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#1 User is offline   MTP Reggie 

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Posted 21 August 2019 - 07:44 AM

Mortgage Market Reopens to Risky Borrowers
By Ben Eisen
Aug. 21, 2019 5:30 am ET
WSJ

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The risky mortgage is making a comeback.

More than a decade after home loans triggered the worst financial crisis in a generation, the strict lending requirements put in place during its aftermath are starting to erode. Home buyers with low credit scores or high debt levels as well as those lacking traditional employment are finding it easier to get credit.

The loans have been rebranded. Largely gone are the monikers subprime and Alt-A, a type of mortgage that earned the nickname "liar loan" because so many borrowers faked their income and assets. Now they are called non-qualified, or non-QM, because they don't comply with postcrisis standards set by the Consumer Financial Protection Bureau for preventing borrowers from getting loans they can't afford.

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, according to Inside Mortgage Finance, an industry research group. Such mortgages aren't guaranteed by government agencies and typically charge higher interest rates than conventional loans.

Proponents of unconventional loans argue that mortgages became too hard to get in the aftermath of the crisis and that their proliferation will open the housing market to sound borrowers who had been shut out of it. But some worry that the competition for customers could drive lenders to loosen standards too much.

"There are some weakening standards and weakening practices," said Eric Kaplan, director of the housing finance program at the Milken Institute. "It doesn't rise to the same level yet, to my knowledge, of some of the things taking place just prior to the crisis. But we have to be vigilant."

Right now, unconventional loans are largely being extended by nonbank mortgage lenders. But big banks have found another way in: JPMorgan Chase & Co., Credit Suisse Group AG and Citigroup Inc. have in recent months been arranging mortgage bonds backed by unconventional loans.

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.

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#2 User is online   Dean Adam Smithee 

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Posted 21 August 2019 - 08:20 AM

View PostMTP Reggie, on 21 August 2019 - 07:44 AM, said:


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.



I'd question whether 690 is really "Subprime". It's only slightly below the 'average' score of 701, and Experian calls 670 and above to be "Good".

https://www.experian.com/blogs/ask-experian/wp-content/uploads/experian-different-score-ranges.png

Is the author overstating this just to make a story?
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#3 User is offline   MADGestic 

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Posted 22 August 2019 - 07:32 PM

I can't see the WSJ article due to the paywall but here's a Reuters article on the same subject. There's a lot going on: Falling home sales, relatively low interest rates, and a softening in the regulatory environment under this administration.

Unlike the Great Recession, I think we don't have nearly as many high-risk mortgage holders, the market is not so artificially inflated as it was back then (Clinton/Bush programs), and the investment industry is not playing high-leverage games with "securitized" mortgage derivatives.

What's similar is the desire to squeeze revenue out of a low interest rate environment. And perhaps, incurious consumers:

Quote

Ö CFPB research from 2015 found that almost half of mortgage borrowers fail to shop around, costing them several thousand dollars over the life of a loan. A third of borrowers said they relied on their real estate agent for mortgage information.

For now, I think the primary risk is to the consumers, who might be paying more than necessary for mortgage services, and who may less protected in this regulatory environment.
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#4 User is offline   MADGestic 

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Posted 22 August 2019 - 07:34 PM

View PostDean Adam Smithee, on 21 August 2019 - 08:20 AM, said:

I'd question whether 690 is really "Subprime". It's only slightly below the 'average' score of 701, and Experian calls 670 and above to be "Good".

https://www.experian.com/blogs/ask-experian/wp-content/uploads/experian-different-score-ranges.png

Is the author overstating this just to make a story?


I suspect "prime" means very good to excellent credit ratings; folks to whom the banks WANT to lend.
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#5 User is online   Dean Adam Smithee 

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Posted 22 August 2019 - 08:31 PM

723 here. Not "perfect" but solidly "good" (kinda the story of my life, but that's a different discussion. LOL) I might occasionally be a day or two late from sheer forgetfulness, but I've never "missed" a payment on anything in probably 20-some years.

https://oi586.photobucket.com/albums/ss307/FredMau/FICO.png?t=1566436858

At 723 I get junk mail almost daily from wannabee Lenders. Or people wanting me to buy a new car. Or the next house. At VERY favorable rates.

EtA: Maybe if I ignore them all, I can get to 724. LOL.

This post has been edited by Dean Adam Smithee: 22 August 2019 - 08:39 PM

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