This one comes to us as a logical extension of a factual story. The New York Times reports that the F.B.I has launched a criminal investigation into 14 companies in the sub-prime mortgage business. The feds are working with the Securities and Exchange Commission, which is conducting "about three dozen civil investigations into how subprime loans were made and packaged, and how securities backed by them were valued." We're talking accounting fraud, insider trading and/or other violations surrounding loans made to borrowers with weak, or subprime, credit. Hey! That sounds like the "anyone with a pulse" zero percent financing deals that kept the moribund metal moving for the last two years or so. Not to mention the bundling of said loans and the automakers' accounting for the true cost of the risk. To wit: New York attorney general, Andrew M. Cuomo is investigating whether Wall Street banks withheld damaging information about the loans they were packaging. Considering the amounts of money involved, if this blows-up for Detroit and other automakers, it will blow-up good.
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Is there a second page to this story? I didn’t see anything about automotive loans. The article seems pretty specific that the investigations were about mortgages.
Cowbell :
Is there a second page to this story? I didn’t see anything about automotive loans. The article seems pretty specific that the investigations were about mortgages.
It’s a rumor based on a story. And clearly identified as such.
Yes but, the main difference is that not only were these loans made to anyone with a pulse but they were also made on false pretenses. I was just researching this and found a bunch of links on google from 2005 giving ARM FAQ’s. They said, ‘these loans start out with a teaser rate as low as 1.5% for 6 months and then will rise to around 3-4%. This rate should be constant for most of the loan and could even drop. The worst case scenario would be that it would rise to 9% briefly, which sounds high, but that would only happen if mortgage rates rose to all time highs, which is unlikely.’ Then the banks proceeded to jack those rates up like crazy, despite the mortgage rates never cresting 7%, to 12% and even 18% and thus pricing people out their loan and then refusing to refinance to a fixed rate because they had been paying interest only and had financed more than the new appraised value of the house. I’m interested to hear the results of this investigation.
In GM’s case at most they encouraged people to take loans they really shouldn’t have and sold them a car whose depreciation (which is moderately easy to ascertain) would outpace the payoff.