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America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

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Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#51

Post by jkaptur »

mikeash wrote: post #18

Seems like an example of how it's easy to be "fastest growing" when something is really small. These loans started about five years ago and the cumulative amount loaned is about $3.4 billion. Most of the activity has been in the past year, so of course the rate of growth is over 100%. But the absolute numbers are utterly tiny. For perspective, subprime loans peaked at over $600 billion per year, and total mortgages o…

That was my impression too. For this to be comparable to subprime loans, there would need to be opaque, surprisingly-leveraged derivatives of these loans. The article doesn't indicate if that's happening (it only mentions bundling into what sounds like a CDO).

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#52

Post by JumpCrisscross »

John23832 wrote: post #29
roymurdock wrote: post #23

Earlier quoted context omitted.

> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her. Th…

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

> If they don't understand what they're selling (and I'm sure they don't)

If you're selling someone financing, it's your responsibility--more than the borrower's, in my opinion--to understand the product.

Disturbingly, PACE financing appears to have been structured as a tax assessment instead of a loan. That means it sidesteps the "disclosures about the financing costs that traditional lenders must provide" borrowers [1].

[1] https://en.wikipedia.org/wiki/PACE_financing

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#53

Post by intrasight »

roymurdock wrote: post #39
John23832 wrote: post #29

Earlier quoted context omitted.

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table. Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/…

I think you've hit the nail on the head when it comes to houses - people form irrational sentimental attachments to their real estate.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#54

Post by TallGuyShort »

John23832 wrote: post #29
roymurdock wrote: post #23

Earlier quoted context omitted.

> We're going to keep going from crisis to crisis because banks can't say no, and the government(s) deems them too big to fail Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. The elderly woman in the article initially refused the $50k renovation to her 5 bedroom home, but then agreed because she thought the government was going to subsidize it for her. Th…

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

People need to stop signing forms they haven't actually read and understand. Make the person stand there while you read and think about it. It pisses them off like you wouldn't believe. If more people were doing that, they'd have to change and have simpler, more straightforward terms.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#55

Post by taeric »

curun1r wrote: post #37
John23832 wrote: post #29

Earlier quoted context omitted.

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

> Saying that people intended to default however, is not true. I'm not sure if it's what roymurdock meant, but there's a nugget of truth to what he said. People did take on loans that they never planned to pay off personally. They saw the relentlessly upward trajectory of home prices and wanted to benefit. They took on loans with the intention of refinancing or selling the home a few years down the road. It wasn't an…

You can just as easily say that banks were giving out loans they expected to refinance in the coming years.

That is, I find it misguided to fault people for defaulting on loan without faulting people for aggressively pushing people to refinance.

The cost of the system failure is being pushed to the people with the least control over it. I'm not looking for punishment. But responsible stewardship of the system controls would be nice.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#58

Post by John23832 »

roymurdock wrote: post #39
John23832 wrote: post #29

Earlier quoted context omitted.

> Consumers can say no, and if they had better financial education and/or financial prospects, maybe they would. I think that is blaming the victim. As the article says, you have repair people describing the terms of the loan to people. If they don't understand what they're selling (and I'm sure they don't) then how can you expect the average person to? Not to mention the pressure selling that is probably being used…

I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table. Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/…

> I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St."

I think we can amicably disagree. I'm not in the "fuck Wall St." camp. I understand what it is supposed to do and the value it is supposed to provide.

> Maybe I'm wrong and I'm one of the lucky, shrinking few who still has this option, the option of mobility than once made the US great? Because I'm young and employable?

Yes. You have the option of mobility because you're young and employable. Probably just because you're employable. The average person has horrible job prospects where they are. Moving into uncertainty of even worse job prospects probably isn't a realistic option. I think most people would try to make it work with the job they have (and get stuck with rents because of it), than leave their job and possibly not be able to find one where they move (and to have spent money moving).

> Also, if a homeowner considers their home an "investment" that means they should be willing to liquidate that investment at some point when it makes financial sense to do so. People get sentimentally attached to their homes, which is not true of most "good" (read: fungible/liquid) investments.

I'll go ahead and say this. Your home is NEVER an investment. A house that you own, maybe. But, I repeat, your home is never an investment.

> We're definitely both against fraud, but unfortunately these government programs that make life better for some by subsidizing mortgages, home renovations, tuitions, etc. can and will always be gamed by unscrupulous individuals. Question is - is the payoff to society (higher homeownership, literacy, energy efficiency) worth it?

I agree here, but I think the better question is, "When the unscrupulous individuals form a large, easily identifiable group, why sit idle and do nothing?"

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#59

Post by nommm-nommm »

imagist wrote: post #32

Okay, it's fastest-growing, but is energy-conscious lending anywhere near the size of subprime mortgages? Even if it is, it doesn't seem like as big a tragedy if the bank seizes your solar array as of they seize your home.

That's not how it work though.

These loans are added as a tax assessment on the property so the local government adds the premiums on the tax bill and collects with tax payments. Because its added as a tax assessment if you stop paying on your loan its the same as if you stopped paying taxes. Which means the city seizes your entire house.

This structure makes it so the PACE loan is ahead of even the mortgage holder in the creditors line.

That's even assuming its possible to seize your solar array, central air, insulation, or windows. These loans are for adding permanent features; permanent features of a house can't just be seized individually. They can't seize your solar array in the same way they can't seize your extra bathroom.

If that's not bad enough these loans are being issued without a credit or income check. They are being issued based on the amount of equity the borrower has in their property without regards to financial health or ability to repay and without the same lending disclosures required by other loans.

Re: America’s Fastest-Growing Loan Category Has Eerie Echoes of Subprime Crisis

#60

Post by sdenton4 »

intrasight wrote: post #53
roymurdock wrote: post #39

Earlier quoted context omitted.

I'm not blaming the victim, I'm appealing for a more nuanced viewpoint than "fuck Wall St." There are at least 2 sides to every loan - the originator and the borrower - and it helps to examine dynamics on both sides of the table. Is the book in the US generally stacked towards originators? Certainly, as I argue, with financial literacy being so low, most home-owners wanting to do anything to avoid moving, and family/…

I think you've hit the nail on the head when it comes to houses - people form irrational sentimental attachments to their real estate.

Human irrationality around shelter is a market inefficiency which the banks are happy to take advantage of.

They're also happy to write documents that are incomprehensible to the buyer, providing terms in their favor, as they know they are not working with experts, 99 percent of the time.

When individuals are put in opposition to large institutions, the individuals are going to lose. No amount of financial education is going to change that.

Regulation and good governance are your best bets, though competition sometimes works as well; place another institution in the mix to take the burden off the individuals.

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