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Mortgage Market Reopens to Risky Borrowers

wsj.com

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Re: Mortgage Market Reopens to Risky Borrowers

#21

Post by rconti »

throwaway_law wrote: post #10
ErikAugust wrote: post #3

Earlier quoted context omitted.

"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? A…

1. SOME of the equity can disappear in the blink of an eye. The lender has a nice cushion when the buyer puts down 40%. That's hardly considered risky, which is why this is a terrible example.

2. Subprime refers to the class of borrower, typically based on their less-than-ideal credit scores. The term does not mean that the bank is offering a rate below the prime interest rate to "trick" potential borrowers into taking on debt.

Re: Mortgage Market Reopens to Risky Borrowers

#22

Post by opportune »

Is anybody else making the supposedly foolish decision to time the housing market?

I am financially ready to purchase my first home, currently living in the bay area, but I think right now just looks like a bad time.

- A lot of housing price growth is seemingly "priced in" since rents for condos/apartments significantly lower than total monthly ownerships costs (mortgage+hoa+insurance+taxes+etc.), even with 20% down.

- The major high paying tech companies are expanding mostly outside of the area. The fresh batch of big tech companies, outside of Airbnb, have an unclear path forward.

- Subprime lending, interest rates, the current PEs of REITS etc. seem to indicate an impending housing contraction. So interestingly, dumb money (the consumer lending market) is pricing in growth while the smart money is indicating a contraction...

- A lot of VC backed companies are looking bubbly, so if you are at an actually profitable tech company in the area, your relative purchasing power for housing would likely improve if the bubbly companies went under.

Re: Mortgage Market Reopens to Risky Borrowers

#23

Post by asdfman123 »

rayiner wrote: post #6
apo wrote: post #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 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 conc…

I think the problem is they're not entirely innumerate but they have precious little time or resources to really do their articles justice, and they aren't as facile with numbers as engineers are so they botch them a little bit.

Re: Mortgage Market Reopens to Risky Borrowers

#24

Post by tjr225 »

opportune wrote: post #22

Is anybody else making the supposedly foolish decision to time the housing market? I am financially ready to purchase my first home, currently living in the bay area, but I think right now just looks like a bad time. - A lot of housing price growth is seemingly "priced in" since rents for condos/apartments significantly lower than total monthly ownerships costs (mortgage+hoa+insurance+taxes+etc.), even with 20% down.…

I ended up buying, but in a low cost of living area.

In spite of the high wages possible equity it still seems risky/unfeasible to enter Seattle's housing market right now. First I would have to get lucky that a 400k house/condo would appear on the market. Then I would have to come up with 40k for small down payment on the cheapest house/condo in the metro area. Assuming I wasn't outbid by a developer or someone with more money than myself, I'd then have a nearly 2k a month mortgage - in addition to any maintenance/repair costs we might(will) incur.

If I or my wife lost either of our jobs that would be a stretch, and we have pretty good jobs. Our family is all 2500 miles back east. Too much to lose.

Maybe someday.

Re: Mortgage Market Reopens to Risky Borrowers

#26

Post by tryitnow »

rayiner wrote: post #6
apo wrote: post #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 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 conc…

I think that explains only part of the problem.

The other problem is that for-profit media would never have an incentive to hire journalist with quantitative skills. There's very little demand for it outside of trade and professional presses and I would bet media companies would have to pay quant journalist at least twice as much as regular ones.

So why should media companies hire and publish quant journalists? There's no good reason.

And that's also why journalism programs don't teach serious quantitative methods - there's not going to be demand for journalists with those skill sets.

The obvious exception to this is trade and professional publications, but those are often subscribed to by businesses with a vested economic interest in the information.

Re: Mortgage Market Reopens to Risky Borrowers

#27

Post by zaroth »

throwaway_law wrote: post #8
apo wrote: post #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 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…

FYI, the foreclosure rate spiked from a historical rate around 0.5% to around 2.3%, which is actually a massive increase.

Re: Mortgage Market Reopens to Risky Borrowers

#28

Post by fuzz4lyfe »

xenocyon wrote: post #11
rayiner wrote: post #6

Earlier quoted context omitted.

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 conc…

Calling the absolute numbers re subprime loans a "garnish" is subjective at best and wrong at worst. Even if the subprime-to-prime ratio hasn't changed much, a large increase in the ballooning subprime total may still be newsworthy in its own right.

>Even if the subprime-to-prime ratio hasn't changed much, a large increase in the ballooning subprime total may still be newsworthy in its own right.

Wouldn't the news there be that the total number of mortgages have grown dramatically? Unless you have a narrative to push that is.

Re: Mortgage Market Reopens to Risky Borrowers

#29

Post by fencepost »

Is some of this in the category of "looking for new business areas as signs of possible recession loom?" Between the yield curve inversion coverage and concerns about trade war impacts I could easily see concerns and people trying to get things started while it's possible to do so.

Re: Mortgage Market Reopens to Risky Borrowers

#30

Post by bachmeier »

opportune wrote: post #17
whiddershins wrote: post #13

For all the negative rhetoric around subprime loans, they enabled me and others I knew who were young and self employed to own homes. They aren’t always bad, they aren’t always crazy balloon loans or predatory instruments. Sometimes they allow someone who has an alternative life circumstance to not be excluded.

Yeah, subprime lending often makes a lot of sense for the person taking out the loan. If the rents are high relative to expected mortgages/recurring costs in your area, it will pay itself off very quickly (minus the risk of default you open yourself off to). And it allows you to lock in a monthly payment for potentially decades, which has a massive amount of value by itself. It also makes a lot of sense if you have r…

> And it allows you to lock in a monthly payment for potentially decades, which has a massive amount of value by itself.

Well, that might be a good thing when house prices are appreciating at a crazy rate, but it also locks you in when the housing market and/or the economy crashes. If you're renting, you lose your job and you're stuck with your lease for maybe another six months (assuming you don't break it). Once you buy a house, you're stuck with it until you can sell it or foreclosure, even if the price goes down or you lose your job.

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