The ‘Macabre Irony’ Of Subprime Lending
“In this, the second installment of the highly-acclaimed ‘Don’t Judge’ campaign, we are once again reminded of the sadly hilarious consequences that can arise when innocent people, doing completely innocent things, are misjudged by someone else who doesn’t have all the information.”
The Washington Times continues its look into the mortgage business. “Home-financing offers come from an army of mortgage brokers estimated at 250,000 nationwide, many operating outside the reach of banking regulators. They have become the principal source of home financing in the US. In years past, banks and savings and loans provided most mortgages, but their share of the $2.8 trillion market dwindled to less than half in recent years, according to Harvard University.”
“The number of unscrupulous brokers offering ‘junk mortgages’ has multiplied with the housing boom and advent of Internet financing in the past five years, said David Levine of a mortgage information service. Their advertisements ‘are designed to hit consumers where they are most susceptible, their wallet.’ They are often successful, because many consumers never see or understand the fine print, that explains what a bad deal the mortgages can be, he said.”
“The brokers who offer such mortgages often have no licenses or formal training and may have just recently graduated from high school or college. They are essentially salespeople for whom there is no downside to the risky debt propositions they peddle.”
“All this was made possible by an evolution of the mortgage market away from banks and thrifts, which in years past had to follow conservative credit guidelines laid down by regulators. The mortgage companies have been able to bypass the regulated banking industry by tapping into a plentiful source of funding for the loans, private and international investors. ‘The declining importance of bank deposits as a funding source for mortgages has largely driven the structural shift,’ William C. Apgar of the Harvard center said.”
“It is now routine to approve loans that cover 100 percent or more of a home’s value and require up to 60 percent of a borrower’s income to make debt payments. Recently, several wholesale lenders announced that they would offer 100 percent loans to people who just emerged from bankruptcy.”
“Brokers and real estate agents intent on clinching a home sale and mortgage financing have been known, among other things, to pressure home appraisers to ratify inflated prices on homes in overpriced markets, according to the Chicago-based Appraisal Institute. ‘Brokers are immune from the potential adverse consequences of both failing to match the borrower with the best available mortgage and failing to provide accurate data to underwrite the loan,’ Mr. Apgar said. ‘Both affect the odds that the loan will default, which can have devastating consequences for the borrower.’”
Thanks to the readers who sent in these links.
They’re (brokers) are not only immune, they’ll file bankruptcy themselves if anyone gets a judgment against them.
All in all, it’s looking like fat days are coming again for bankruptcy and workout professionals. About time.
The first thing that I thought of when I saw the Ameriquest Ads was “They are using a Superbowl ad to tell us that they did nothing wrong in regards to their recent settlement? Then why did they pay over $300 million to settle?”
>“All this was made possible by an evolution of the mortgage market away from banks and thrifts, which in years past had to follow conservative credit guidelines laid down by regulators. The mortgage companies have been able to bypass the regulated banking industry by tapping into a plentiful source of funding for the loans, private and international investors.
So we caught Ameriquest with their pants down reaming the naked borrowers with the lights off. But they claim it’s not what it looks like! The borrowers had an accident with wine and needed to wash their clothes right away. So they disrobed. Ameriquest just ate too much, so they loosened their belt. An earthquake struck sending Ameriquest against the wall turning off the lights, tripping over own pant leg making them slip, then on top of the borrower. We walk into the room, and just get the wrong idea.
See, they are innocent! Riiiiiiiight.
LMAO!
Offtopic, but I find that florida condo directory ad by google highly amusing in the context of this blog.
“All this was made possible by an evolution of the mortgage market away from banks and thrifts, which in years past had to follow conservative credit guidelines laid down by regulators. The mortgage companies have been able to bypass the regulated banking industry by tapping into a plentiful source of funding for the loans, private and international investors. ‘The declining importance of bank deposits as a funding source for mortgages has largely driven the structural shift,’ William C. Apgar of the Harvard center said.”
This paragraph is golden. It summarizes one of the most important reasons why the bubble took place. Surprised it’s mentioned simply in passing, like if we all knew this. I knew that Fannie Mae was “packaging” its loans into bonds and selling them, blah blah blah, but it never struck me that by doing that they were cheating the regulatory system, and contributing greatly to this unfolding disaster.
Interesting. The same thing was true in the early 80’s. It used to be that the business of S & Ls was home mortgages. But deregulation in the 80’s allowed the S & Ls (then regulated by the FSLIC) to move into commercial real-estate without having to follow the strict guidelines of the FDIC. Without the FDIC looking over their shoulder, S&Ls poured money into commercial real-estate as everyone rushed to establish marketshare. Around ‘86, the commercial sector was over-built. Combined with lapsing tax breaks, the result was plummeting commercial real estate values. Plenty of S&Ls went under. The FSLIC went belly-up and was absorbed by the FDIC. It looks like history may be repeating itself.
After economic historians sift through the Greenspan record, they will come to question the wisdom of such a push to make everyone better off by removing the friction of regulation from the banking system.
Fannie’s mission is to provide “affordable housing,” right? But affordable housing without credit guidelines has helped low-income households buy more house than they could bite off. Will anyone question Fannie’s scheme to make us all homeowners when lots of low income households go bankrupt?
