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They're Baaaack! Zero-Down, Subprime Mortgages
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Great for real estate brokers, great for underwriters, appraisers, developers, builders and all the other folks making money off of home sales, but I'm not so sure about the folks actually, you know, buying those homes. And who's backing all this paper? Three guesses and the first two don't count...

Eh, what the hell? I'm positive it will work out just fine this time around. (Not everyone should be a homeowner, though, and they're often far better off renting rather than buying. Just saying.)

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



"Politics is just show business for ugly people."
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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I've got one that's way more scandalous.

Just south of Jacksonville Florida there's a Master Planned Community called Nocatee. It's the largest and fastest selling Master Planned Community in the U.S. You can get a lot of house for your money there (... and I do mean *a lot*), the community has great amenities, great school district, low property taxes, and the job market in Jacksonville has been very strong for the last decade. Everything is on the up and up with Nocatee: the master developer (a group of three families) is cash-rich and only reputable homebuilders have been allowed in.

However, there's plenty of undeveloped land around Nocatee and those who couldn't make the cut to build homes in there set up shop down the street. One such community is called Beach Walk, home to the largest "pool" in North America. The community is built around said "pool" (which is really a salt water lake with a sand/liner bottom). I looked at a home there: 2,500sf on two stories, stick built. I was thinking $300,000. I was off by a factor of two: $600,000.

...now the scandalous part.

The developer was offering a 0% "down payment advance". Not a loan mind you. An "advance". Rather than tie said "advance" to the home, it was tied into the HOA's ability to assess your house (and lien it if fees go unpaid). Banks don't see it as a loan and the IRS doesn't see it as income. People without a penny of net worth can get their down payment, take out a mortgage, and pay the developer. The developer doesn't care if he ever sees that "advance" because, by my reckoning, he's making 250% on his investment.

Surely it will end differently this time.
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [GreenPlease] [ In reply to ]
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That's nuts. But like you say, it'll definitely end differently this time. Right? Right? Ummm...

"Politics is just show business for ugly people."
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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Are these government-approved loans bought by Fannie and Freddie? What an absolute travesty it'd be if we're slipping into exactly what caused the 2007 crisis.
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [Brownie28] [ In reply to ]
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I think that horse has bolted. It's already happening with cars, cc and mortgages
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [Brownie28] [ In reply to ]
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Brownie28 wrote:
Are these government-approved loans bought by Fannie and Freddie? What an absolute travesty it'd be if we're slipping into exactly what caused the 2007 crisis.


It depends on the size of the mortgage loan, because Fannie, Freddie and the other GSEs (government-sponsored enterprises) don't generally buy jumbo or non-conforming mortgages. But with a conforming mortgage loan limit in high-cost counties of up to $679,650 ($453,100 in "regular" counties) there are still plenty of large-size mortgage loans that can be bought up by the GSEs and then aggregated with other mortgage loans and turned into mortgage-backed securities (MBSs) for sale to Wall Street investors on the secondary mortgage market (to governments, pension funds, insurance companies, hedge funds and the like).

A zero-down subprime mortgage is pretty risky paper in my opinion, especially if the MBS is comprised of thousands of these kinds of loans. I'm also guessing there have been additional financial safeguards put into place since the 2007/2008 housing market collapse, in hopes of preventing a repeat once the economy turns south and folks begin defaulting in large numbers on those loans yet again. But how much of this paper is floating around currently? And how much will be created in the future, as politicians and government continue to push the idea of a "right" to home ownership for everyone, regardless of whether or not everyone can actually handle the responsibility of such ownership?

