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Mortgage Market Reopens to Risky Borrowers

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Re: Mortgage Market Reopens to Risky Borrowers

#41

As someone who is interested in buying a home. This scares me. We have lots of money saved for our down payment, but I don't want to end up in a bidding war with someone who isn't as good financially, and then end up purchasing for more than the house is really worth. Also, cheap money inflates the prices of homes anyway. Grumble grumble... we will have to stay disciplined and be honest with ourselves as to what the…

I bought my house in Austin 4 years ago in a pretty hot market. The advice I can give is don't let yourself get emotional. If you get outbid on a house, there will always be another one you can bid.

I ended up putting in offers on 8 houses before I didn't get out bid.

Re: Mortgage Market Reopens to Risky Borrowers

#42
post #6
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…

Matt Yglesias himself fits that mold perfectly -- studying philosophy at a prestigious university -- and going on to write about economics, politics, and foreign policy, not philosophy. Best I can tell he's never had any kind of role other than blogger/journalist.

Re: Mortgage Market Reopens to Risky Borrowers

#43
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…

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…

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

So that you can take them seriously. Then again, modern journalism is such a joke I don't know if this is a worthy endeavor

Re: Mortgage Market Reopens to Risky Borrowers

#44

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.…

Do you mind shredding some light on where big tech companies are expanding to? I can't seem to find where they're going through Google search.

You might be able to find lists of offices for major tech companies via google maps. Off the top of my head:

Google, Facebook, Apple are all expanding to Seattle, some in multiple locations

Amazon is building an office in NoVa

Apple is building in Austin. Looks like Amazon, Apple, and Google are too

Google, Amazon, and Netflix are building in LA

I'm sure there are many more expansions occurring too, anyone may feel free to list more or correct me

Re: Mortgage Market Reopens to Risky Borrowers

#45
My question is, who is to say that X "FICO Score" correlates to anything too meaningful -- or that the score itself has not become harder or easier to obtain?

Perhaps the data exists on this, but to my unresearched mind there's a lot of "fudging" potential within it all by itself. For instance, maybe the current 'borrower state' that gets you a 690 previously would have given you a 725; or maybe it's the opposite.

I understand how averages work, but is there any oversight or auditing done on the rating agencies and the ratings themselves? It just seems ripe for 'gaming' at that level IMO; if banks need to sell financial products and they buy the ratings from the agencies, surely they can lean on an agency to 'fudge' numbers one direction or the other (I'm speaking in aggregates here)?

Anecdotally, every time I look at my credit score I cringe -- I've never carried much debt, have always paid it off on time or early, and yet my credit score stays somewhat low, seemingly because I largely don't participate in "the system". Furthermore, every time I've ever applied for credit I end up with scores (and offers of credit) far in excess of the numbers I see when I either get my 'free credit report' from the 3 agencies, and they're similarly different than the numbers I see if I pay to see my reports from the 3 agencies.

I don't know, it just seems like a "chicken-egg" problem to me, and one where the rating agencies are perhaps incentivized in a way that does not align with the "economy" as a whole -- and is instead much more closely with their high-value customers (lenders). I also feel like there's so much "missing data", which could probably tell quite the tale, for instance, if someone such as Google was to begin a 'ratings agency'. Half of my finds that to be a scary thought, the other half of me thinks that we'd probably end up with objectively better outcomes, both economically and probably, in many cases, even individually too.

Re: Mortgage Market Reopens to Risky Borrowers

#46

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…

> And neither Equity, or ability to repay (debt/income ratio) has anything to do with subprime lending or a subprime lending crisis.

No, that is exactly what it means.

> 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.

No, those are teasers with a low-fixed rate for 2,3 or 5 year, with the rate resetting to a very high adjustable rate after the teaser period. Teasers technically are 30 year amortizing mortgages, but you are correct in that they should be treated like balloons, because the payment after the reset is higher than the borrower can typically make.

In an environment of rising home prices, it should be easy to refi on similar terms at the end of the teaser period, but if prices are not rising, you can see what happened in 2008.

Re: Mortgage Market Reopens to Risky Borrowers

#47
post #38
post #15

Earlier quoted context omitted.

"The most in a decade" is where all the shenanigans of the article lie. Let's say Peak 2006, Sub-Prime Loan was $600B Let's say the average, natural Sub-Prime Loan is $100B After the crash, may be the market over-corrected way to much and slowly crawling back to it's natural $100B. With this perspective, the narrative becomes totally different. The lending standard is still too tight and still way below what the natu…

I'll also throw in there that it could be simply that mortgages are increasing overall, and that the sub-prime share of the mortgage pie isn't increasing at all.

This line implies otherwise, since we can safely assume mortgage originations overall didn't double YoY:

> 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.

Although the phrasing makes me wonder if more subprime loans are being originated or if more are just being securitized as opposed to being held on balance sheet.

Re: Mortgage Market Reopens to Risky Borrowers

#48

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…

> Subprime generally means enticing debtors with interest rates below prime

No, subprime lending refers to riskier loans, usually with commensurately worse terms, offered to people with less-than-prime credit status. It has nothing to do with the prime rate, and I have no idea where you got that idea. I mean, as folk etymology goes it's superficially plausible, but it's one of those things that I think wouldn't survive even the most casual contact with the use of the term in the wild.

https://www.gardenstateloans.com/mortgages/whats-the-differe...

https://en.m.wikipedia.org/wiki/Subprime_lending

Re: Mortgage Market Reopens to Risky Borrowers

#49
post #6
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 it's a bit more complex than that though. Experts within these fields should be a resource for journalists to access, perhaps in some fields - like economics or legal matters - it's prudent for the news organization to have internal specialists that can evaluate the raw data and draw independent conclusions - but that's not scalable. I think the issue is more that experts with vested interests who lie repeatedly to news organizations don't end up being ostrasized and instead thrive, leading more experts to follow suit and putting news organizations in the position where they either need to accept the interpretation at face value[1] or else try and make an inexpert evaluation of those facts. I think this is associated with the fact that the world is growing in complexity. A hundred years ago most people had built or helped to build a house and could call B.S. if a poorly constructed building collapsed and the constructor tried to claim unexpected ground instability - now a-days if the wiring in a building causes a fire that results in fatalities most members of society aren't able to go and look at the sight and reason whether that wiring was faultily installed or whether there really was a crazy factor out of the electrician's control.

The specific example I used above is actually perfectly terrible because I think we do still have accountability in a lot of the "trades" since so many people work independent of large firms and feel empowered to call out bullshit, but that's sort of what I wanted to highlight - it's when we're talking about an industry that is largely consolidated or centralized (like say banking) where everyone who knows what's going on is employed either by the primary party or a friend of the primary party that we get a breakdown of the truth.

1. I.e. Those iraqis have weapons of mass destruction because intel and this mustard coloured powder.

Re: Mortgage Market Reopens to Risky Borrowers

#50
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…

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…

How about The Economist? I feel like they are doing a good job at a middle path.
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