a lone without all the paperwerk, it kan save months av runaround.
zampel...lo-dok, no-dok, not oener okkupied (yu wont liv in the plaes yu bi).
Warning...no-dok & lo-dok kan be subprime.
2006: 400 bilyun $ av alt-a morgages=the max...13.4% av all morgages.
Most R arm's & will be big % interest reset in 2010.
Theer R more alt-a lones than subprime.
Amortizashun
Amortizashun..."mort" is fansee French werd for "die"...yu kill the lone.
banker talk for pae off lone over time. At the end av nn yeers,
lone is gon. Part av eech paement pae interest & part pae down
the $ yu oe. Yer "balans" dekreez with eech paement.
How much yu pae eech month (week) dezined tu pae off lone
in predikted lifespan such as 30 yeers.
negative amortizashun...yer paement is 2 small tu pae interest.
yu oe banker more munee evree month (yu go deeper in debt)
APR="annual persentage rate" =% interest or % retern=x %/yeer=true interest rate
APY="annual persentage yeeld"=% interest
get annual retern from start & end value(prog 16-2)
ARM=adjustabel rate morgage=variabel rate lone=the interest rate chaenj
kommon tu chaenj evree 6 months or evree yeer.
Banker gotta spell out detaels bout wot kontrol the % interest,
such as how oft chaenj, max % in 1 chaenj, max % interest yu mae pae.
Yuzyually the interest rate is based on a bundel av "sekerities"
such as the London Interbank rate.
Arrearage behind on the paements
bi & bael Nu taktik apparently invented in 2008:
yu hav munee & kan send in monthly morgage paement, but dont.
Insted, yu bi a cheeper hous, maby even bigger. Wons that
bi kloes, yu stop paeing on the old morgage & let bank
take bak the old hous. Or maby yu rent the old plaes.
Bekame popular in 2009 kauz banks deliberately dont forkloes
on yu hu dont pae. Many live 1-5 yeers in the hous after yu
stop send in morgage paement.
Semikrats kall it "stratejik default".
others: "mael the kees tu the bank" see "Jinjel mael"
BTCF B4 tax Kash Flo. This is kommon in Reel Estate "investment"
btcf=1 yeers net operating inkum/$ yu put intu the hous
net operating inkum=rent inkum-all kosts yu hafta pae on the
hous (morgage paement+taxes+inshure+repaers+NE yutilities yu pae
+ manager fee if yu hav a manager+...)
If yu bi the "investment property" with a morgage, then the
$ yu put up=the down paement+kloes kost+NE fix-up kosts+ ads in
paper tu find a renter+...
CAGR "Kompound Annual Gro Rate"=%/yeer
zampels: kompound interest, flate rate, stok return
Cap rate short for "Kapitalization Rate" mostly yuzed in Reel Estate
Cap rate=(net profit in yeer 1)/($ yu put intu the "investment")
see also: BTCF
CDO
CDO Collateralized Debt Obligation protfolios...(morgages)
Banks pakage lones intu "securities" em sell tu "investers"
Banks klaem the pakage is grade AAA, but tern out it be junk
investers luze shirts. But originating bank make its profit alredee.
Then "investment banks" bi em at 10 sents on the dollar & trade
em & sumtimes make 300% profit on trades (em put up 10% av the
10 sents & borro rest).
CDS Kredit default Swap
Inshuer kumpanees invent this as wae tu inshuer biers av CDO's.
i.e. inshuer "derivatives". This almost brake USA. Tern out
derivatives R much more risky than predikted. CDO prieses
drop like a rok. Inshuer kumpanee spozed tu pae then. But
em go broke, guvt take over inshuerers so em dont go bankrupt.
(2 big tu fael) Unkel Sam luze 2 TRILYUN $ on em.
CLO Collateralized lone Obligation=subset av CDO
CMO Collateralized Morgage Obligation=subset av CDO
Konform lone
conforming lone ...banker kan sell yer lone tu a half-guvt banker such as
Fannie Mae, Freddie Mak, Ginnie Mae=banker rules konform tu theer rules.
*** trivia: Jan 2008: Fanee Mae hav 2.6 trilyun $ av morgages
Fredee Mak: 1.4 trilyun
quarter 4 2007: Fanee+Fredee take 76.1% av nu morgages in USA
quarter 4 2009: FHA kuver 40% av nu morgages (was 3% in 2007)
nonconforming ...Fannie Mae, etc will NOT bi yer lone
zampels...jumbo lone, no kredit histree, bad kredit histree, 2nd morgage, kredit line
subprime, no-dok
conventional lone...banker supply the munee=not bakked bi guvt
also kalled "private" as opposed tu guvt
convertabel lone ...fixed paement & interest rate for x yeers, then "konvert" tu sumthang.
zampels...5/25, hybrid. Resent variashun=teeser lone...the first
yeer or 2 the % interest is 2 loe...wae belo standard rates.
the time the teeser rate last is kalled the honeymoon period.
Wen the honeymoon end, yu gotta du sumthang fast or sink.
WARNING...2005 on: "teeser" is marketing hipe...broker publish it
in ads with bold tipe. Wen yu get a lone, reel rate is much more.
Yer paement is based on the tees. Thus yu dont pae banker nuff
tu even pae the interest on the lone.
CRE Kommershal Reel Estate=biz men borro tu bi hotels, shopping senters,
offis bildings
credit default swap (CDS)
inshuer kumpanee tri tu inshuer yer CDO (derivative).
Problem is the inshuer kumpanees R almost broke kauz em luze
so much munee wen CDO's bekum werthless. Guvt bael em out.
