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Getting Rich On Taxpayer-Backed Subprime Mortgages

searcher

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#1
Getting Rich On Taxpayer-Backed Subprime Mortgages

-- Published: Monday, 28 May 2018

By Dave Kranzler

A branch manager gets home loans for borrowers with weak credit or low incomes—and taxpayers back him up.Bloomberg.com

Bloomberg News featured a story today that I find to be an outrage. It seems that some punk kid in Houston – Angelo Christian – has recreated the Jordan Belfort story (“The Wolf Wall Street”) using subprime quality, Government-backed mortgage.

The Government now guarantees mortgages which require no money from the buyer’s pocket for a down payment, a 50% DTI (monthly total debt payments = 50% of pre-tax personal income), no income restrictions and will finance down to a 580 credit score. Someone with a 580 score has a track record of debt default, serial delinquency and, quite likely, a recent bankruptcy:

This would-be homeowner has a 596 credit score, putting him in the subprime range. His car has been repossessed, something that would likely disqualify him at the Bank of America branch next door.

“Usually a repo that’s like three years old, we’re not really going to sweat that,” he assures the caller. “We’re pretty lenient here.” He steers his prospect to several $400,000 homes with swimming pools. “Have your wife check that out,” he says, referring to a remodeled kitchen with granite countertops. “She’s going to love it.”

Christian works for American Financial Network, which underwrites, funds and services the entire spectrum of Taxpayer-guaranteed mortgage programs: Fannie Mae, Freddie Mac, FHA, VHA and USDA (yes, the USDA guarantees “rural area” zero-percent down mortgages). AFN receives fees up to 5% – or $15,000 on $300,000 mortgage. This in and of itself is an outrage because it takes zero skill to underwrite a Government-backed mortgage.


“Zero-skill,” that is, unless fraud is involved. I’m not accusing AFN of fraudulent activity, however, as we witnessed during the Big Short housing bubble, fraud was oozing from every crevice in the U.S. mortgage underwriting industry. And subprime mortgages pumped and dumped by a character like Angelo Christian are usually the standard breeding ground for unscrupulous behavior.

Even Bloomberg expressed skepticism: “This kind of lending echoes the subprime mortgage boom that preceded the credit crisis of 2008.”

In civil fraud complaints, the Department of Justice has accused many companies, including Quicken and Freedom Mortgage, of improperly underwriting FHA loans and then filing claims for government insurance after borrowers defaulted. In 2016, Freedom Mortgage settled for $113 million, without admitting liability.

Angelo Christian and American Financial Network use Taxpayer guarantees to underwrite mortgages with an elevated probability of default and yet, they bear zero risk. They pocket a big fee-skim upfront and face no consequences when the 580 FICO score borrower declares bankruptcy – again.

FHA loans are now experiencing a 30-day or more delinquency rate with nearly 10% of its loans. Fannie Mae and Freddie Mac combined wrote-down over $15 billion worth of loans in Q4 2017. They required a $4 billion cash infusion from the Government (taxpayer) as a result of both accounting and cash losses.

This is going to get worse. But until this collapses again – and it will – mortgage brokers like Angelo Christian are proliferating. They employ a salesmanship resembling that of dirty boulevard used car salesmen (“we finance any credit / bankruptcy o.k.”) as a means of transferring a massive amount of money from the Taxpayer to their own pockets.

I wold urge everyone to read this Bloomberg article so you can read about how Angelo uses taxpayer-funded fees to pay for his fancy sports cars in exchange for pushing subprime mortgages destined to blow-up onto people who have no hope of supporting the cost of home ownership on a sustainable basis.

http://investmentresearchdynamics.com/

http://news.goldseek.com/GoldSeek/1527520740.php
 

Fatrat

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#2
BOHICA, and why not, the government bailed out everybody last time...
 

the_shootist

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#3
Why are these people being allowed to continue? What is it going to take?? How farking stupid are people???
 

edsl48

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#4
Things like this have gone on for years. For example when I was much younger the FHA 235 plan was the rage to allow people with no down payment the funding to get a loan to purchase a house. While not a scientific derived result my observations were that one heck of a lot of these homes went back to the Government who then in turn sold them at large losses.
Housing has been a big tax, spend and redistribute for years and as many politicians since have found that it is a great way to buy votes with taxpayers money that was pioneered by the great American grandfather of USA socialism Franklin Delano Roosevelt.


What Was the FHA 235 Loan?
The Federal Housing Authority (FHA) helps some borrowers obtain credit for new and refinanced properties. The FHA's Section 235 loan is now a defunct program, but the effects of it are still felt by some homeowners.


History
The FHA's Section 235 loan, pioneered in the 1960s, was designed to help new borrowers achieve homeownership. To ease this transition, the program allowed borrowers to take out government-insured mortgages with no money down on new properties. In essence, the government began shouldering a huge debt burden, because all the Section 235 loans were 100 percent financed.

