“This week a consortium of federal agencies also announced new standards that would permit banks to securitise and sell mortgages without retaining a 5% stake—leaving them little incentive to maintain high lending standards.”
So, once again, banks can make loans to high risk borrowers, and then sell those mortgages to Fannie and Freddie without having any stake in whether or not they get paid back…one of the huge problems with the sub-prime mess of 2008.
Thst doesnt mean they will find buyers of risky loans. I worked as a mortgage analyst at wells fargo during the crisis. They bought 1/5 of all mortgages in the us and during the crisis they made underwriting pretty restrictive. They also made some insanely stupid business decisions. I guess i wouldnt be surprised either way if they started writing stupid loans or not. I actually still have a friend there in underwriting. Ill ask him.
I don’t get this at all. We are closing on a new home on 20 November. We have a family income that is, well, way above average. We both have Credit scores in the upper 700s. Yet, every week we still get our stones broken for more information. How do I get in on this scam?
I don’t get this at all. We are closing on a new home on 20 November. We have a family income that is, well, way above average. We both have Credit scores in the upper 700s. Yet, every week we still get our stones broken for more information. How do I get in on this scam?
That’s exactly what i meant by “pretty restrictive” its a pain in the ass.
I don’t get this at all. We are closing on a new home on 20 November. We have a family income that is, well, way above average. We both have Credit scores in the upper 700s. Yet, every week we still get our stones broken for more information. How do I get in on this scam?
Reads to me as if it’s not in place yet:
“Yet that enthusiasm is undimmed: in a speech on October 20th Mel Watt, head of the Federal Housing Finance Authority (FHFA), announced plans to reintroduce mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government-backed housing giants it regulates.”
As in he was merely announcing the plans for it, but had not yet been implemented.
I don’t get this at all. We are closing on a new home on 20 November. We have a family income that is, well, way above average. We both have Credit scores in the upper 700s. Yet, every week we still get our stones broken for more information. How do I get in on this scam?
Reads to me as if it’s not in place yet:
“Yet that enthusiasm is undimmed: in a speech on October 20th Mel Watt, head of the Federal Housing Finance Authority (FHFA), announced plans to reintroduce mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government-backed housing giants it regulates.”
As in he was merely announcing the plans for it, but had not yet been implemented.
Requiring less money down is a world apart from granting a loan with a 520 score and 0 down like we did in the early 2000’s
They also want to lower minimum down payments and down payment financing is a thing again. It’s like deja vu.
Commercial real estate looks very scary to me right now. Developers are pulling very dodgy shit and it’s not like the REITs really care because, for the bigger ones, management hardly has any skin in the game.
I’ve got a minute so I’ll expound: commercial real estate is sold based on a “cap” rate which is kind of like an interest rate on a bond. Think of it as the inverse of a multiple on NOI (net operating income). So take a commercial retail shopping center: if the NOI is $1mil and tenants are of the right quality and the center is in an area with the right demographics, it might sell at a 5% cap which would fetch $20mil ($1mil/0.05=$20mil). The thing is, commercial retail is very bifurcated at the moment: you’re either in an established shopping center at main and main or you’re not. The former is easy to lease right now, the latter… not so much (though it has improved in the last 18months). This is a quandary for developers. They’ve gotten into the habit of building and then holding for 13months and then bailing on a property. Get in and get out. The thing is that it’s only profitable to “get out” if your almost 100% leased which is tough to do.
So here’s what developers have figured out: they set up LLCs, fund the LLCs, leverage the LLCs to whatever extent they can, buy franchise units (restaurants, verizon stores, whatever), and then lease their own space. If I get more time later I’ll walk though the numbers but, suffice it to say, the developers get a significant multiple of whatever they put into the LLCs when they go to sell the center. Once they sell the center they either let the LLCs run until they tap out or they sell the LLC to someone who buys franchise units or, if they get lucky and it’s very profitable, they keep it.
It’s a pump and dump and the risk is accumulating on the balance sheets of banks, pension funds, and insurance companies via shares in or loans to REITs. That’s a bit of a difference this time around. Banks are pretty well capitalized at this point and they’re not holding a ton of risk on their books in a traditional sense (though they are too exposed to consumer credit IMO). When the shit eventually does hit the fan, insurance companies and pension funds are going to get absolutely waxed.
I don’t get this at all. We are closing on a new home on 20 November. We have a family income that is, well, way above average. We both have Credit scores in the upper 700s. Yet, every week we still get our stones broken for more information. How do I get in on this scam?
Reads to me as if it’s not in place yet:
“Yet that enthusiasm is undimmed: in a speech on October 20th Mel Watt, head of the Federal Housing Finance Authority (FHFA), announced plans to reintroduce mortgages with deposits as low as 3% through Fannie Mae and Freddie Mac, the two government-backed housing giants it regulates.”
As in he was merely announcing the plans for it, but had not yet been implemented.
Requiring less money down is a world apart from granting a loan with a 520 score and 0 down like we did in the early 2000’s
All I remember from the times we got our home loans was being astonished at how much money they were willing to give us (great credit score but little money down). I remember thinking if we took what they were willing to give us, I don’t know how we would afford the payments.
We were in the same boat. We bought the biggest, nicest house we could afford (would have preferred a little less, but it was much nicer than everything else we saw). The bank, supposedly, thought we could afford $200K more. WTF?!