Now US taxpaers on the hook for 3-4 Trilyun $.
cure rate=% hu default on the morgage, then later pae the overdue paements
=get bak in good standing with the bank
In the good old daes, bout half get bak on good terms with bank.
Housing Krash: kure rate is 3-5% insted av 50%.
Default
default If yu get behind on the paements on a lone, yu R "in default"
Banks hav a time period such as 2 or 3 months behind for em tu
report yu as "in default".
2009: "seereeus default"=60 daes behind (2 months)
deleveraging...redues debt, pae off debt, sell bad lones
leverage: yu borro munee tu bi sumthang & hope it go up in "value"
so yu kan sell it & make megabuks profit. If yu borro 90%, &
it go up so profit (aft sell expenses)=1%, yu make 10% profit.
Most folks kan borro tu bi hous. Thus this is the maen wae
most tri tu bekum milyunaers.
But leverage is risk. If pries go down 10% & yu gotta sell, yu
luze all the munee yu put up.
Sum financial plaeses (hedj funds) leverage tu inkreez profit.
If em thank thangs will get bad, em deleverage...redues lever=
sell debt. Problem is, hedj fund managers kan be rong & luze shirt.
Derivatives
Derivative: Banker invent paper tu bet on value av other paper
Em fed the housing bubbel & then krashed it & that krashed the
US ekonomee=biggest resesshun sins 1935.
see...ABS, CDO, CDS, CLO, CMO, SIV
Trivia: Mae 2010: US guvt hold or inshuer 200 TRILYUN $ av derivativs
Distressed property: hous for sale kauz oener default=dont pae on morgage
kan be forkloesed, short sale, or tri tu sell B4 get forkloesed
Em offer it at "diskount" (em loer the pries) kauz em need fast sell.
DPA Down Paement Assistans...seller provide munee=pae for the down paement
Many thank this was 1 komponent av the hous bubbel. Seller mark up
sell pries bi the $ him lend tu bier. & middelmen take a kut
av the pie. Basik problem is bier kan NOT afford the hous.
In 2008, kongress outlaw this. But then talk av "stimulus" kauz
the mob (reelter org) demand em reinstate it. All the brokers that
got rich on it, demand guvt giv em munee. Brokers win, taxpaers luze.
This was part av the guvt foersed drive tu make houses "affordabel"
for the "disadvantaged"...the poor. Well, the poor kant afford the
hous & guvt subsidies dont help, & taxpaer pae for all av em.
DPO Deffered Paement Opshun: Morgage holder kant get full $/month paement
& agree tu take x% av wot yer spozed tu pae. In theree, yer
spozed tu eventually pae bak wot yu oe sumtime (dont no wen).
Guvt push banks tu "modifi" lones tu make em "affordabel".
DPO is 1 av the triks banks yuze tu sae em kompli with guvt rules.
Problem is bier kant afford the morgage. Triks like this oenlee
delae the dae em go bust.
DTI debt-tu-inkum.
Banker yuzed tu hav rules bout max debt yu kan hav for him tu
lone yu munee. Banker normally yuze rule that yer total monthly
pae on all debt gotta be < 35% av yer inkum
& monthly morgage paement (PITI) gotta be < 28% av yer inkum.
In last fyu yeers, all rules fli out the windo. During housing
bubbel, bankers lone munee tu NE-1 hu kan sine the papers.
& tu krooks hu pretent tu be sumbody. Hous av kards krumbel.
Duration: time span, lone length (yeers)...krats also kall it "term"
EAR "Effektiv Annual Rate"=interest rate or rate av retern
get effektiv % interest, klik heer (prog 16-4)
Equity
Equity =oenership.
If yu oen it, its yers. If yu oen a share in it, yu hav equity.
Equity in hous...yu oen part av hous & banker oen part.
Federal Guvt: if yu hav a morgage, yer a homeoener.
Klassikal wae tu get equity is put down munee & pae off sum av the debt.
In the good old daes, yu eventually paed off the morgage...the hous is yers.
In the boom av 2000-2006, all rules fli out the windo. Hous pries
go up. Yu hav instant equity. Yu kan sell hous & get munee outta it.
Even better, yu kan borro more munee ginst hous & spend it.
Yu thank yu R rich. Yu spend & spend. This is kalled
"yuze hous as an ATM masheen".
But yu oe more $ eech time yu take out munee. Yu oe & oe.
Yu gotta pae more & more evree month. Sum get several lones
pae on 3 or 4 lones bakked bi the hous.
Then at the smallest problem= yer in deep shit.
Hous pries go down. Yu oe more than hous is werth. Yer underwater.
Yu kant borro NE-more. Then yu get laed off & kant pae banker.
Then yu luze hous (bekum homeless).
FHA Fed Housing Admin: Em inshuer lones bankers make. Oenlee require
3.5% down. In 2009, em take over as the plaes for all broke folks
tu get theer morgage. Kloesest thang tu no munee down.
Fed guvt giv awae 8,000$ "tax kredit". Thus yu kan get 228,570$
morgage & dont hafta put up a dime. Housing bubbel liv on thru
guvt subsidee.
FHFA Fed Housing Finans Admin (Ajensee)
FHLB Fed Home Lone Banks
FICO
a kredit skore (grade). A kumpany Fair & Isaac developed this wae
tu grade biers tu tell banks how good the chans yu will pae if
yu borro munee. For many yeers it was a big sekret. A fyu yeers ago
em go plubik...tell how em kompute the grade. FICO bekame the yuniversal
wae banks grade yer kredit. Almost all hu lone munee yuze it.
Others:
Many others yuze FICO tu deside if em wanna du BIZ with yu.
