Mortgage Market Reopens to Risky Borrowers
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Re: Mortgage Market Reopens to Risky Borrowers
#2> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter.
Statements like this are hard to evaluate without knowing the denominator: the total value of new mortgage bonds in each period.
All too often, an author who should know better throws the reader a scrap like the following sentence:
> The market for unconventional home loans is still tiny compared with the rest of the mortgage market as well as its precrisis past, when unconventional borrowing peaked at more than $1 trillion.
But this still doesn't convey what percentage of the loans are to sub-690 FICO borrowers.
I see this all the time and wonder to what extent it has contributed to mistrust of the traditional media.
If we find out that the percentage in 2019 is 1% but in 2007 it was 56%, that casts the entire story in a different light.
Re: Mortgage Market Reopens to Risky Borrowers
#3> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter. Statements like this are hard to evaluate without knowing the denominator:…
"That made him an appealing borrower to an unconventional lender, according to Tom Jessop, a loan consultant at New American Funding. Mr. Jessop arranged a $675,000 loan on the $1.1 million property, leaving the lender with a significant buffer should Mr. Licht default."
Also, this is a TERRIBLE example of a pending subprime crisis. A guy borrows $675K on a $1.1 million property.
Re: Mortgage Market Reopens to Risky Borrowers
#4> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter. Statements like this are hard to evaluate without knowing the denominator:…
I believe the news here is a resurgence of growth in a mortgage type that has otherwise been declining or stagnant the last 10 years, not so much an alarm about the current state of affairs. So what you said is correct and all, but I think you miss the point.
Re: Mortgage Market Reopens to Risky Borrowers
#5> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter. Statements like this are hard to evaluate without knowing the denominator:…
"That made him an appealing borrower to an unconventional lender, according to Tom Jessop, a loan consultant at New American Funding. Mr. Jessop arranged a $675,000 loan on the $1.1 million property, leaving the lender with a significant buffer should Mr. Licht default." Also, this is a TERRIBLE example of a pending subprime crisis. A guy borrows $675K on a $1.1 million property.
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Re: Mortgage Market Reopens to Risky Borrowers
#6> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter. Statements like this are hard to evaluate without knowing the denominator:…
The problem is that most journalists are innumerate. As Matt Yglesias notes, "many reporters and editors don't really understand what they're doing. Reputable colleges hand out degrees to people who have almost no understanding of quantitative methods." [1] These journalists see the numbers as garnishes on a narrative point. They're not trying to put the numbers in some sort of mathematical context to draw sound conclusions. They may not even realize that there is a difference between using numbers for garnish and deriving meaning from numbers.
[1] https://www.theatlantic.com/politics/archive/2007/12/innumer....
Re: Mortgage Market Reopens to Risky Borrowers
#7> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter. Statements like this are hard to evaluate without knowing the denominator:…
I don't understand this criticism of the article. The point of the article is that lending standards are starting to loosen. The article provided a handful of numbers and one anecdote.
The article title and first sentence are: Mortgage Market Reopens to Risky Borrowers. Strict lending requirements that were put in place after financial crisis are starting to erode. The risky mortgage is making a comeback.
Supporting facts are:
- "Borrowers took out $45 billion of these unconventional loans in 2018, the most in a decade, and origination is on track to rise again in 2019."
- "Unconventional loans are largely being extended by nonbank mortgage lenders. But big banks have found another way in ... Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007."
Then there's the single anecdote about a borrower with a sub-690 FICO. Is sub-690 arbitrary? Yes. Is this borrower an example of an egregious loan? No. But is this someone who could not have gotten a loan previously? Yes. It supports the article.
The article is fair in its assessment:
- "Big banks’ mortgage arms are still avoiding riskier borrowers, leaving them to nonbank lenders. Still, the increase in unconventional loans shows that lenders are looking farther afield for customers."
Let me put it another way: at what point should the WSJ write an article like this? The 2008 financial crises cratered the economy after previous lending standards became lax. We put regulations in place to prevent that from happening again. Those regulations are starting to be weakened again. I want to know that.
Re: Mortgage Market Reopens to Risky Borrowers
#8> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter. Statements like this are hard to evaluate without knowing the denominator:…
> The market for unconventional home loans is still tiny compared with the rest of the mortgage market as well as its precrisis past, when unconventional borrowing peaked at more than $1 trillion.
And the number of defaulted loans/foreclosures was tiny compared to the total toxic (sorry, not letting them re-brand toxic loans as unconventional) assets. However, that tiny number of defaults/foreclosures, was enough to overturn the entire economy...but for Bush's $1T+ bailout followed by Obama's $1T+ bailout, banks and wall street would have crumbled, instead the got to consolidate with their new taxpayer cash on hand.
The banks and wall street recovered, of course homeowners and American working class taxpayer never did, so its time to run the whole scam again and get those devious working class American's who escaped 2008 unharmed.
Re: Mortgage Market Reopens to Risky Borrowers
#9> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter. Statements like this are hard to evaluate without knowing the denominator:…
The FICO score is only one consideration. The biggest problem with the loans in 2007 was lack of verification of income and buyers qualifying on a mortgage amount that would eventually go up. A 650 FICO borrower with a good job, downpayment and an affordable monthly payment is a pretty good risk.
Re: Mortgage Market Reopens to Risky Borrowers
#10> Some $2.5 billion worth of subprime loans, those with FICO credit scores below 690, ended up in mortgage bonds in the first quarter of 2019. That is more than double a year earlier and the highest level since the end of 2007, according to Inside Mortgage Finance. There was $1.9 billion worth of subprime mortgage bonds in the second quarter. Statements like this are hard to evaluate without knowing the denominator:…
"That made him an appealing borrower to an unconventional lender, according to Tom Jessop, a loan consultant at New American Funding. Mr. Jessop arranged a $675,000 loan on the $1.1 million property, leaving the lender with a significant buffer should Mr. Licht default." Also, this is a TERRIBLE example of a pending subprime crisis. A guy borrows $675K on a $1.1 million property.
>Also, this is a TERRIBLE example of a pending subprime crisis. A guy borrows $675K on a $1.1 million property.
Well isn't the point that you/they are making that determination on equity alone? As we saw in 2008 all that equity can disappear in a blink of an eye. Equity has no bearing on ability to repay. So before deciding if this is a good or bad loan wouldn't we need to know his outstanding debt to income ratio?
And neither Equity, or ability to repay (debt/income ratio) has anything to do with subprime lending or a subprime lending crisis. Subprime generally means enticing debtors with interest rates below prime, with a loan that will adjust to above prime (and many times even into a single balloon payment at the end which statistically almost no American can make). No one should qualify for such loans on the basis "you may be able to refinance again at the end to avoid the balloon payment", if you don't have the cash on hand to pay the balloon payment, you shouldn't qualify for these types of loans.