Our financial system is crumbling this week.

[cardinalkarp]

one thing I haven't heard about with the mortgage problem - PMI - how come PMI isn't helping pay off some of these bad debts? If you had no money down on a house, wouldn't you have to have this insurance in place for most loans?.

When I got my mortgage, I got two 30-year fixed loans.

First one covered 80% at ~6%
Second one covered 15% at prime...so ~8%
I put 5% down

I don't pay PMI, and I get to write the interest off both loans on my taxes and no early payment penalties. So if I want, I can pay off the 15% loan early.

Yeah but most people didn't do this. I am curious about what happens with PMI too. Because I am pretty sure that you are legally (?) required to have it if your loan is more than 80% of the value of the house.

Maybe the changing of property values (decreasing) have some affect on this? Probably not...right?

They gave me this option but then I wouldn't have qualified for an FHA loan if that was the case. Doing it the way described above could only be done if we had a decent down payment, which we did not (or at least didn't want to give it if its wasn't needed).

[ghostrunner]

I put 15K per year in my retirement plan (that's the max by the way) pre tax. You can also take money out pretax for things like medical expenses etc... So at least for the long term stuff you can do that here as well.

The rise in popularity of 401k's and IRA's helps explain why savings rates plummet, while the Dow Jones consistently rises.

How so? There are still plenty of more traditional ways to save.

I was assuming that the savings rate was not taking retirement programs like 401k's into account (maybe it does). But those methods of investment directly pumps cash into the stock market, which would boost the Dow, but lower household savings. Make sense?

I'm not saying it's a bad thing. Just that more people have money invested into the stock market rather than traditional savings accounts now vs. in the 50's and 60's.

Hmm. I figured 401Ks were reflected in those numbers. I hope you're right.

[TimeForGuinness]

one thing I haven't heard about with the mortgage problem - PMI - how come PMI isn't helping pay off some of these bad debts? If you had no money down on a house, wouldn't you have to have this insurance in place for most loans?.

When I got my mortgage, I got two 30-year fixed loans.

First one covered 80% at ~6%
Second one covered 15% at prime...so ~8%
I put 5% down

I don't pay PMI, and I get to write the interest off both loans on my taxes and no early payment penalties. So if I want, I can pay off the 15% loan early.

Yeah but most people didn't do this. I am curious about what happens with PMI too. Because I am pretty sure that you are legally (?) required to have it if your loan is more than 80% of the value of the house.

Maybe the changing of property values (decreasing) have some affect on this? Probably not...right?

They gave me this option but then I wouldn't have qualified for an FHA loan if that was the case. Doing it the way described above could only be done if we had a decent down payment, which we did not (or at least didn't want to give it if its wasn't needed).

I did it that way because I didn't qualify for 1st home buyers credits or an FHA. So really I had no other choice. I don't mind the rates considering they're locked and a lot more attactive than what my parents had to fork over in the 1970's at 11%...yeesh.

As for doc's question, I'm not sure how PMI works...I don't know if it tied to the original price or the current value of your house. I would think the original price, otherwise if the value of your house increased, you might never get rid of PMI...But I'm not sure...

[Popeye_Card]

I put 15K per year in my retirement plan (that's the max by the way) pre tax. You can also take money out pretax for things like medical expenses etc... So at least for the long term stuff you can do that here as well.

The rise in popularity of 401k's and IRA's helps explain why savings rates plummet, while the Dow Jones consistently rises.

How so? There are still plenty of more traditional ways to save.

I was assuming that the savings rate was not taking retirement programs like 401k's into account (maybe it does). But those methods of investment directly pumps cash into the stock market, which would boost the Dow, but lower household savings. Make sense?

I'm not saying it's a bad thing. Just that more people have money invested into the stock market rather than traditional savings accounts now vs. in the 50's and 60's.

Hmm. I figured 401Ks were reflected in those numbers. I hope you're right.

I'm really not sure I am or not. I've always considered those programs more as "investment", rather than "savings". But I'm not sure how it translates for economical statistics.

[jim]

So I think I have a pretty good grasp on the situation after reading this thread. My question is how does the upcoming election play into this? Who should get to stay in Washington to get the wonderful job of fixing this mess and who should be sent packing?