"Politics is just show business for ugly people."
Last edited by: big kahuna: Oct 14, 18 23:45
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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Weirdly. I'd be far more Concerned about u secured debt than even these crazy mortgages

How many people have cc and home loan debt that's un secured and what's its value relative to the total market of zero down mortgages
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [Andrewmc] [ In reply to ]
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Andrewmc wrote:
Weirdly. I'd be far more Concerned about u secured debt than even these crazy mortgages

How many people have cc and home loan debt that's un secured and what's its value relative to the total market of zero down mortgages

Student loan debt in the U.S. is at about $1.5 trillion, so that's a serious issue as well, and word is many of the people with that debt won't be able to repay it, given the interest rates involved. That debt is different in character because it's held by the US government, so it may not be analogous to CC and home loan debt.

Total credit card debt in the US surpassed $1 trillion in 2017, and that's a serious issue as well, but credit card and home equity loan companies have dealt with such risk for years and have managed it better than expected.

They also sell that bad paper off (massively discounted, of course) to collection agencies who then try to pursue in court the folks who defaulted on that unsecured debt. Lots of such collection agencies have sprung up over the last decade, buying bad paper and trying to collect on it, often via court-awarded judgments and the like. They also attach those judgments to any real property owned by defaulters, expected to collect over the long term when that real property is sold for a profit.

"Politics is just show business for ugly people."
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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The auto industry has been relying on subprime loans to prop up their sales for years. But I'm sure they'll be rewarded for this behavior because they'll just get another bailout when the bubble pops.
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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I'll throw another in there, not only is it people doing this who can't afford it..........they'll probably never raise themselves a dime to retire or live in older age.

It's going to be interesting seeing a generation of unprepared baby boomers and gen X. At least I'm in the early millenials era when we still had corded phones up until high school. I'll be dead by the time they "retire" or they wind up the death camps for old folks.
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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My understanding is the dollar amount on the student loan debt isn’t as bad as it seems. Yes it’s high but the majority of people with those higher balances are Medical professionals or other careers that will be fine to get them paid back it’s just a crappy expense they have to deal with.

The bigger problem is the number of people with low/ mid balances that took them out and will never be able to repay them. That number is a lot more concerning than looking at the total dollar amount outstanding.

I have quite a bit due to leaving med school after a year and a half. It’s manageable and I’ll probably get them paid off in about 3 years or so. However I could totally see mine being the balance for someone who went to a 4 year school and majored in tiddlywinks I have no idea how they would make it month to month. The payment is not small by any stretch.
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [Grant.Reuter] [ In reply to ]
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Grant.Reuter wrote:
My understanding is the dollar amount on the student loan debt isn’t as bad as it seems. Yes it’s high but the majority of people with those higher balances are Medical professionals or other careers that will be fine to get them paid back it’s just a crappy expense they have to deal with.

The bigger problem is the number of people with low/ mid balances that took them out and will never be able to repay them. That number is a lot more concerning than looking at the total dollar amount outstanding.

I have quite a bit due to leaving med school after a year and a half. It’s manageable and I’ll probably get them paid off in about 3 years or so. However I could totally see mine being the balance for someone who went to a 4 year school and majored in tiddlywinks I have no idea how they would make it month to month. The payment is not small by any stretch.

I agree: it's the low/mid-balance folks who'll never be able to repay them. And while they're in default status (and many are), the interest is piling up. Plus, you can't shed that debt in bankruptcy, generally, and the government is going to get what many it can via any method it deems suitable, including wage garnishment (up to 25% of a person's paycheck) and so forth. It's crazy.

"Politics is just show business for ugly people."
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [FishyJoe] [ In reply to ]
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FishyJoe wrote:
The auto industry has been relying on subprime loans to prop up their sales for years. But I'm sure they'll be rewarded for this behavior because they'll just get another bailout when the bubble pops.

I have a financial interest in a 'B' lot (used car sales only) and I've worked with several 'A' stores (franchise car dealers) on their "BDCs" -- or "business development centers" -- in the past, so I've seen it from the seller's side of the equation when it comes to subprime loan packages (in MI, Credit Acceptance Corporation and several other subprime lenders are the big players), but I think Mr. Mopdahl explained how subprime auto lending, at least, isn't as ugly looking at it appears.

