7 ms·

This has nothing to do with protecting customers. People should be allowed to do, almost, whatever dumb things they want with their money. This is about protect

This has nothing to do with protecting customers. People should be allowed to do, almost, whatever dumb things they want with their money. This is about protecting the bank's balance sheet.

brenden2 6y ago
This is correct.
warranty 6y ago
Inb4 housing market crashes again cuz its okay to let people do whatever they want.
- WWLink 6y ago
  The products back then were totally ridiculous. For example, 5/1 interest only loans with reverse amortization. What does that mean? A normal adjustable-rate mortgage starts off with a fixed rate period, say 5 years. Then the remainder is a 25-year adjustable rate mortgage. What these guys would do is sell a 5 year loan with a balloon payment at the end. The reasoning being that "hey the market is appreciating so fast right now, you'll refinance before the loan is over anyway." Interest only loans mean that for the entire time of the loan, you're not paying any capital back, and will still owe the entire balance. So you're basically renting the property. But wait, there's more! With reverse amortization, you could pay $1000 for a $2500/mo payment and the difference would be plopped onto your balance! So people would buy a $300,000 house. Then at the end of the 5 year period they'd owe $400,000. Very common problem. Unfortunately, as those started coming due, the banks were suspicious and would no longer lend people money so easily. And the requirements to get those crazy loans were pretty lax in the first place. Brokers at the time were acting like loan sharks. And they had a like 6% incentive to do so. It was pretty out of hand on all sides of the deal. Plus there were numerous cable TV shows going on about how great it was to own a house, and tons of TV commercials talking about how easy it was to get a loan. I mean even today, people are extremely pushy about buying houses.
tcbawo 6y ago
Protecting the shareholders from unnecessary risk. It's win-spin-win.
fortran77 6y ago
No because then the Government/Taxpayers will be needed to bail them out, just like the 2008 crash. People who bought houses they couldn't possibly have ever afforded were given all the credit they wanted, and were bailed out by the government. (For example, they were exempted from paying income tax on forgiven debt.)
- WWLink 6y ago
  There were some utterly ridiculous loan products available in the early-mid 2000s. The crash came because people who wanted to refinance out of those loans couldn't. Edit: Of course, they were dumb for signing up for those loans in the first place. But the brokers who sold people those loans were straight up loan sharks.
WillPostForFood 6y ago
Lines of credit aren't your money though.
- will_pseudonym 6y ago
  The repayments are.
ratsmack 6y ago
>People should be allowed to do, almost, whatever dumb things they want with their money. Are you saying that a bank should make irresponsible loans for people that make irresponsible decisions?
- formercoder 6y ago
  No. The bank should maximize shareholder value and not do that, which is what is happening. But we should let anyone write a check and invest in a startup, or buy certain products considered unsavory by the masses.
- jklein11 6y ago
  I'm not convinced that taking out a HELOC now would be irresponsible in all cases. Let's say that you are 80% into your mortgage. You lost your job in March bc of COVID-19. Your next three mortgage payments are coming due in June and you still don't have an income. A HELOC would be a good way to push off a foreclosure. If you can't come up with those 4 months of mortgage payments you will be giving up the 60% equity you built up in your home.

This has nothing to do with protecting customers. People should be allowed to do, almost, whatever dumb things they want with their money. This is about protecting the bank's balance sheet.

brenden2 6y ago

This is correct.

warranty 6y ago

Inb4 housing market crashes again cuz its okay to let people do whatever they want.

WWLink 6y ago
The products back then were totally ridiculous. For example, 5/1 interest only loans with reverse amortization. What does that mean? A normal adjustable-rate mortgage starts off with a fixed rate period, say 5 years. Then the remainder is a 25-year adjustable rate mortgage. What these guys would do is sell a 5 year loan with a balloon payment at the end. The reasoning being that "hey the market is appreciating so fast right now, you'll refinance before the loan is over anyway." Interest only loans mean that for the entire time of the loan, you're not paying any capital back, and will still owe the entire balance. So you're basically renting the property. But wait, there's more! With reverse amortization, you could pay $1000 for a $2500/mo payment and the difference would be plopped onto your balance! So people would buy a $300,000 house. Then at the end of the 5 year period they'd owe $400,000. Very common problem. Unfortunately, as those started coming due, the banks were suspicious and would no longer lend people money so easily. And the requirements to get those crazy loans were pretty lax in the first place. Brokers at the time were acting like loan sharks. And they had a like 6% incentive to do so. It was pretty out of hand on all sides of the deal. Plus there were numerous cable TV shows going on about how great it was to own a house, and tons of TV commercials talking about how easy it was to get a loan. I mean even today, people are extremely pushy about buying houses.

tcbawo 6y ago

Protecting the shareholders from unnecessary risk. It's win-spin-win.

fortran77 6y ago

No because then the Government/Taxpayers will be needed to bail them out, just like the 2008 crash. People who bought houses they couldn't possibly have ever afforded were given all the credit they wanted, and were bailed out by the government. (For example, they were exempted from paying income tax on forgiven debt.)

WWLink 6y ago
There were some utterly ridiculous loan products available in the early-mid 2000s. The crash came because people who wanted to refinance out of those loans couldn't. Edit: Of course, they were dumb for signing up for those loans in the first place. But the brokers who sold people those loans were straight up loan sharks.

WillPostForFood 6y ago

Lines of credit aren't your money though.

will_pseudonym 6y ago
The repayments are.

ratsmack 6y ago

>People should be allowed to do, almost, whatever dumb things they want with their money. Are you saying that a bank should make irresponsible loans for people that make irresponsible decisions?

formercoder 6y ago
No. The bank should maximize shareholder value and not do that, which is what is happening. But we should let anyone write a check and invest in a startup, or buy certain products considered unsavory by the masses.
jklein11 6y ago
I'm not convinced that taking out a HELOC now would be irresponsible in all cases. Let's say that you are 80% into your mortgage. You lost your job in March bc of COVID-19. Your next three mortgage payments are coming due in June and you still don't have an income. A HELOC would be a good way to push off a foreclosure. If you can't come up with those 4 months of mortgage payments you will be giving up the 60% equity you built up in your home.