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Thousands line up for zero-down-payment, subprime mortgages

Discussion in 'The OT' started by Mark Holtz, Oct 13, 2018.

  1. Mark Holtz

    Mark Holtz Day Sleeper

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    From CNBC:

    Thousands line up for zero-down-payment, subprime mortgages
    FULL ARTICLE HERE

    Again? Really? Isn't something like this going to drive up home prices?

    Here I am, saving up for a possible job relocation and move out-of-state and purchasing a home for the first time. I spent the last few years to clear out my debts, and last I looked, my credit score is exceptional.
     
  2. lparsons21

    lparsons21 Hall Of Fame

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    Read the whole article. Note that there are significant differences in what this is doing than what was going on before the crash. Notably requiring full financial disclosure and having to live in the house they buy. It could cause some housing price increases but I think it will be minor since the program is rather small and the borrowers are people actually looking for a home and not necessarily an investment.
     
  3. James Long

    James Long Ready for Uplink! Staff Member Super Moderator DBSTalk Club

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    Enforcement will need to be better than the last go round. It was too easy for lenders to "check a box" and claim that the loan met the qualifications (and then sell the loan to another lender who may not know that the boxes were checked unscrupulously). Agents encouraged potential homeowners to lie or withhold negative information so they could qualify. One can set all of the rules one wants - if they are not enforced they are meaningless.

    I do not expect another bubble. Competitive rates are not evil. Selling loans to people who cannot afford to pay (and committing fraud to approve the loan) is the evil.
     
  4. yosoyellobo

    yosoyellobo Icon

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    What could go wrong?
     
    SamC and AZ. like this.
  5. phrelin

    phrelin Hall Of Fame DBSTalk Club

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    "The loans are 15- or 30-year fixed with interest rates below market, about 4.5 percent."

    This is where one should apply my favorite saying "I may be paranoid, but that doesn't mean they're not out to get me." Consider this screenshot:

    [​IMG]

    I suppose with the counseling and all, it may be ok in a strong economic cycle with a low unemployment rate. But the problem is those strong economic cycles do end with high unemployment and regional housing price crashes. Which should lead us all to agree with
     
  6. James Long

    James Long Ready for Uplink! Staff Member Super Moderator DBSTalk Club

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    So the brokerage highlighted in the article (Neighborhood Assistance Corporation of America, or NACA) claims no foreclosures in loans issued in the past six years and a 90% approval rate for applicants. These are zero down payment, no mortgage insurance loans. The loans are underwritten by Bank of America and NACA gets a $3000 commission per loan. NACA and BoA were both part of the mortgage crisis a few years ago.

    Part of me wants to say "it is their money, if they want to risk it on low income, low credit borrowers it is their choice". But the mortgage crisis extended beyond the banks pulling the shenanigans ... and in addition to watching billion dollar companies "too big to fail" be bailed out by tax dollars when the bubble burst it affected the housing market and borrowers who could make the payments.

    How to Spot a Mortgage That'll Set You Up for Failure
    In this article it is mentioned that the average mortgage lasts six or seven years ... by then the average borrower refinances or moves to a new home. (There is also a lot of good commentary about the mortgage and housing industries.)
     
  7. Laxguy

    Laxguy Honi Soit Qui Mal Y Pense.

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    And, there's no free lunch!
     
  8. billsharpe

    billsharpe Hall Of Fame

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    We paid off our 30-year mortgage 15 years ago and are still in the same house.
     
    jimmie57 likes this.
  9. Mark Holtz

    Mark Holtz Day Sleeper

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    Interesting... for various reasons, I've lived in the same home for 41 years. When the home was first purchased in 1977, my parents had intended it to be "temporary", but then double-digit inflation came, followed by my father owning his own business.
     
  10. Herdfan

    Herdfan Well-Known Member

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    My fricking M-I-L. When I met my to be wife, her mom had a condo that was paid off. Her mom was 58 and the condo was a 2-BR all on main floor. But no, she wanted a house so she could cram every relative in it at the holidays. So she bought a trac-style house in a neighborhood and took about $100K mortgage. Keep in mind she was going to be retiring in 5-7 years and just took a 30-year mortgage.

    She didn't last 5-7 years as her company was bought out and she didn't make the cut to stay on. (Not surprised as she was in HR compliance and the new company had a whole staff for that). So here she is with 27 more years of mortgage to pay on and now retired. She could afford the payments and she has worked small jobs on and off, but it seems she has kept refinancing her mortgage because she will either get a call or see an ad for lower rates.

    She refinanced 2 years ago for a new 30-year mortgage. Saved maybe $40/mo. So instead of having a mortgage that was 3-4 years from being paid off, she now has 28 more years. She has done this several times over the past 25 years. She claims she needs the lower payment, I say she is fully capable of working a couple of weekends a month to make up the difference. Because in a few years, she won't be able to work and will still have 25+ years to go. Where if she had just bit the bullet and worked some over the past 20+ years, she would soon own her house free and clear. At least she hasn't taken equity out when she refinanced, at least not that we know of.
     
