A loan-to-value ratio of 107 percent is bad enough, but it is an average and many loans are in much worse shape. For loans in California, the average is now 120 percent, and the figure is no doubt much higher in such troubled areas as the Central Valley and the so-called Inland Empire, where nearly a third of the California loans were made. Wachovia estimated that last September the loan-to-value ratio in the Central Valley was 132 percent. Since then, the median sales price of homes in that area has fallen another 20 percent.

In all, more than 70 percent of the pick-a-pay loans are in California, Arizona or Florida, three states where prices rose the fastest during the boom and have since fallen the most. Wells says it thinks 61 percent of the loans in those three states will not be paid as required by the mortgage, in contrast to 36 percent of the loans in other states.

http://www.nytimes.com/2009/05/15/business/economy/15norris.html?_r=1&pagewanted=all

While these neg-am loans might have their place among the very wealthy (who have the cash to pay off the mortgage if necessary, but choose to invest their money elsewhere where they get a much higher return), it is totally irresponsible to offer these loans to the average mortgage borrower, IMHO.

Why would the higher LTV and longer duration make those better?

I assume it would make them worse, because the borrowers would be further underwater, and the RE cycle (if all loans were like this) would have an extended downturn, no? Doesn’t this just push the problem further down the road?

I’ve known a few borrowers who got World Savings’ neg-am loans, and they were NOT qualified borrowers (how I define “qualified” — they are able to actually pay off the loan). Marion and Herb were geniuses, and made their exit at exactly the right time. They knew exactly what they were doing, IMHO. It was easy to see, with even a minimum of due dilligence, to see that a large portion (most?) of their portfolio would default over time.

Only in America can you borrow a half million dollars, never pay it back, and attack those that gave it to you. These people make me want to throw up. I have no love for the banks, but these folks are truly despicable.
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Love that quote! How very accurate, and really gets to the heart of all our problems.

(hums a bar of “Money for Nothing.”)