If yu look for a job, kumpanee oft chek fico B4 deside hu tu hire.
If yu want inshuerans, em yuze the fico tu deside if tu offer yu NE
inshuer. If em offer tu inshuer yu, lo fico=it kost more.
If yu wanna rent, landlord oft chek yer fico skore. Bad skore & him
wont rent tu yu.
If yu muve tu nu sitee, the utilities (fone, water, elektrik) probably
chek yer skore. If yu hav a lo skore, utility mae want a big deposit.
FICO grade:
paement histree =35% av yer grade
how much debt yu hav =30%
how long yu hav histree=15%
tipes av kredit =10%
nu kredit =10%
Kredit histree is biggest fakter. For good grade, yu gotta avoid
blak marks...
go bankrupt
banker take bak hous (forkloes on yu)
yu never paed off a lone, so banker sent it tu a kollekshun ajent.
yu R behind on paements on a lone (deliquent).
Yu R late paeing (dont pae on time)
Find Out...If yu wanna no wot yer FICO skore is:
Ask a majer kredit buro. Em charj 6-10$ tu tell yu wot em no.
FICO range & threshhold:
Fico grade is a number, bigger number is better. Max=850.
Evree banker will hav a number nnn. Tu get a lone from him,
yer FICO skore gotta be > nnn. Even if yu get a lone, many bankers
charj a hier interest rate if yu hav loer FICO.
Lenders keep theer rules sekret...yu dont not wot nnn em yuze.
But theer R gidelines based on hu get lones & hu dont.
FICO...
Good Kredit: Fico >=700 is good. Most plaeses will lone yu munee.
How much debt: the more yu borro, the loer yer grade.
Kredit Kards...the hier % av the max yu borro, the loer the grade.
Impruev yer FICO skore:
pae all bills on time.
fix old blak marks on yer rekord. If NE are fawls, kontest em.
For sum, all yu kan du is waet the yeers it take for stuff tu
no longer sho on kredit reports.
redues yer debts...pae off as much as yu kan. First priority=kredit kards.
Dont open nu akkounts, dont borro NE munee. Dont get more KK's.
Longer yu werk for same kumpanee help yer skore. Longer yu keep a
kredit kard, the better.
nu kredit... If yu hav a lotta resent "inquirees" it loer yer skore.
inquiree=yu ask some plaes bout get a lone or a kredit kard.
Even if yu just look around for a kard with a better deel...it will hert yu.
Sampel morgage interest rate based on FICO skore
FICO % interest
760-850 5.77%
700-759 6.00
680-699 6.2
660-679 6.4
640-659 6.8
620-639 7.4
< 620 yu dont get a morgage
FIRE Finans, Insurans, Reel Estate (F.I.R.E.)
flip that hous...bi hous in hopes yu kan sell at big profit in 3-4 months
During the hous bubbel, had several TV programs tu tell how yu kan
bekum milyunaer in 3 eezee steps. Nutz & ku-ku.
Forkloes
Forkloes=Banker take bak the hous kauz yu did not make the paements.
If yu get 30 daes late on the monthly paements, yu R "in default".
if yu R 90 daes (3 months) behind yu R "deliquent" & banker send yu
nasty note that sae pae up or get out. Banker will now start the
proses tu take bak the hous. This is long process (3-12 months) kauz
av laws in eech state spesifi steps banker gotta go thru.
If yu dont make a deel with bank, him take awae the hous & sell it.
This put big blak mark on yer kredit rekords so yu kant borro munee
for many yeers.
But waet...theers more bad nuz. If the munee banker get wen him sell
yer hous is not nuff tu pae off the morgage, yu still oe that munee.
Yu R "short". Banker kan tri tu get it from yu. Him kan even get
kort order tu take a kut av yer pae (assuming boss didnt fire yu for go bankrupt).
Even if bank forgiv the munee yu oe on hous, yu stil oe: The $
him forgiv is taxabel inkum. IRS want yu tu pae inkum tax onit.
Now that 1.7 milyun luze theer hous in 2009, Kollekshun plaeses mae
bi yer note from banker for 2 sents on the the dollar & kum after yu
tu get wotever him kan. Him much meener than the bank.
& if him kan get just 5% av yu tu pae up, him make big profit.
FRM=fixed rate morgage=% interest stae the same=standard til modern era
Ginnee Mae: a guvt national morgage Assos: It bundel FHA morgages intu
pakkages tu sell tu "investers"
FHA lones has groed 250% from 2007 tu 2009=big boom for spekulaters
Graduated-paement morgage: paement start lo, then inkreez in steps at 3, 5, 7 yeers later.
Introdused tu help yung (lo pae) folks bi a home. Based on idea yer inkum
will inkreez as yu lern yer job. Dont see this much NE-more.
Nu stuf such as ARM's & opshun & interest-oenlee sweeped it aside.
GSE "Guvt Sponsered Enterprise"=Fannee Mae+Fredee Mak+Sally mae+...
or "Guvt sponsered Entities" (dif krat)
=semi-guvt orgs tu bi morgages from banks=make market in morgages
8 Sep 2008: Fannee+Fredee hav 5.4 trilyun$ av morgages as US guvt
take em over as "insolvent" (bankrupt). Now taxpaers pae for
all the bad morgages.
guvt lone...Yu get morgage from an org that is bakked bi the guvt in
roundabout wae.