I would tell you that the deregulation authored by Gramm and supported, cheered, and drooled over by McCain (and most Republicans) are at the core of the entire problem. I don't believe you can have a strictly hands off free market system, greedy people try to take advantage of their knowledge and position. Republicans and McCain disagree (at least until last week, not so sure now).

It's no coincidence that we went from Obama down 2 to up 9 in one week.

[planet planet]

one thing I haven't heard about with the mortgage problem - PMI - how come PMI isn't helping pay off some of these bad debts? If you had no money down on a house, wouldn't you have to have this insurance in place for most loans?.

When I got my mortgage, I got two 30-year fixed loans.

First one covered 80% at ~6%
Second one covered 15% at prime...so ~8%
I put 5% down

I don't pay PMI, and I get to write the interest off both loans on my taxes and no early payment penalties. So if I want, I can pay off the 15% loan early.

Yeah but most people didn't do this. I am curious about what happens with PMI too. Because I am pretty sure that you are legally (?) required to have it if your loan is more than 80% of the value of the house.

Maybe the changing of property values (decreasing) have some affect on this? Probably not...right?

They gave me this option but then I wouldn't have qualified for an FHA loan if that was the case. Doing it the way described above could only be done if we had a decent down payment, which we did not (or at least didn't want to give it if its wasn't needed).

I did it that way because I didn't qualify for 1st home buyers credits or an FHA. So really I had no other choice. I don't mind the rates considering they're locked and a lot more attactive than what my parents had to fork over in the 1970's at 11%...yeesh.

As for doc's question, I'm not sure how PMI works...I don't know if it tied to the original price or the current value of your house. I would think the original price, otherwise if the value of your house increased, you might never get rid of PMI...But I'm not sure...

It's my understanding PMI is required like doc said if you have less than 20% equity in your home. It insures your bank if your home is destroyed and somehow you can't pay it or don't have insurance (i.e. you're dead, you don't have hurricane, flood, or fire insurance, etc.), so it wouldn't cover foreclosures. It's based on your original loan amount rather than the current value of your home. However, if you were to refinance because your home had appreciated and you now have more than 20% equity, you would no longer have to pay PMI.

[UK]

Since most people don't have 20% down, alot of mortgages went with what's called a blended mortagage. Say you put 5% down, the first mortgage would be 80% and the second loan would be the 15% at a reduced rate, which was less than the 5-10% added on monthly for PMI.

edit: that's what TFG did, nevermind.

[jim]

Since most people don't have 20% down, alot of mortgages went with what's called a blended mortagage. Say you put 5% down, the first mortgage would be 80% and the second loan would be the 15% at a reduced rate, which was less than the 5-10% added on monthly for PMI.

But doesn't that defeat the entire purpose of needing PMI? Like i said, when we bought I don't even know if it was an option so we plunked down the 20%. I'm not faulting people for taking it, in some cases you would be foolish not to. I just think it's crazy to take two mortgages out on one house to work around the system.

[planet planet]

Since most people don't have 20% down, alot of mortgages went with what's called a blended mortagage. Say you put 5% down, the first mortgage would be 80% and the second loan would be the 15% at a reduced rate, which was less than the 5-10% added on monthly for PMI.

But doesn't that defeat the entire purpose of needing PMI? Like i said, when we bought I don't even know if it was an option so we plunked down the 20%. I'm not faulting people for taking it, in some cases you would be foolish not to. I just think it's crazy to take two mortgages out on one house to work around the system.

I think it's like anything, for a higher risk, you pay a higher premium/interest rate as the banks mitigate their risk on the likelihood of something like that actually happening.

[Freed Roger]

It's my understanding PMI is required like doc said if you have less than 20% equity in your home. It insures your bank if your home is destroyed and somehow you can't pay it or don't have insurance (i.e. you're dead, you don't have hurricane, flood, or fire insurance, etc.), so it wouldn't cover foreclosures. It's based on your original loan amount rather than the current value of your home. However, if you were to refinance because your home had appreciated and you now have more than 20% equity, you would no longer have to pay PMI.

Thanks. Light bulb finally came on.
That makes sense. otherwise, people having trouble making payments because of financial problems would say screw it, let the PMI handle it.
And banks wouldn't make non-payment such an issue.