For me, I know that when I do auction purchasing of vehicles, many of the banks (we just call them "banks," even if they're not really those kinds of lenders ;-) do manage to recoup all or nearly all of their investment. And if they don't, they sell the remaining balance off to a credit collection agency or try to collect on it themselves, from the borrower, before they write the loan off.

Story: I have one friend who's in the "buy here, pay here" auto sales business and he's sold some of his rides 8 or 9 times and made money off of each sale. He sells it, the buyer eventually defaults, then he repossesses the vehicle, cleans it up and does minimal "recon" (reconditioning) and sells it again, wash-rinse-repeat, over and over again. That line of work isn't for me, that's for sure, but he's into it and he does quite well, believe me.

"Politics is just show business for ugly people."
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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Just curious, it seems like a lot of people expect the cause of the last recession will again be the cause of the next recession. Did people feel that way after 1999-2001? Did everyone expect the .com bubble to cause the next one?

I wouldn't expect history to repeat itself that quick. Will these sub-prime lending hurt during the recession? Absolutely, but not the cause or the hot topic. It might be auto loans, energy prices, or something completely different.

Or am I completely off base and the sub-prime lending is just a good indicator that something is coming.
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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big kahuna wrote:
in MI, Credit Acceptance Corporation and several other subprime lenders are the big players

CAC is a major player in the whole NE corner of the country ;)
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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Is BOA securitizing these loans? Because if they aren't I have ZERO problem with it. In fact I think it is a great idea.

I think the lesson from last time was "not everyone should be a landlord."
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [AndysStrongAle] [ In reply to ]
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AndysStrongAle wrote:
Just curious, it seems like a lot of people expect the cause of the last recession will again be the cause of the next recession. Did people feel that way after 1999-2001? Did everyone expect the .com bubble to cause the next one?

I wouldn't expect history to repeat itself that quick. Will these sub-prime lending hurt during the recession? Absolutely, but not the cause or the hot topic. It might be auto loans, energy prices, or something completely different.

Or am I completely off base and the sub-prime lending is just a good indicator that something is coming.

Mortgage defaults, and a great many subprime mortgages defaulted the last time, did not caused the recession. When the economy began contracting, people were unable to work as much overtime as they once did or they lost their jobs entirely,and many cut back on expenses, including subprime mortgage loan payments.

Mortgage defaults trail economic recession and contraction, generally speaking. There was a default rate priced into subprime mortgages back then, but the recession increased it and intensified it, both in terms of numbers as well as speed of defaults when it came to subprime and similar type loans. The housing market crash occurred because the economy went into mild recession, at first, and then all that bad paper started crashing down around the heads of institutional investors, governments and other Wall Street types.

"Politics is just show business for ugly people."
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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big kahuna wrote:
That's nuts. But like you say, it'll definitely end differently this time. Right? Right? Ummm...

So many houses have been snapped up by cash buyers and small to medium investors since the last recession. Last time banks held foreclosed properties to limit supply and stabilize the drop. This time a lower % are owned by the big banks. If your 300k cash property is down to 150k and you need money you sell- since your actions alone can not stabilize a market.
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [Moonrocket] [ In reply to ]
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I just got a sponsored FB post on how to use my IRA to invest in real estate and retire Richer!
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Re: They're Baaaack! Zero-Down, Subprime Mortgages [big kahuna] [ In reply to ]
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big kahuna wrote:
Great for real estate brokers, great for underwriters, appraisers, developers, builders and all the other folks making money off of home sales, but I'm not so sure about the folks actually, you know, buying those homes. And who's backing all this paper? Three guesses and the first two don't count...

Eh, what the hell? I'm positive it will work out just fine this time around. (Not everyone should be a homeowner, though, and they're often far better off renting rather than buying. Just saying.)

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


This is great!

Screw how those pensioners in Iceland feel about being sold SPv.2 tranches!

Just when I thought my real estate photography business has slowed down...
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