Org the guvt invent & stand behind suppli the munee or garantee the lone
or inshure the lone.
zampels...Fannie Mae, Freddie Mak, VA, FHA, Ginnie Mae
HELOC
HELOC =Home Equity Line av Kredit (home equity line)
sumwot like a home equity lone. Its a akkount at a bank & yu kan
rite a chek aginst that akkount wen yu want munee. The chek bekum
a lone=yu borro munee. Bank will set a max $ yu kan hav=max balans.
It is like a sekond morgage...yu pledj yer hous tu bak up the lone.
This meen banker kan take awae yer hous if yu dont pae. But him will
hafta get in line behind the first morgage.
ARM...HELOC is ARM=adjustabel rate morgage...% interest chaenj.
It kan chaenj evree month. Normal ARM hav an "intro" period
wen the interest rate is konstant. HELOC dont hav this.
Warning...last fyu yeers bankers added more goodees such as the
"option lone". [also kalled "pay option"] Such thangs R danjerus.
Interest...Bank kompute interest evree dae, not bi months, kauz balans kan chaenj
evree dae.
Kost...Banker will chek yu out like yu want a morgage, so him charj yu
maby 1000-2000$ tu setup the heloc akkount.
Limit...Yu gotta hav "equity" in the hous. Equity is how much yu get
if yu sell the hous. Thats the sales pries after take out wot yu
oe banker & all the kosts tu sell it. Yu kant borro all av the equity.
Banker will insist on a marjin tu kuver problems such as the value
av the home dekreez.
Time...the HELOC hav a "term"...banker talk for time span=lifetime.
Mae hav 2 time spans...start span ("draw period" in banker speek),
wen yu oenlee hafta pae the interest. Konnon dedline=5 yeers.
2nd time span (repaement period)...yu gotta pae off it like a normal
morgage.
Sumtimes, HELOC is a konvertabel lone...At spesified dates yu kan
konvert it tu a normal fixed morgage.
Konsolidate: Yu mae see ads for lone konsolidaters hu klame yu kan save
munee if yu konsolidate kredit kard debt & revoling kredit, ets intu
"1 eezee paement". Warning: most R HELOC. Yu put up yer hous tu bak
the lone & yu pae hi expens tu setup the lone. On top av that, most
av em R krooks.
Risk...Remember yer hous is sekerity for the lone. If yu dont pae, banker
kan take the hous (forkloes).
Miss...Sum bankers tri tu charj sum fees em shood NOT. Watch out.
"usage" fee...Bank charj yu if yu DONT borro munee. Maby yu wanted
it as a emerjensee reserv, in kase yu suddenly need kash for a big bill.
chek-rite fee. Dont let banker get awae with this.
monthly "akkount maentenans" fee
prepae or refinans fee: (prepayment)
Sum charj 10,000$ if yu konvert it or kloes it B4 a preset date.
If yu sell the hous, that pae it off=automatik kloes it & yu
gotta pae this fee. Bad-bad-bad.
HOA
HOA =Home Oeners Association
A bunch av bizee-bodees make endless lists av rules tu tell yu wot
yu kant du & wot yu gotta du. Its a small guvt on top av all the
other guvts.
"covenants, conditions, and restrictions (CC&R)" is theer bibel.
This bibel hav so many rules, it oft take 500 pages tu print it.
HOa's R run bi a small klik av politikal bastards huz oenlee purpus in
life is tu make evreewon els sik.
Rules R legal & em kan take awae yer hous if yu dont du wot em tell yu.
tipikal zampel av a dont...yu kant hang up NE-thang tu dri NE-weer
NE-won kan see it. That meen the bizee-bodees will look in yer windos
& if em see sumthang slung over a door, em rite yu up=yu gotta pae fine.
Yu gotta pae a monthlee fee tu thees bizee-bodees. If yu dont, em kan
take yer hous. If yu dont pae fines, em take yer hous.
If yu hav problems with yer HOA, yer stuk. No guvt body will help yu.
Korts alwaes rule for the HOA in all kases that gotu kort.
HPDP "Hous Pries Dekline Program"...US guvt tri tu stop the drop
in hous prieses in the USA. Same garbage as other guvt programs.
HVCC Home Valuation Kode av Kondukt...guvt rules bout how tu "appraes" a hous.
Rules bout how tu tell how much yer hous is werth.
IRR "Internal Rate av Retern": Kumpanees sumtimes yuze this term for
munee em "invest" in the biz, such a bi nu equipment that is
spozed tu kut kosts or output more. The "savings" or inkreezed
output over lifetime av the equipment made intu a % retern on munee
em spend.
more kommon name="retern on investment"
jingel mael...slang for mael hous kees tu bank & walk awae=giv up tri
tu pae morgage. ("walk awae" in old fashuned speek)
"reduced motivation tu retain possessions" in modern krat-speek.
or "voluntary foreclosure" in bank speek.
"ruthless default" in bank slang
"stratejik default" in modern krat speek.
KAMEL Kapital Adequasee, Manamgement, Ernings & Liquidity
Dont tri tu smoke it.
Konduit nuther werd for CDO or CLO or derivatives
=pakage lones intu a "security" & sell it tu "investers"
Legasee Asset: ("legacy" in krat speek)
nu guvt term for werthless "derivativs" ("toxik trash" in kommon speek)
"legacy US residential morgage bakked securities" in super krat
see LLP
leverage
Borro munee tu inkreez the profit yu spekt tu make on investment.
Sum "investers" bi & sell reel estate tu tri tu make munee.
Em get a morgage=borro munee. Em put up 10% or 20% (resentlee: 0%).
If hous pries go up 10%, em sell & make 2% after expenses. But if
borro 10%, the 2% profit is 20% on the munee the "finanseer" put up.
