Subprime Mortgage Crisis? Student Loan Crisis?

MSNBC has this article: Pricey student loans sow seeds of trouble.

While scholarship, grant money and government-backed student loans — whose interest rates are capped — have taken up some of the slack, many families and individual students have turned to private loans, which carry fees and interest rates that are often variable and up to 20 percent.

Consumer prices on average rose less than 29 percent over the past 10 years while tuition, fees, and room and board at four-year public colleges and universities soared 79 percent to $12,796 a year and 65 percent to $30,367 a year at private institutions, according to the College Board.

Meanwhile, complaints about marketing of private loans — like ads promising to approve loans worth $50,000 in just minutes — are on the rise. The complaints have made their way to lawmakers, who see a need to regulate the highly profitable and diverse group of companies and the loans they make to college students.

In other words, available government loans is not able to keep up with the increase in student tuition in the past years, forcing students to turn to private loans that have some very hefty interest rates.

“College students, you need a large sum of money for school? And have little to no credit? No problem! We will still give you the loan. (But we will take back a lot more from you later, in the form of interests, yeah!!)”

Wait…have I heard this before? I think this sounds similar to what they did in the subprime mortgage sector. Not only will students carry a bigger amount of debt out of college, they will also carry those debt at a much higher interest rate. This will clearly bring their monthly loan payment to double, triple, quadruple… than what their previous generations had to pay. And since I doubt future salary can increase at such a joyous rate, this gives birth to the question on how the future generation can afford their loan payments graduating from college. If they cannot afford them, they are going to start to default… oh crap…

And wait…have I heard this before? I think this also sounds similar to what’s going on in the subprime mortgage.

Despite this being pure speculation that I draw and agree with such a comparison from the article, I really wonder what are these people thinking? Is making instant or quick money all they care about now?

In short-term definitely, they will reap some heavy profits with the high interest rate, and probably packaging these loans to sell as collaterals also.

Now in long-term, I don’t know if it looks so good anymore, and I would say worse than what may happen in the mortgage sector because the people they screw over this time will be the whole future generation. Not only will all the investment and hedge-funds base on these student loans crash. These are the people who will be future consumers, the entire or majority of the population, unlike the subprime population that makes up a much smaller percentage.

So what these private loan companies will end up doing is crippling the future population’s spending power with these loans and probably destorying a good portion’s credits. Without spending power and credits, they can’t buy houses, they can’t buy services, they can’t buy consumer goods… Let’s see such a economy will work out then.

Again this is pure speculation and albeit pessimistic, I can’t help but see the resembling occurrence between the student loans and subprime mortgage. It seems like these people are just moving sector to sector aiming only to make a quick buck and to get instant gratification with no caring about other people’s lives. Where is their sense of decency and compassion? I don’t see any. They are now targeting 17-20 years old with little life experience and will probably make their life experience a sad and painful one before they have a chance to start it. I would rather live poor than having to sell my children’s life away like that, but actually in my standard, I would consider myself living rich the way I choose to live.

I sure hope they are ready for such a future.

Originally posted 2007-10-03 01:47:08. Republished by Blog Post Promoter

Take A Step Back to Look at the Economy

News business is the news business. They will always have news. If they don’t have real news, they will generate “new” news. Experts whose jobs are to write reviews, criticism, and various articles will also always generate opinions because that is their jobs. Not their fault.

News thrive on drama and for the past decade, negative drama. So, there will always be headlines like “Economy shrinks at worst pace in 26 years,” and additionally, for the past month, I have read “Oil below $xx [namely anything below 50] on record economic lows” on every single friggin’ day in finance news section. Can we move on now? Sometimes I feel like Wall Street and stock market is just like reality TV show. They keep repeating same freakin’ drama.

The economy is not good for sure, but because everyone is “hyped” about discussing economy difficulty and doom and gloom, if the media does not say “26 years,” the media will still say “Economy shrinks at worst pace in 9 years!!!” Put an arbitrary number to your liking.

Is the economy is bad shape? Yes. Has it been this bad for a long long time? Probably not. Is it really as bad as the media makes it sound? Maybe not. But in all honesty, I believe that nobody REALLY knows, just like nothing is ever certain in life.