Many people are just like my 4 year old daughter. They can’t put the pieces together if they’re more than a few days apart. My daughter still thinks we’re lying when we tell her that sucking her thumb after playing on a public playset makes her sick. I’d be really suprised if people can equate loose lending and the housing crash. They still don’t get how loose lending and such contributed to the great depression, I don’t see people getting any smarter.
this is the 3rd or 4th reference I’ve seen today to Fannie buying these exotic loans. Could you point me to a shread of evidence showing that Fannie (or for that matter Freddie) is actually buying this stuff? I know it isn’t coming in the front door - they won’t buy IOs or Neg Ams, and ARMs are only a couple of percent of their business. If they’re buying it at all it’s coming in the back door (liquidity portfolio). Where’s the evidence for that?
real-whores and mortga-whores
you want to know one of the unknown reasons I read for all this? with interest rates so low the hedge funds and pension funds are desperate for yield. they don’t mind, or don’t know the risks, going for higher yield. MBS and ABS are where the yield is. they way the loans are securitized they might think they are getting something a lot less risky than it actually is. they may actually know, but maybe the resell before they become too risky?
OT:
Another Bond yield curve inversion milestone reached.
5 Year Treasury bond yield now higher than the 10 Year at 4.53% today
Next target is getting the 30 year yield below the 10 year.
Govt intervention will try hard to stop that from happening, as it will be a bit like the breeching of the NO levees when it finally does.
What on earth happened to the bond market around 1pm?
http://tinyurl.com/aemkc
They announced the results of the 30 year auction.
According to http://www.treasury.gov itself, today 02/09/06 the 10-year is 4.54 and the 30-year is 4.51.
Here is my take on the SB ad:
Fabio on the gondola=The appearance of getting “free money” from an ameriquest loan. Real estate only goes up! The new paradigm. The joy of the flip.
Old fart on the gondola=The realization that they are now under water on their RE investment. The negam loan is toxic, the appraisal wildly inflated. The constant anxiety of going deeper into the hole every month. Then default, foreclosure, bankruptcy, ruined credit, indentured servitude. Then retiring in an old RV in the desert. RIP.
…All the while, ameriquest quietly rakes in their huge commissions.
Bubble Butt — 30s are already yielding even with the 2s, and the brand spanking new 30s today were sold to yield 4.53% … below the existing 10-years and well below the 2s. So long story short, the NEWEST long bonds are already yielding less than almost everything.
Someone forgot to tell Bloomberg:
http://www.bloomberg.com/markets/rates/index.html
They’re putting the 30-year at 4.64 %. I still don’t know how they were able to calculate that when the bond didn’t exist.
The Treasury quit issuing new 30 year bonds, but existing ones still trade.
Until today. New 30 year auction today. The auction results were announced at 1PM EST.
“The mortgage companies have been able to bypass the regulated banking industry by tapping into a plentiful source of funding for the loans, private and international investors.”
Just what is that plentiful source-which-must-not-be-named?
China
Or does it have two names (China + Fannie)?
“It is now routine to approve loans that cover 100 percent or more of a home’s value and require up to 60 percent of a borrower’s income to make debt payments.”
Sounds like our affordable housing policy is working just great, as in earlier times, anyone who had to pay 60 percent of income to be a homeowner would have been kept from buying a home by redlining.
Ameriquest’s ad was sleazy and stupid. But at least they doesn’t use the same generic bouncy boobed women seen in every other Super Bowl commercial.
But they could have worked that in somehow. How about the Bud Light twins hand in hand? One has “loan officer” and other “appraiser” written on their shirts. They could dance under an Ameriquest sign and they could say, “We work hard for you.”
Maybe that would keep the bubble going for another six months.
China and India are no strangers to buying our debt… Its a pretty good plan, first we buy all their manufactured goods and farm out our tech jobs to them giving them a massive surplus of American Dollars, then they turn around use that surplus and buy our mortgage debt.
With our new bankruptcy laws & lifestyles even those of us with truely horrible credit still look like gold to India and China compared to the majority of their populations.
This definately does smell of the S&L scandles, seems like a repeat… My question is what happens when the defaults and foreclosures start & the class action lawsuits begin, will there be an army of government regulators and agencies stepping in to keep an eye on mortgage lending and set standards?
If thats the case and strict lending guidelines are in place will we have millions of Americans who won’t be able to afford a home and millions of homes sitting on the market that are too expensive ? or will the market simply and painfully adjust and to new lending standards.
Off the subject a freind of mine (so so credit) refied with New Century a couple months back. His loan is now owned and managed by a company in Bangalore India.
China, FF & Petrodollars
out at the peak……..
that was hilarious! can you wait till i’ve eaten dinner before you post stuff like that
The Definition of Irony:
ABC News- through an ‘un-named’ source who reads this board, finds out that New Century, one of the nations’ three largest subprime lenders- is about to hire tons of people on in a brand new ‘foreclosure’ area.
Thus, the company that gave out bad loans, is now going to foreclose on them.
Is it just me, or do any of you find anything Satanic in that?
But-
To be completely fair-
Isn’t it possible that it took a customer to play this game as well?
Why in the world would a french fry maker at McDonald’s think he and his wife, a cashier at 7-Eleven, could afford a $700,000 home in Huntington Beach, CA?
Yes, sadly, this happened to me.
It’s why I quit being a Realtor.
The ‘customers’ knew it was bogus.
The ‘lenders’ knew it was bogus.
Everyone knew it was bogus…
…until the median price of a home FELL to $590,000 in Orange County.
Game over.
EVERYONE’S GUILTY.
‘cept us.
‘Cuz we have brains, and hearts, and minds.
Sure sucks to be everyone else right now.
I’m not much of a Satan fan, but he sure seems to have made some serious points in the last few years.
And now it’s time to beat him back.