Leverage magnifi yer % profit. If sell pries go up 10%, yu make
100% profit on munee yu put up. If yu kan duit 2 times a yeer,
soon yu be bilyunaer. & thus a hous bubbel was born.
In the housing bubbel av 2001-2006, many got 0% down. If hous
pries go up bout 3%, it pae all yer kosts. After that, its all profit.
This led tu hous flip mania. Yu bi hous cheep, fix it up a littel,
then sale in in 3-4 months. Make 100% profit on $ yu spend.
In 5 or 6 yeers yu kan retire a milyunaer, 10 yrs tu bilyunaer.
[thank bout it...not evreewon is a bilyunaer, so must be sumthang
rong with this]
Wen the housing bubbel krash, the paen spred all over bekauz av
leverage. Many wall street "investment banks" bot SIV's with
borroed munee=leverage. And many hedj funds also bi a lotta SIV's.
But then a lotta home biers fall behind & bank forkloes the hous=
take bak hous. Bier luze hous. Banker luze munee. That morgage
inside the SIV is werthless. Value av SIV drop. Thus, it tern
out SIV is risky. The big shots that bied SIV thot it was no risk.
Then huever put up the munee (the lender) insist borroer gotta
put up more kapital (munee)...a marjin kall. Sum big kumpanees
kant duit...em go bust. Sum super-size bankers get took over bi
even bigger bank tu prevent first bank from go bust.
Panik spred in Wall Street: stok market krash.
Super-sized banks wood hav gon bust, but em "2-big tu fael":
guvt take em over & thro munee at em. Now taxpaers on the hook
for 4 or 5 TRILYUN $.
see also...SIV
LIBOR London InterBank Offered Rate
Many ARM lones set theer variabel % interest based on LIBOR
Zampel: yer arm rate mite be LIBOR+2%. (alwaes more than LIBOR)
lier lone...slang for no-dok morgage ("stated-inkum lone" in krat speek) ("liar's" in krat speek)
also kalled NINJA or no-dokumentashun lone.
(see ninja)
LLP "legacy lone program"...yet nuther guvt program tu bi werthless
morgage derivatives & thus baelout krooks
lo-dok & no-dok
dok=dokumentation=suppli paper proof av yer inkum, lones yu hav now,
kredit skore, how much spend on hous (or rent) now, ets.
Lo & no dok=yu dont hafta suppli proof...banker lone yu munee NE-wae.
This is part av the hous bubbel. Many got lones em kant afford.
Em told banker em kan make the hous paements wen em kant.
Now yer behind with the paements & banker threten tu take bak hous.
lone originations...banker talk for lone yu munee such as a morgage
Sumtimes press hav stats bout "originations". Thats the number
av lones the banks made in last {month, quarter, yeer}
Sumtimes em giv the total $ av "originations"=$ loned out.
This is 1 gage av how big bank is or how much Biz it du.
LTV lone tu value ratio
If yu put down 20%, borro 80%, LTV=80% This was normal in the
good old daes.
Nowadaes: so many R underwater, many morgages hav LTV > 100%.
Modern guvt "rescue" plans appli up tu LTV=125%.
[warning...this is bakward...shood be value-tu-lone ratio]
If a bank insist max LTV=65%, yu gotta put down 35% av bi pries.
Sum banks yuze this insted av the % av yer inkum yu pae on debts
as a wae tu gage how much yu spend or kan spend on a morgage.
MBA Morgage Bankers Assos
MBS Morgage Bakked Securities...subset av CDO
"many bull-shitters" in slang glish
Bundels av morgages R on the bond markets...6 trilyun $ werth in 2006.
This is more than all guvt debt (notes & bonds) out theer.
MBS bekame faemus...at hart av the krash av the hous bubbel (2007-2009)
see also...SIV
MEW "Morgage Equity Withdrawal"...yu get 2nd morgage or equity lone
tu take munee outta yer hous & spend it. Liv hi on the hog.
also kalled "Net Equity Extrakt".
MLS
MLS "Multiple listing servis"...list av houses for sale. The lokal chapter
av the realter org kontrol the list & all akses tuit. Reelters kan
look onit & tell yu thangs like how many houses R for sale. And kan
look up detaels bout 1 spesifik hous: size, ask pries, how long for sale.
Lokal reelters that belong tu the reelter org kan input data intu it.
If a hous sell, realters make munee. Normally, the realter that
listed it get half & the realter that sell it get half.
In the wae old daes, A realter had exclusiv rite tu sell if yu sine on
with her. But if dont sell in long time, wood put it on MLS. Nowadaes,
most houses for sale R on MLS. But REO probably not.
Em hu tri a short sale probably not on MLS.
NAHB National Assos av Home Bilders
NINJA no inkum, no job, no assets (homeless)
NINA no inkum, no assets (homeless)
no-dok (no documentation lone)
see: lo-dok lones
nonperforming lone
Borroer dont pae the monthly paement=behind on pae on lone.
Now that the housing bubbel burst, the % av morgages that R
"nonperforming" go up, wae up. This kauz sum morgage lenders
(banks) tu fael. So bad the "guvt bakked" banks go bust...
US guvt take over Fannee Mae & Freddee Mak kauz em R broke.
US taxpaers on hook for 1 Trilyun $ Fan & Fred luze
Trivia: 15 Jun 2010: 5.64% av bank lones R "nonperfoming"
non-rekoers (recourse) lone: legal term bout detaels av morgage.
a rekoers lone...banker kan take yer hous awae & kan gotu kort
tu get the short. Wen banker sell the hous: if him get less than
the $ yu oed the banker, yu R short. Banker kan get kort order
tu garnish yer pae tu pae off this short.
non-rekoers: Banker kant tri tu get the short outta yer hide.