  11. Mark Holtz

    Mark Holtz Day Sleeper

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    Hmmm... here is a interesting twist... according to 12 Things I Should Have Considered More Carefully Before Buying My First Home from Simple Dollar, if you don't put 20% down on a home, then the lender will insist that you take out mortgage insurance that is essentially an addition 1% on the interest rate you are playing, and it's fairly hard to remove.

    And, here I am just figuring out the parameters of a house that I want. Among the criteria:
    • Within biking distance of work
    • High speed Internet
    • Damn good air conditioning
    • No pool please
    I really want a small place with three bedrooms. My mother wants a fourth bedroom as a "guest room", even though we had one guest the past few years. Sigh. I want to own a house, not a hotel.
     
  12. SamC

    SamC Hall Of Fame

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    I have lived long enough to see something that loans money to a deadbeat POS who does not pay it back, and is thus the VICTIM, described as "evil".

    Memo: Don't borrow money you cannot pay back. Glad I was able to help with that difficult problem.
     
  13. jimmie57

    jimmie57 Hall Of Fame

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    When I moved to Texas I spent all my money moving. I had just gotten out of the Navy reserves making $87 per month. I got a good job with lots of overtime. We looked at houses and told the seller we were broke but had a good job. He said that is OK, give me your info and I will get back to you. Then he asked how much I could pay down in 3 weeks. I told him $1,300. He said OK. I figured this was all BS and would never hear from him again. 3 weeks later 1 of the guys in the shop where I worked came to me and said there was a man wanting to see me, said you bought a house from him. After talking to him for a few minutes I called my then wife to bring the checkbook. We signed papers, etc. right there on the hood of his car. During our wait I had checked him out and he was the actual builder of the house and what he did was to take out a long for the selling price. Then when he sold it you just assumed his loan. I am still in that house since 1972. And, it was a 30 year loan that I paid off in 22 years. During that time I also expanded the house by 30% and paid for that as a separate loan that I paid off early.

    There are many times a person will not have the cash to pay down on a house but can easily make the payments.
     
    Last edited: Oct 16, 2018
  14. James Long

    James Long Ready for Uplink! Staff Member Super Moderator DBSTalk Club

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    If the lender chooses, under no duress, to get involved in predatory lending they are not the victim. Such lenders have willingly created situations where the borrower is clearly unable to pay yet the lender pushes forward and coerses the borrower to make the deal.

    It is hard for a commissioned sales person to walk away from a paycheck. Don't be confused. People paid to sell loans sell loans and get paid. Saying no to marginal credit doesn't lead to getting paid. Selling a loan to someone who cannot pay leads to a paycheck. Guess which choice most sales people follow.

    The safety valve is a company that does not allow their sales people to get away with selling bad loans. But the companies are also in the business of selling loans, not turning people down.

    The credit industry thrives on convincing people they can afford more than they can pay.
     
  15. SamC

    SamC Hall Of Fame

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    So,

    1 - Loan money to people that cannot pay it back
    2 - ???
    3 - Profit

    The whole mythology of "predatory" lending is built on reversing who got shafted and who did the shafting.
     
  16. James Long

    James Long Ready for Uplink! Staff Member Super Moderator DBSTalk Club

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    Acknowledging, not reversing.

    What happens when the loan fails? The lender writes it off and makes a little less money. They stay in business and sell more loans. If a lot of loans fail it can impact the bank ... but when the bubble popped the banks got bailed out. The rich got richer. The borrower loses their home and other possessions. The financial stress can destroy marriages and families. It can affect job performance and can lead to loss of employment and reduced job opportunities. The poor get poorer.

    Are you calling the lenders the victims?

    In a perfect situation the borrower and lender work together to determine what the borrower can really afford. With the lender willing to walk away from the deal (losing the sale and the commission) instead of doing whatever it takes to make the sale. And the borrower needs to understand the limits of their finances and not accept being "coached" through the process by someone who is NOT on their side. In a perfect situation The lender would not be sales driven.
     
  17. dmspen

    dmspen Hall Of Fame

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    I was recently talking to an investment person about what will happen in the next few years. We are investing $$ from the sale of my Mom's house to take care of her (and they are going to manage my 401k). He mentioned this mortgage business tied with the stock market tech boom (the only stocks in the world really moving now) is going to cause a crash within 2 years. His partner said within 3. We are looking at a very similar situation as 2008 when people's odd mortgages came due and the stock market burst at the seams.
     
  18. SamC

    SamC Hall Of Fame

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    "Investment persons" are something you scrape off the bottom of your shoe. Any reasonably smart average person can do just as well, generally better, by themselves.

    Let me guess, these two know the market is going to crash, but they have a secret, high-commission, proprietary "product" they can get you in, right?
     
  19. dmspen

    dmspen Hall Of Fame

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    No, actually they are running my Mom's account for free. They will charge me a fee to set up my account to manage my 401k but if I take a loss they refund the money.
     

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