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Old Yesterday, 11:30 AM
 
2,541 posts, read 657,086 times
Reputation: 4417

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The risky mortgage is making a comeback.

https://www.wsj.com/articles/mortgag...8b9ffc847fa72a <== WSJ, so possibly a paywall

https://confoundedinterest.net/2019/...ting-to-erode/ <== no paywall; appears to be the same article

More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit.

The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname “liar loan” because so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they don’t comply with postcrisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they can’t afford.

Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019.
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Old Yesterday, 12:18 PM
 
Location: Tennessee
24,136 posts, read 17,961,090 times
Reputation: 28335
Here's a scenario that I think gets overlooked.

I'm closing on a property in about three weeks. All in, my PITI with MI and taxes and insurance in escrow is $659/month. This is for a ~1200 sq. ft, 2BR/2BA townhome with a 544 sq. ft. garage. I'm paying $98,500 for it. 30 year conventional loan. The townhome has brand new appliances (basic builder grade stuff, but it's fine for me), new granite countertops, new laminate flooring and carpet. Other than doing a few minor things to taste, nothing needs to be done.

Between inspections, earnest money, insurance, 5% down, and my part of closing costs, I will be out at least $9,000, probably pushing closer to $10,000-$11,000 after all is said and done. I have an above average income by local standards, but I'm single and that's a fairly big chunk of change to come up with. My credit score with all three bureaus is above 780.

On a purely technical level, my mortgage is probably somewhat risky because it's below 20% down, but I can cashflow the mortgage payment without an issue. One of the biggest barriers to homeownership, especially for younger people, singles, or those in high cost areas, are the initial startup costs to merely get into the home. That's not accounting for any "bumps in the road."

By contrast, locally, I can get into a rental townhome similar to what I have for one month's deposit. Renting has much lower startup costs. That's going to be about $1,000. The rent will be about $1,000/month, and will likely rise annually. On most months, the rent will far exceed my mortgage payment plus repairs. Apart from a relatively small increase in my mortgage insurance or property taxes (this is a low tax area of a low tax state), my mortgage payment is mostly locked in.
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Old Yesterday, 01:31 PM
 
Location: East of Seattle since 1992, originally from SF Bay Area
30,257 posts, read 55,147,825 times
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You can imagine how people get sideways in a low-down-payment mortgage here where your same townhome would cost $800,000.
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Old Yesterday, 01:49 PM
 
Location: Tennessee
24,136 posts, read 17,961,090 times
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Quote:
Originally Posted by Hemlock140 View Post
You can imagine how people get sideways in a low-down-payment mortgage here where your same townhome would cost $800,000.
But areas like that are likely going to continue seeing considerable appreciation. The jobs are there, not where I am.
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Old Yesterday, 02:41 PM
 
1,857 posts, read 626,823 times
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Quote:
Originally Posted by RationalExpectations View Post
The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname ďliar loanĒ because so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they donít comply with postcrisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they canít afford.
Don't forget the NINJA loan. No Income, No Job or Assets.

When the money runs out, NINJA vanish.
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Old Yesterday, 03:19 PM
 
18,990 posts, read 13,819,005 times
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Subprime loans aren’t a problem, it’s when you get into the no documentation or alt where the issue really started occurring
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Old Yesterday, 04:39 PM
 
916 posts, read 669,191 times
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[quote=Lowexpectations;56008932]Subprime loans arenít a problem, itís when you get into the no documentation or alt where the issue really started occurring[/QUOTE

No doc and alt are subprime loan products
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Old Yesterday, 04:49 PM
 
916 posts, read 669,191 times
Reputation: 920
Quote:
Originally Posted by Serious Conversation View Post
Here's a scenario that I think gets overlooked.

I'm closing on a property in about three weeks. All in, my PITI with MI and taxes and insurance in escrow is $659/month. This is for a ~1200 sq. ft, 2BR/2BA townhome with a 544 sq. ft. garage. I'm paying $98,500 for it. 30 year conventional loan. The townhome has brand new appliances (basic builder grade stuff, but it's fine for me), new granite countertops, new laminate flooring and carpet. Other than doing a few minor things to taste, nothing needs to be done.

Between inspections, earnest money, insurance, 5% down, and my part of closing costs, I will be out at least $9,000, probably pushing closer to $10,000-$11,000 after all is said and done. I have an above average income by local standards, but I'm single and that's a fairly big chunk of change to come up with. My credit score with all three bureaus is above 780.

On a purely technical level, my mortgage is probably somewhat risky because it's below 20% down, but I can cashflow the mortgage payment without an issue. One of the biggest barriers to homeownership, especially for younger people, singles, or those in high cost areas, are the initial startup costs to merely get into the home. That's not accounting for any "bumps in the road."

By contrast, locally, I can get into a rental townhome similar to what I have for one month's deposit. Renting has much lower startup costs. That's going to be about $1,000. The rent will be about $1,000/month, and will likely rise annually. On most months, the rent will far exceed my mortgage payment plus repairs. Apart from a relatively small increase in my mortgage insurance or property taxes (this is a low tax area of a low tax state), my mortgage payment is mostly locked in.
In your situation the lender counts on PMI to mitigate the risk That is to insure the portion of the loan between 65 and 95% Loan to value. Not considered subprime. The problem is counter party trust. Can the MI company be counted on to pay the claim in event of a default? Time will tell Interestingly- VA insured loans pools at 100% loan to value perform well thus Wall Street pays a premium for Ginnie Mae securities
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Old Yesterday, 06:30 PM
 
18,990 posts, read 13,819,005 times
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Quote:
Originally Posted by 5ForksSC View Post

No doc and alt are subprime loan products

But not all subprime loans are no doc or alt and that was specifically my point
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Old Yesterday, 07:35 PM
 
Location: Phoenix, AZ
1,822 posts, read 812,211 times
Reputation: 4636
Quote:
Originally Posted by RationalExpectations View Post
The risky mortgage is making a comeback.
The only thing we learn from history is that we don't learn anything from history.


After the savings and loan debacle of the 1980s, laws were passed, and government swore it could never happen again.


After the collapse of the mid 2000s laws were passed, and government swore it could never happen again.


Well, folks, looks like we're on the way to another debacle, after which laws will be passed and government will swear it could never happen again.
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