NPV Net Present Value...how much it is werth tudae, how much $ yu hav
OER= Oener Equiv Rent
OER "Oener Equivalent Rent"...guvt werd for the wae it pute the kost
av "housing" in the cpi (kost av living). Many ekonomists thank
the guvt wae is garbage. Guvt wae dont hav NE konnekt tu reel
kost tu yu in the hous yu oen. Reel kost much hier.
During the hous bubbel Krash (from peek in 2006 intu 2009 so far)
the guvt reo sed hous prieses go up evree yeer. But all gages av
reel hous prieses sae em drop like a rok...down 40% in 3 yeers.
OPM Other peepel's munee
Get morgage (borro munee) from banker with no down pae.
Spekulate on hous...yu get all the profit. If NE problems,
let bank take it bak=stik bank with the loss.
Option lone: ("pay option" or "pik-a-pae")
opshun lone
trivia: 2009: tipikal opshun arm lone...at end av the erlee lo teeser
rate, the monthly paement go from 1,672$ tu 2,725$...up 63%.
Bank klaem yu kan chuez from 3 or 4 "opshuns"...how much
yu wanna pae eech month on the morgage. But, in praktis evreewon
take the smallest paement...its all em kan afford.
Problem: this dont even pae interest on the lone..."negativ amortizashun".
Yu oe banker more evree month. Yer morgage balans gro all the time.
On top av that, such lones hav artifishal "lo intro rate" & in a yeer
or 2 the interest rate adjust tu market rates. Thus 1 dae yer
monthly paement dubel. And dubbel wammy...Aft a fyu yeers, banker
insist yu gotta start paeing off the lone. That inkreez monthly
paement even more.
And opshun lone minimun paement go up 7.5% a yeer even if num av
the abuv kik in.
trivia:Jan 2008: USA hav bout 500 bilyun $ av opshun ARM lones.
60% R in Kalifornya. Banks made em so em "reset" ("rekast") in
5 yeers. That meen no more opshun. Yu gotta konvert it tu
normal "amortized" lone=yu gotta pae all interest & pae on the
balans due ("prinsapal"). Big shok: paement go up 100% or more.
But also hav rule: if $ yu oe >=125% av hous "value", lone
also rekast. So if hous pries go down 25%, yer paement dubel.
Ges wot: US hous prieses go down 40% over 3 yeers.
Kalif is hart av this (it hav 60% av opshun lones). Big rekasts
skeduled for 2010-2011.
originations...banker werd for a lone or how much munee loned out
most kommon=morgages
June 2008: morgage bankers predikt total nu hous lones down 18% in 2008
OTS Offis av Thrift Supervishun: fed guvt gruep that spozed tu regulate
"savings & lones". Em let Washington Mutual tu defrad bilyuns
av dollars B4 it go bust.
Pct %
Piggybak...a wae tu avoid PMI. Bekame the rage the last fyu yeers.
Wen yu dont hav the munee tu put 20% down, yu borro the rest.
Get a sekond morgage or sumthang similiar. Then banker dont insist
yu pae for PMI. But now yu hav 2 lones yu gotta pae off.
Yuzyually, the sekond lone is shorter...5-7 yeers.
Pik-a-paement...slang for opshun lones...yu get tu chuez 1 av bout 4 "options"
in praktis, 90% chuez the "minimun paement"...bout half av
interest-oenlee. Thus em oe more on morgage evree month.
PITI
PITI Prinsapal, Interest, Taxes, & Inshuer.
Wen yu get a morgage & send in x $/month tu bank, normally it pae
PITI. PI (prinsapal & interest) is tu pae off the lone.
Yu gotta pae hous inshuer & taxes. Normally, bank insist this
be rolled intu the lone. Yu pae the "serviser" for all 4 in 1
monthly paement. Yu pae xtra for TI. This go intu eskro.
Huever "servis" yer lone will pae the inshuer & tax bill wen em
kum 1 time/yeer. Him pae outta the eskroe akkount.
Eskroe is just a ges. Taxes go up evree yeer. So bank send
yu nu ges evree yeer. Wen yu kloesed the deel (sined all the
papers), yu put munee intu the eskroe akkount (yu didnt even see it,
did yu?). Normally 1 kloes kost is tu put 6 months werth intu eskroe.
In speshal kases, banker mae agree tu let yu pae taxes and/or
inshuer separut. On the other hand, if taxes rise faster than
banker thot, him mite kum after yu for more $ tu put intu eskroe.
PMI
PMI Privat Morgage Inshuer...If yu put down <20%, the banker will insist
yu bi PMI tu protekt banker in kase yu default on the morgage.
If banker forkloes & take bak the hous, PMI pae banker wot yu oe.
Banker add bout 0.5% tu the interest rate on the morgage tu pae PMI.
Thus yu pae for this. It protekt banker, but yu luze the hous.
No down paement, PMI=0.9%. Bigger down=less PMI.
A nu aspekt av the housing bubbel krash av 2007: the inshuer
kumpanees pae out so much for forkloesed houses that many on
wall street thank the inshuer kumpanees will go broke.
trivia: Jan 2008...832 bilyun $ av morgages in USA hav PMI
defaults on inshured morgages up 31% from Jan 2007
3 biggest pmi kumpanees lost 3.25 bilyun $ in 2007
POA "pae-option ARM"... Opshun lone
see: option
Points Munee the banker or broker take from yu at the kloes tu garantee
him a profit on the "deel". It is a % av the morgage.
If points=0.9% & yu borro 100,000$, banker take 9,000$ at kloes.