Requiring less money down is a world apart from granting a loan with a 520 score and 0 down like we did in the early 2000’s
How do you suppose you get from 20% down and higher credit score to 520 credit score and 104% of home value loan? You don’t do it in one step. As early as the early 90’s you had to come up with 20% down and have a decent credit score to get a home loan. By the mid 90’s it was far more lax with many “No money down” programs in place. By the 2000’s you had not only no money down but over loan amounts where you got cash back on closing day.
It took 10-15 years to get to that point, didn’t happen over night.
That’s why it is always good to keep sight of the cost to create a project. When you start doubling and tripling values above cost because you are investing in a long term triple net leased property to a credit-rated tenant, you are in the speculative zone. These type of tenants are gold because they normally don’t fail but sometimes they do. Remember Blockbuster? Rite Aid was on the bubble for years.
All I remember from the times we got our home loans was being astonished at how much money they were willing to give us (great credit score but little money down). I remember thinking if we took what they were willing to give us, I don’t know how we would afford the payments.
It’s funny how different banks work. My friend bought a couple of months before us, they were looking in the $350-400k range. Their bank offered them up to $550k.
The bank we went do didn’t do that. They asked us how much we wanted. We told them and they simply said, “we can do that”. They didn’t offer us more money that we weren’t asking for.
I don’t get this at all. We are closing on a new home on 20 November. We have a family income that is, well, way above average. We both have Credit scores in the upper 700s. Yet, every week we still get our stones broken for more information. How do I get in on this scam?
No kidding. I have posted before about a business colleague of mine who tried to refinance his home for the past few years. This guy owns his own business, has a net worth in the many tens of millions of dollars with a lot of very liquid assets, and his refi was 10% LTV. His business and tax structure, while not particularly unusual in his industry, was apparently too complex for the bank to assess properly, and he was denied time and again (although I understand that he recently found a bank that would do the refi). It would seem that the banks feel that some guy with a W2 and a job that could be lost in a heartbeat is a better risk than a guy with millions in the bank. He is in good company. Even Ben Benanke was turned down recently for a refi. Having had my fair share of interaction with legal departments of several major banks over the years, my general impression is that half of them are idiots, and the other half are trying so hard to protect the bank from every conceivable risk that they are virtually paralyzed.
Requiring less money down is a world apart from granting a loan with a 520 score and 0 down like we did in the early 2000’s
How do you suppose you get from 20% down and higher credit score to 520 credit score and 104% of home value loan? You don’t do it in one step. As early as the early 90’s you had to come up with 20% down and have a decent credit score to get a home loan. By the mid 90’s it was far more lax with many “No money down” programs in place. By the 2000’s you had not only no money down but over loan amounts where you got cash back on closing day.
It took 10-15 years to get to that point, didn’t happen over night.
~Matt
You’re correct. Let’s hope we avoid that slippery slope.
That’s why it is always good to keep sight of the cost to create a project. When you start doubling and tripling values above cost because you are investing in a long term triple net leased property to a credit-rated tenant, you are in the speculative zone. These type of tenants are gold because they normally don’t fail but sometimes they do. Remember Blockbuster? Rite Aid was on the bubble for years.
There’s so much money chasing returns now that property trades WAY WAY WAY above replacement cost (not that it ever, historically, spent much time close to replacement cost). The numbers for concrete vanilla box single story tilt-ups are ~$110/sf when you take away the land. In FL, commercial retail is selling for ~$360/sf (there’s a large range depending on location, tenants, etc). If you’re doing 3-story concrete block multi-unit residential you’re looking a build cost of $130/sf when you take away the land and it’s selling in the ~$320/sf range (lower per sf rent but they sell at a higher multiple due to narrower financing spreads relative to federal).
His business and tax structure, while not particularly unusual in his industry, was apparently too complex for the bank to assess properly, and he was denied time and again
This is EXACTLY why I’m never a business owner when I go anywhere to get a loan, I work at the company I own. I take a paycheck and that’s what I show them. When I first started in business, although I was not a millionaire, this is exactly what I ran into. Even if you show weekly income if you let it slip that you own the business you suddenly get the “Deer in the headlights” look and get denied for everything.
FWIW anyone in this situation, find a small LOCAL bank to deal with. 9 times out of 10 they have people that ACTUALLY know how to deal with these types of things and understand the numbers of “small” business where as the larger banks simply don’t. They deal with “Employee” or “Mega corp”, nothing in between.
Having had my fair share of interaction with legal departments of several major banks over the years, my general impression is that half of them are idiots, and the other half are trying so hard to protect the bank from every conceivable risk that they are virtually paralyzed.
Completely agree. Had a REAL bad experience with a major bank many years ago that defied logic on every level. They tend to look at everything from a very Myopic point of view and can’t see anything outside of those boundaries even to their own detriment. Again, have had much better luck with smaller and local.
You’re correct. Let’s hope we avoid that slippery slope.
I agree, just that I don’t hold out much hope. 20% down had been the standard for decades. Until you had 15-20% down you didn’t even bother going to the bank. Once that starts to slip everything else seems to go far more easily as that seemed to be the least negotiable in the past. It’s like losing the enamel on your teeth, once it has a hole in it getting to the root becomes elementary.