Defaults
The Section 235 program was discontinued by HUD on October 1, 1989 after a detrimental string of defaults and foreclosures nearly bankrupted the program. Because the federal government insured the lenders who made these loans, it had to pay millions of dollars in insurance benefits to lenders saddled by FHA foreclosures.

https://www.sapling.com/5409657/fha-loan
 

Usury

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#5
Mixed feelings on this one. On one hand the guy does sound like a con. On the other, clearly the author has an agenda as he’s painting a picture of gov mortgages that doesn’t mesh entirely with reality (which also makes one wonder what liberalities he took with the man). If anything those are harder to underwrite than any other loan type currently IMO. I do think debt ratios are too high though....but that’s squarely on FHA—they need to tighten their AUS.
 

edsl48

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#6
One might ponder on are housing prices bubbling again thanks to the return of easily attained mortgages

Update on the Most Splendid Housing Bubbles in America
by Wolf Richter • May 29, 2018 • 0 Comments
Some beautiful spikes too.
Prices of houses and condos across the US surged 6.5% from a year earlier (not seasonally-adjusted), according to the S&P CoreLogic Case-Shiller National Home Price Index for March, released today. The index is now 7.8% above the crazy peak of “Housing Bubble 1” in July 2006 just before it all came apart, and 48% above the trough of “Housing Bust 1”:

Real estate is local though prices are heavily impacted by national and global factors, including monetary policies and offshore investors who consider “housing” in the US an asset class and perhaps also escape route. These local and global factors inflate local housing bubbles. When enough local housing bubbles come together at the same time, even as some housing markets remain calm, they turn into a national housing bubble. See chart above.
That last housing bubble — “Housing Bubble 1” in this millennium — wasn’t some state of calm that the US needed to return to. It was the definitive housing bubble that then collapsed and helped bring the global financial system to the brink.
The Case-Shiller Index is based on a rolling three-month average; today’s release is for January, February, and March. The index, based on “home price sales pairs,” compares the sales price of a home in the current month to the last transaction of the same home years earlier. The index, which incorporates other factors and uses algorithms to arrive at a data point, was set at 100 for January 2000; so an index value of 200 means prices as figured by the index have doubled.
So here are the most splendid housing bubbles in major metro areas in the US:
Boston:
The Case-Shiller home price index for the Boston metro jumped 1.2% from the prior month, to a new record, and is up 5.8% from a year ago. Note that little dip in the chart late last year, when prices made a feeble effort at a seasonal decline. During Housing Bubble 1, from January 2000 to October 2005, the index soared 82% before dropping. It now tops that crazy peak by 14.7%:

Seattle:
The Seattle metro index spiked 2.8% from the prior month to a new record. Late last year, it had experienced the first monthly declines since the end of 2014, now left behind as seasonal blips. The index soared 13.0% from a year ago and is now 27.4% above the peak of Housing Bubble 1 (July 2007). Note the historic spike over the past two months:

Denver:
The index for the Denver metro spiked 1.4% from prior month, the 29th relentless increase in a row. It’s up 8.6% from a year ago, and is up 53% from the crazy peak in July 2006:

Dallas-Fort Worth:
The Dallas-Fort Worth metro index rose 0.7% from a month earlier, its 50th monthly increase in a row, and 5.8% from a year ago. Since its peak during Housing Bubble 1 in June 2007, the index has surged 45%:

Atlanta:
The Case-Shiller index for the Atlanta metro, after a brief seasonal flat spot late last year, rose 0.8% from a month ago and 6.2% from a year earlier. It now exceeds the peak of Housing Bubble 1 in July 2007 by 4.9%:

Portland:
The Portland metro index, which had been flat for five months last year, has now risen four months in a row. The index is up 1% from a month ago, 6.7% from a year earlier, and 22% from the peak of Housing Bubble 1 in July 2007. It has ballooned 127% since 2000:

San Francisco Bay Area:
The Case-Shiller home price index for “San Francisco” includes the counties of San Francisco, Alameda, Contra Costa, Marin, and San Mateo, a large and diverse area consisting of the city of San Francisco, the northern part of Silicon Valley (San Mateo county), part of the East Bay and part of the North Bay. The index spiked 2.1% from a month earlier and 11.3% from a year ago. It’s up 37% from the totally crazy peak of Housing Bubble 1, and 162% since 2000:

Los Angeles:
The Case-Shiller index for the Los Angeles metro rose nearly 1% for the month and 8.1% year-over-year. Between January 2000 and July 2006, the index had skyrocketed 174%. The crash was nearly as steep, as the chart below shows. The index now exceeds the peak of the housing insanity in 2006 by 1.6%. So a big round of applause. The Case-Shiller data for neighboring San Diego is very similar.

New York City Condos:
Case-Shiller’s index for condos in New York City rose nearly 0.6% from a month ago and is up 3.4% from a year ago. From 2000 to February 2006, the index had surged 131%. But even during the subsequent bust, its decline was halted when QE kicked in, and along with it the bonuses on Wall Street. Then global investors arrived again, and by 2012, it was once again party time. The index is now 19% above the peak of Housing Bubble 1, having surged 176% in 17 years:

The acceleration in many markets of this home price inflation might well be a reaction to mortgage interest rates that have surged and are scheduled to surge more, as the Fed continues to raise rates “gradually” and as it continues to unwind QE. So households may be rushing to lock in the current rates – and thereby also locking into their own budgets the current prices of Housing Bubble 2.