Bankers sumtimes kall this "a kind av prepaed interest". This is
a lie. Its munee outta yer pokket. Him mae talk bout
"diskount points". If yu pae him more points, him giv yu loer
% interest on the lone. Wi not? Him make bigger profit up front.
Portfolio performans...% interest, % yeeld, % retern
REO
REO="real estate oened"...Bank took bak the hous kauz yu did not make the paements.
In other werds, it is a forkloesed hous & the bank wanna sell it.
Note: after bank take bak the hous, law sae em gotta tri tu sell it at
auction on the korthous steps. The bank will alwaes bid wot the former
bier oed bank on the morgage. Nowadaes, the "value" av hous is much
less than $ oed tu bank. Thus, oenlee a fool wood bid ginst banker.
So bank bi bak the hous at this korthous auction. It is now REO.
But banker dont want the hous, it want munee; so banker tri tu
sell the hous.
Reelters list houses for sell on the "MLS". Em spozed tu mark
forkloesed houses as "REO". But dont.
If $ oed on the morgage > "value" av hous it is a "short".
Reelter also spozed tu tell yu if hous is a short. Banks dont want
em & mae offer em at big "diskount". But paperwerk is mind-boggling.
Bankers oft take 3-20 months tu du the paperwerk for a short sale.
Many defaulted biers did not put down a penny wen em bi the hous.
Em yuzed a modern gimmik such as a 80/20...em get a sekond morgage or
similiar lone tu provide 20% av bi pries. The first morgage is
for 80% av bi pries. Thus wen banker take bak the hous, his munee=
80% av bi pries (unless added kloes kosts in the lone...then banker
part is bout 83%). Huever loned the 20% (2nd morgage) luze all.
Thus, banker tri tu sell hous for 80% av last bi pries.
This is instant diskount tu wot such a hous sold for maby 1 yr ago.
But oft, even that is tu hi. Banker oft gotta redues pries even
more tu sell in tudaes down market. Maby yu kan bi the hous
40% belo the prior sell pries.
REO: late tibits
31 Des 2007: US Fed banks hav 12 bilyun $ av forkloesed houses em take bak
Mae 2008: Sakramento, Kalif: 65% av home sales=REO
2008: Zillo save 20% av hous sales in 2008 was reposessed. (REO)
& 11% was short sales.
Okt 2009: 65% av sales in Vegas="bank-oened" (REO)
rite av setoff...littel-noed "law" based on old English kommon law
If yu get behind on a bank lone, & hav other akkounts at
that bank, it kan take yer munee & dont hafa tell yu or
warn yu its gonna.
ROI
ROI="rate av return" or "return on investment"
=% retern. For save akkount, ROI=% interest yu get.
If yu bi & sell sumthang, roi:kalk % it go up, then konvert tu
% per yeer.
Investments: total retern. Yu kan get interest or dividends plus
kapital gaens (or loss).
bi/sell roi: klik heer
Ruthless defaulter...Bank term for sumwon hu stop paeing on debt (lone)
even tho em hav nuff munee tu pae (for a fyu months more).
Sum hu R deep in debt figger em gonna go bust, so wi pae?
SAR Suspiceious Aktivity Report...Bank tell FBI em thank a morgage is fraud
Securitization av morgages...see SIV
SFDPA="Seller-Funded Down Paement Assistans"
This hav 3 times the default rate av normal morgage. Old morgage
rules sed a "charity" kood giv yu the down paement. Spozed tu be
for poor folk. In praktis, brokers suppli the munee & jak up the
hous pries bi that many dollars. Bekame very kommon for FHA lones
in the housing bubbel. Nuther wae skeemers get around the normal
rule yu gotta pae a down paement tu get a morgage.
It was such a skam in the hous bubbel, kongres outlaw it July 2008.
Now (March 2009), politikans tri tu revive it. Politikans so
deperut for plublisity. Em wanna look like em tri tu du sumthang.
see also...DPA
SFH="Singel Famlee housing" yer home (hous)
SFR="Singel Famlee residential"...yer home (hous)
Short Sale
Short Sale...Invented in 2007. A possabel wae around forkloes if banker agree.
Yu R wae behind on the paements & banker start the forkloes prosses.
Short=werth less than yu oe. Short sale=banker let yu sell hous for
less than wot yu oe tu banker. Bank luze munee onit. Normally,
banker take awae the hous & yu still oe him the short. But hous
pries wae down, many R stuk with this problem. Maby yu kan talk banker
tu take the munee & the hous & let yu walk awae from the problem.
Wot yu get: Yu DONT get a big blak mark on yer kredit skore.
forkloes: this bad mark haunt yu for next 7 yeers.
Wot banker get: Him DONT hafta keep up the hous & tri tu sell it.
This kan take 1-2 yeers. Banker not in this Biz & want out.
*** trivia: Vegas, Des 2009...56% av "existing homes" sales=short or forkloesed
Feb 2008...only 5% av short sales kloes (the sale go thru)
SID="Speshal Impruev Distrikt"... yu gotta pae for developer tu du:
water, gas, elektrik, sewer, sidewalks, pave the street, ets
SIV
SIV="Structured Invest Vehikel". nu term for bundels av morgages in a pakage.
Most morgage bankers sell the morgage tu investment bankers or speshal
semi-guvt orgs such as Fanne Mae or Freddy Mak. Thees orgs bundel tugether
100-200 morgages intu 1 bundel & sell shares init tu investers.
Around 2006 this bekame a problem bekaus many morgages R "sub-prime"...risky.
Banks told the investers the lones R first klass=no risk.
