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edsl48

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#1
1526578690181.png


It makes little sense to refi at these rising rates. But here we are.

Refis at 8-Year Lows
With mortgage rates rising, one would expect refi activity to slow. And it has: Refi Applications are at an 8-Year Low.



But why is there any refi activity all at all?

In September 2017 the MND mortgage rate rate was 3.85%. In June 2016, the MND rate was 3.43%.

It makes little sense to refi at 4.70% when one could have done it less than two years ago a point and a quarter lower.

At these rates, refi activity should be in the low single digits. Yet, 36% of mortgage applications are refis.

Housing ATMs
Are people pulling money out of their houses to pay bills?
That's how it appears, as Cash-Out Mortgage Refis are Back.

What's Going On?
  1. People feel wealthy again and are willing to blow it on consumption
  2. People pulling money out to invest in stocks or Bitcoin
  3. People are further and further in debt and need to pull out cash to pay the bills
I suspect point number three is the primary reason.

Regardless, releveraging is as wrong now as it was in 2007. Totally wrong.

Mike "Mish" Shedlock
 

Uglytruth

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#2
Very few young people are purchasing homes. They need to be mobile for todays job market. Others have crap jobs and don't have the means to purchase so they become renters.

Also finding in areas of the country is wind farms are coming, driving home prices down, then big players are coming in buying up huge amounts of land.
 

the_shootist

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#3
Soon everything will be owned by the government and the banks. Such is the story of our civilizations march to destruction. It was a fun ride but that light you see at the end of the tunnel is an oncoming freight train!
 

Uglytruth

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#4
Don't you mean owned by the banks / tptb & enforced by the govt they own?
 

the_shootist

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#5

Buck

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#6
maybe not all home equity loans currently being made, are for consumer goods or debt repayment :don't know:
this op article is but an opinion piece
 

Goldhedge

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#7
They blamed 'reckless' lending practices in 2007... what, or whom are they going to blame this time...?

Subprime Mortgages: The Dog Returns To Its Vomit
May 11, 2018


Other people’s money is always more fun to play with recklessly than your own. As such there’s been a quiet escalation in number of private capital pools offering mortgage (and auto) financing to subprime quality borrowers. “Special Circumstance Lending” is one such lender in Denver. It constantly runs ads on Denver radio.

The proprietor of Special Circumstance Lending was an aggressive participant in the junk mortgage underwriting business and dumped more than his fair share of subprime crap into the Wall Street mortgage securitization scheme that led to “The Big Short.” SCL doesn’t need to see your tax returns. It will give you a mortgage based on bank account statements.

The big Wall Street banks appear to have retreated from risky mortgage lending. But have they? Though new regulations are intended to limit the amount risk the big banks take underwriting mortgages , the banks instead extend large lines of credit to private “non-bank” mortgage lenders, like Exeter Finance. The average credit score of Exeter underwritten paper is 570. If Exeter doesn’t get repaid, the big banks extending the funds to underwrite that garbage won’t get repaid.

The Government, via Fannie Mae and Freddie Mac, has been underwriting de-facto subprime mortgages – though they are still labeled “prime” for securitization purposes – for a couple of years. Let’s face it, a 3% down payment mortgage – where the 3% does not have to come from the pocket of the homebuyer – with a 50% DTI (50% of pre-tax monthly income is used to service debt) is not a prime-grade piece of paper. I don’t care what the credit score is attached to that underwriting.

But Freddie Mac is taking it one step further down the sewer. A Short Seller’s Journal subscriber who is involved with an investment fund that invests in difficult financings sent me the flyer he received for the new Freddie Mac dog vomit mortgage:

“I occasionally process residential mortgages, so I stay on top of the underwriting guidelines…As of July 29, you can buy a single family / condo (there has to be a first time homebuyer on the deed), with ZERO DOWN AND A 620 CREDIT SCORE, WITH NO INCOME RESTRICTIONS. I had a stroke when I read that!”​

There is no minimum borrower contribution from borrower personal funds. Furthermore, borrowers who put down 5% do not have to have a credit score.



The mortgages now offered by the Federal Government are beginning to look and smell like the same sub-prime sewage that was proliferated by Countrywide, Wash Mutual, etc in the mid-2000’s. True, as of yet we have not seen a widespread issuance of the adjustable-rate ticking time bombs that triggered the financial crisis. But the U.S. Government, using your taxpayer dollars, has become the new subprime lender of first resort for first time homebuyers who have little financial capability of supporting the cost of home ownership for an extended period of time.

Like the dog returning to its vomit, the U.S. financial system has returned to the business of underwriting the next financial crisis. Only this time around the Federal Government is providing a large share of the “rope” with which new homebuyers will eventually hang themselves. The financial explosion that is going occur will be worse than 2008 because the average household has significantly more debt relative to income now, with more than 75% of all households living from paycheck to paycheck. One small hiccup in the economy will trigger an avalanche of debt defaults.

Despite what seems like a strong housing market and buoyant stock market, the XHB homebuilder ETF is down 15.4% since mid-January. Many individual homebuilder stocks are down a lot more. My subscribers and I are making a small fortune shorting and trading puts on homebuilder stocks.

You can learn more about my subscription newsletter here: Short Seller’s Journal information