Friday, May 06, 2005

Lenders May Pay For Pushing Subprime Products

It is always interesting to see what news comes out after trading is over on Friday. In this case Reuters has a report that subprime lending is coming under scrutiny. "After a government report suggested that lenders were steering minorities to pricier home loans, Attorney General Eliot Spitzer said last week his office would look into how lenders set fees and rates on home loans."

These loans put people in overpriced homes they can't afford and represent an industry desperate to keep mortgage volume from eroding further. "The risks of lending to less credit-worthy borrowers include a chance that such loans will not be repaid, which has some analysts asking why banks venture into sub-prime lending."

"'These banks should get out of this business ... (but) they're attracted to the high yields these loans provide,' said Dick Bove, bank analyst at Punk Ziegel."

19 Comments:

At 6:50 PM, Anonymous Anonymous said...

Why do they venture in? Because they can either A. Sell the loan to Fannie or Freddie or B. Package it into a high yield asset backed security hedged of course by a derivative purchased from the guy who runs a tiny chai stand next to the New Delhi train station.

 
At 7:36 PM, Anonymous Anonymous said...

Want to know what the problem is? Here's a quote from today's LA times. It's from an article about how "creative financing" is now being offered to certain types of Latino buyers.

"Those challenges can include all-cash incomes and lack of traditional established credit, said Munera, who works with Pasadena Dickson Podley Realtors.

"Because of a deep distrust of banks, some potential Latino buyers have no accounts, said Glenn Hayes, executive director of Neighborhood Housing Services of Orange County, a private nonprofit organization that promotes homeownership in low- to moderate-income neighborhoods. Latinos may pay rent and utility bills with cash, so the first job of agencies that help prospective buyers is to set up bank accounts and get them to pay bills with checks.

"Some buyers lack federal W-2 forms from their employers, but they qualify for mortgages because many of the country's biggest lenders have adopted creative credit practices.

"Countrywide's Optimum Loan Program, launched in June, provides loans to qualified buyers with nontraditional credit, such as rent and utility bill receipts, and whose income is received in cash."

Let's read between the lines folks. All cash incomes? No W-2 forms? Fear of banks? No credit history? What we have here is mortgage companies lending large sums of money to ILLEGAL ALIENS so they can purchase inflated real estate. This is beyond outrageous - it is unbelievable, and it is a perfect sign of just how far down this country has sunk.

 
At 7:48 PM, Anonymous Anonymous said...

They may or may not be in the country illegally, but they are most definitely engaged in tax evasion.

It is my personal favorite when I see that there are state funded programs to help borrowers who "lack tax returns" (read cheat on taxes).

 
At 8:15 PM, Blogger John Law said...

IAs must be the untapped market!

 
At 8:40 PM, Anonymous boulderbo said...

i don't want to restate the obvious, but the mortgage industry has swelled to epic proportions and needs to feed the "volume monster". if everyone turned around and said "i've lent enough and wanna see how this shakes out" then we wouldn't be in the situation that we're in. the reality is that those in the lending industry will lend until someone grabs the lightbulbs from the sockets while all are saying everything is great. good luck all.

 
At 8:40 PM, Anonymous Anonymous said...

A Denver station did a story about IAs buying houses. It was re-broadcast on CNN Lou Dobbs Tonight. The mortgage guy said that basically, no one is checking whether you are illegally in the country.

Same as no one is checking on the 'stated income' loans.

The story (and video link) is here:
http://www.thedenverchannel.com/news/4224901/detail.html

Did you know that roughly 10% of California's population is IAs? Crash, crash, crash.

 
At 10:02 PM, Blogger Ben Jones said...

(Why do they venture in? Because they can either A. Sell the loan to Fannie or Freddie or B. Package it into a high yield asset backed security)

You're right. If agency's were not there ro buy, this paper would be worthless.

 
At 10:43 PM, Anonymous bob r said...

Imagine how many unemployed real estate agents and mortgage brokers there will be when the bubble pops! It will surely swell the jobless statistics.