Em klaem tu spred risk "a mile wide & 1 inch deep".
slang: "a rolling lone gather no loss". Now we see the lite.
Investment bankers that bot such lones foersed tu downgrade the lones &
rite off big losses. Pakages werth 5-30% av faes value. & sum banks
made bonds that em klaemed R "almost kash". Sum such lones now
werth 1 sent on the dollar.
The morgage/housing bubbel av 2002-2006 was mostlee funded bi SIVs
kombined with fraud. Bankers loned munee with no munee down & with
fansee nu terms such as interest oenlee, option lones, & no-dok lones.
Most such lones R hi risk. Banker sale em tu Fannee Mae. Fannee make
bundel that is rated AAA (no risk). But 1 such bundel: 43% av morgages
init R now in default...werthless.
*** SIV trivia: 70 Bilyun $ av SIV's mature in 2008 (Merril Lynch)
2007: 19% av morgages=2.1 trilyun $ R bundeled intu siv's
Size adjusted median...median hous pries per square foot
most stats giv median hous pries.
Pries per square foot take out the pries inkrees kaused bi the
bigger & bigger houses made in USA over the last 40 yeers.
Strategik Default: nu term invented during the hous bubbel krash.
Sum hous biers in underwater hous deliberately deside tu
NOT pae the morgage eech month even tho em kan afford it.
Em liv in hous rent-free for 1-5 yeers. Thus, get tu
spend all that munee on hi living (spend til yu drop).
So many duit (bout 2 bilyun $/month), it kauz US ekonomy
tu sho a mild uplift, just like guvt baelouts.
Subprime
Subprime...borroer kredit skore is belo prime...hi risk.
Banks sold a lotta subprime morgages in 2004-2007.
Most had lo teeser rates wae belo market rates, but then
reset tu reel rates in 1 or 2 yeers (most was ARM's).
This led tu majer problems for bankers in 2007-2008.
Part av the housing meltdown gloom and doom bubbel krash.
In particular, subprime variabel interest rate lones (ARM).
Wen the lo intro interest rate reset tu reel rates, monthly morgage
paement jump...up 50%, 100%, even 200% Most kant afford it, get
behind, default, & bank forkloes=take awae the hous.
tibit: 2008 estimated 1 trilyun $ av subprime morgages in USA now
TALF "term asset bakked facility"...nuther guvt bibak av werthless morgages
TARP "trubeled asset releef program"
guvt bael out banks & inshuer kumpanees (Okt 2008)
kongres appropriate 700 bilyun $, estimated kost=2.5 Trilyun $
AIG get 150 Bilyun $
TBTF 2 big tu fael...Bank is so big, guvt thank it gotta bi it out
B4 it go bankrupt. Now also applied tu Wall Street firms.
result=5 biggest banks hav even bigger % av all bank assets.
Teeser rate...Many ARM lones in 2006-2007 start with a teeser rate...
% interest wae belo normal market rates, sumtimes as lo as 0.2%.
Then after the "honeymoon" (6-12 months), lone konvert tu market.
That meen the monthly paement jump up big time. Sumtimes the
paement dubel. Most such lones default wen the lone reset tu
reel rates. But nuther problem is many such lones default
even B4 the reset. The bier kood never afford the hous, even
at the lo teeser rate.
Term time span, lone length: zampel=30-yeer morgage (term=30 yeers)
Toxik waest...bundel morgages & sell shares in the pakage (securizashun)
tell bier bundel is AAA (prime), wen it is junk (trash).
TVM Time value av munee.
munee in the hand is werth more than munee yu get next yr or 10 yrs later.
Also yuzed for value av annuity that pae yu x $/month for nn yeers
annuity: $/month yu get, klik heer
underwater yu oe more on morgage that yu kan get if yu sell the hous
("negative equity" in krat speek)
*** trivia: 12 Feb 2008: 30% hu bi hous in 2006 or 2007 R underwater (Ruethers)
upside down (same as underwater)
YOY
YOY "yeer over yeer"...1 yeer chaenj; kompare sumthang with 1 yeer ago.
zampel..."Nov 2007 nu home sales down 34.4% YOY"
This meen nu home sales in Nov 2007 is 34.4% less than in Nov 2006.
Zero paement default: borroer default & never even pae 1 month
lone rates (interest rate) as av 19 June 08 (bankrate.com)
30 yeer fixed lone=6.42% + 0.70 "points"
15 yeer fixed =6.02%
5 yeer ARM 5.89%
30 yeer jumbo =7.43%
fixed rate lone assume yu put down 20%; if yu dont, yu pae more
skaree stats: hous bubbel
2003 0.3% av nu morgages was ARM
2006 39.3%
2005...32.6% av nu morgages was interest only
43% no munee down
2006...70% av yu hu got adjustabel lone last yeer R underwater (oe more than hous werth)
10% av last yeer's biers hav <= 0 equity in the hous now
15.2 % hav lone balans >= 110% av hous value
in 2005 & 06, 1.3 milyun got adjustabel lones with a teeser start rate <=2%.
but the reel interest rate is bout 6%. So yer paement dont pae the interest.
Yu oe banker more $ evree month. Theer is a time limit on the teeser rate.
Resent zampel: San Diego, Kalif...paement go from 2,900 tu 4,200 $/month
(up 45%). Yu kood be in the same boet.
if yu hav 1 yr ARM, look at chaenj it tu a 5-yr ARM (% stae same for 5 yeers)
***** number houses forkloesed (banker take it bak)
2005... 887,000 or 846,982 (different soers)
2006...1,260,000=1 in 92 (up 42% from 05)
2007...1,300,000
2008 1.8 mil (estimate)