No, I am not saying we should deny reality. That is another harmful thing to do, just like if we feed on to these drama. The media is merely doing their jobs, and it is our responsibility to observe what it truth to ourselves.

That is why I suggest that we shall take a step back when we listen and read from media. Learn what is going on but distinguish the drama.

I understand many are affected with layoffs, and personally, these things are starting to hit closer and closer to home. These will make “taking a step back” very difficult. But in another perspective, we can only do the best we can. It maybe painful. Very painful. But we just have to keep chugging along and stop holding onto the past, drama, and the “excess”.

If the bull economy is simply a bubble, meaning an illusion, and that many people’s life style are bloated, or simply unaffordable, maybe it is not so bad that such illusion and “bloated-ness” is beginning to fade away. Painful? Maybe it is because we are trying to hold on to it and nobody wants the party to end. But if it is an illusion, it would be better for us to wake up, right?

I sincerely believe that by shedding the accumulated excess will allow each of us to see more of what our life is about and thus lead us down to a better path. More on this next post.

ps. If you are here to find a bit of good news in this economy, visit this blog — Carpe Diem.

Originally posted 2009-02-28 23:31:49. Republished by Blog Post Promoter

A Time and Place for Adjustable Rate Mortgage

Adjustable rate mortgage (ARM) is a taboo term by now, while the mess in the subprime loan market continues to unfold.

ARM is another financial tool with a purpose for its existence. However, buyers abused it to buy a house they cannot afford, and banks abused it to get unsubstantiated numbers on their balance sheet. We can generalize that bad outcomes in human society is always the result of an abuse of certain power.

ARM is a good option for someone who wants to buy a house in short-term. It allows the buyer to keep more money in the pocket for the period of time with the initial interest rate, while he invests those money in other places for a higher return. There are also various types of ARM to “tweak” the amount of payment. The usual scenario is for the buyer to live in the house for however long before the interest rate reset and then sell it.

Essentially, the buyer must understand that by taking an ARM, he is speculating on an appreciating housing market. If he plans to live beyond the expiration of the initial interest rate, he’s betting on a reset to lower percentage for the interest rate. The ideal scenario is either selling the house before the reset at an appreciated price, or staying in the house with a reset to a lower percentage. It’s neither the case for the people with ARM, which brings us to the current situation.

I wonder if the ARM buyers in default or facing foreclosure thought and understood about ARM when they took the loan. I doubt it though. They were too busy marveling at the house that’s too big for them to afford. I also wonder if the banks made sure that buyers understand ARM. I doubt that too. They were too busy adding all the numbers on their quarterly reports.

But then, perhaps ARM will be a good option for me in the next few years?

Originally posted 2007-12-12 23:12:06. Republished by Blog Post Promoter

Irrational Beings with Rationale

I like to theorize, although I may only have the vision of a donkey filled up on a dozen beer. My theory today is that human beings are merely irrational beings with rationale. Below are a few examples to support this theory.

Banks, real estates brokers, and home buyers who fearlessly bet on the real estate market to go up forever. Haven’t they heard what goes up must comes down? And how can anything grow forever?

A president and politicians who think a $600~ per person tax rebate will save people from losing their home and cover the losses in their retirement/pension plan.

People who are easily swayed and hastily change the opinion on a person due completely to rumors and stories about someone else who is remotely associated with him.

Someone in a dire or unfavorable somehow think, hope, or pray that the situation will somehow change without themselves changing.

Those are my few examples… What do you think about my theory? Do you have any examples from your experience? Why don’t you leave a comment and let me know?

Of course, my theory can be disproved as easily by counter examples. Hence, it is just a theory.

There is a reason for me to say this. I believe people make decisions irrationally more often than not, where they are mostly influenced by ego and emotions. I am not judging or saying it is bad per se, but if we can base our decisions and expectations on this understanding as we observe such is the case, we will come across less disappointment and misunderstanding in everyday life.

On the other hand, it is also useful to be self-conscious when you are trying to rationalize an irrational decision. This should help mitigate some of the bad situations we tend to get ourselves into. Some food for thought.

Originally posted 2008-05-14 23:12:41. Republished by Blog Post Promoter

Pages: 1 2 3 4 5 6 7 8 ... 87 88 89 Next

Subscribe using Email

Get notified of new posts by email.