 
At 10:43 PM, Anonymous bob r said...

Imagine how many unemployed real estate agents and mortgage brokers there will be when the bubble pops! It will surely swell the jobless statistics.

 
At 10:49 PM, Anonymous Anonymous said...

The GSE system itself is designed to facilitate the purchase of property. It's not designed for law enforcement.

With phony documents, terrorists or drug dealers can launder money, set up sleeper cells, or support smuggling operations in residential communities anywhere in the state.

7NEWS Investigator John Ferrugia has found that there is no government agency that has responsibility to verify the identities of anyone buying real estate.

 
At 5:30 AM, Anonymous Anonymous said...

This is all just part of Bush's No Illegal Alien Left Behind Program.

 
At 5:31 AM, Anonymous ChrisH said...

[ "Because of a deep distrust of banks, some potential Latino buyers have no accounts, said Glenn Hayes, executive director of Neighborhood Housing Services of Orange County, a private nonprofit organization that promotes homeownership in low- to moderate-income neighborhoods? ]

Just want to get this straight... They don't trust banks to hold their money, but they do trust banks to lend them money to buy the house? On top of that, realize it is really the bank's house until you pay off the mortgage!

 
At 9:04 AM, Blogger John Law said...

they probably don't trust banks because of what they were like in their home country. I believe at one time Argentina forced all dollar holders to go to argetinian pesos.

 
At 10:06 AM, Anonymous Will said...

I'm not anti-immigration, I even believe in some sort of amnesty program, it's complicated & I don't want this board to turn into a pro/anti immigration board.
BUT-
This is BIG news, it is completely INSANE to give mortgages to illegal / tax evading people! WTF! This kind of situation kills me, it's a disaster on so many levels, I'm really speechless.

 
At 10:30 AM, Anonymous Anonymous said...

As it was displayed on a LA County freeway billboard ...

"Welcome to Los Angeles, Mexico"

First off, this is beyond insane as it targets ONE ethnic group. Looks like this is not being offered to and/or targeted to any other group (white, black, asian, etc ...).

Seems like Mexicans are the focus of many businesses thus, are reaping "benefits" not offered to anyone else.

Something like this has to be borderline illegal and discriminatory on part of the lenders like, Countrywide.

Still, even if open to all, this kind of lending is just stupid. But, the fact that only Mexicans are presented with it really does bother me.

As stated above ... Los Angeles, Mexico is not really far from the truth. It's why I don't live in LA County and part why there is so much flight to the Inland Empire.

Crazy!

 
At 12:35 PM, Blogger Ben Jones said...

(Something like this has to be borderline illegal and discriminatory on part of the lenders like, Countrywide)

I see it that way and that's why I am not afraid to challenge the issue. It is a separate issue from immigration, illegal or otherwise.When these folks get upside down on their mortgage, what do you suppose we'll hear? Oh well, we covered it here first.

 
At 6:33 PM, Anonymous will said...

here's a link the the LA time article:

http://www.latimes.com/classified/realestate/news/la-re-latino1may01,1,3986553.story

It's quite a read.

 
At 7:55 PM, Anonymous Anonymous said...

Yes, that is quite a read!

I like the part about 'creative credit' coming to the rescue.

Why do they recommend the title be changed to add other people after escrow closes? Does that put those people on hook for the loan, or what? I would think the title would be exactly the same as the persons on the loan. Adding others could cause disputes down the road, couldn't it?

 
At 10:02 PM, Anonymous Anonymous said...

I am a lending officer at a major bank and it is impossible for an illegal immigrant to get a loan. Wealthy foreign nationals that want to buy a vaction or investment property can do so but only with very sophisticated banks and must put down a high downpayment.

These no-doc and stated loans do permit tax cheats to get loans but in my experience it really runs the gambit, high net worth individuals with complicated tax avoidance (legal or not) seek stated income loans just as often as latin americans. And the latin american market does pay a much larger premium to get these loans.

 

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