From Birch Gold Group
It looks like the mortgage industry forgot the dire lesson they learned about risky lending during the 2008 Financial Crisis. Unfortunately, that amnesia may lead the U.S. into the next crisis.
Fox Business crystallized this thinking in a recent piece:
Considering that just a decade ago home loans caused the worst financial crisis since the Great Depression, this news has many experts worried. “This is something I’ve been worried about for a long time,” GraniteShares CEO Will Rhind told FOX Business’ “Cavuto: Coast To Coast.”
Will Rhind continued with a dire warning about the “hidden” danger this recent trend in risky mortgages presents:
You have a situation where yields have come so low, everybody’s trying to stretch for some kind of yield which has pushed a huge amount of money in the private credit markets, which is sort of less visible than the public markets.
You would think these risky mortgage loans would be limited by legislation created after the last financial crisis a decade ago. But according to a chart on Realtor.com, they’re actually on the rise:
As you can see in the chart above, both first-half and full-year trends in origination of unconventional mortgages are on the rise.
Not only are they on the rise, but according to Realtor.com, these “unconventional” mortgages seem to be a repackaged version of the same type that partially caused the Great Recession:
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.
To make matters even more complicated, $2.5 billion of these subprime loans were sold in 1Q2019 mortgage bonds. This is “more than double a year earlier and the highest level since the end of 2007,” according to Inside Mortgage Finance.
According to a recent op-ed on the National Association of Mortgage Underwriters (NAMU) website, the FHA revealed some staggering data about borrowers at the end of the first quarter in 2019 (emphasis ours):
- The average credit score for FHA loans fell to 665, the lowest level in about a decade.
- The share of borrowers with credit scores less than 640 rose to nearly 30 percent.
- Nearly 28 percent of FHA-insured forward mortgage purchase transactions involved borrowers with debt-to-income (DTI) ratios above 50 percent.
If the thought of subprime borrowers with stretched budgets taking out mortgages sounds familiar, the script is eerily similar to 2008.
Recession “Lighthouse” Being Ignored
With homebuyers working the same for less home-buying power, you would think any signal from the subprime credit markets would trigger panic.
Unfortunately, that doesn’t appear to be the case. In fact, even the FDIC has issued a general warning to banks that are using “looser underwriting standards” to issue loans amid slower growth in the credit markets:
With competition for loans increasing amid slower growth, the FDIC noted that ‘market demand for higher-yielding leveraged loan and corporate bond products has resulted in looser underwriting standards.’ Banks that are highly exposed to volatile sectors—such as agriculture, commercial real estate or corporate debt—could be particularly susceptible to fluctuations in the market, the FDIC said.
That same trend appears to be developing at a deeper level with increasing issuances of subprime mortgages, as indicated in the chart above.
But this isn’t a newly developing trend. In fact, the New York Times was signaling it just last year:
But lenders are starting to push the loans on borrowers, who are using them to get into homes that may be bigger and more expensive than what they could otherwise afford.
And according to Wolf Richter, even with record low rates for qualified buyers, which should help the mortgage markets soar, home prices are falling and inventories are increasing:
With this quantity of inventory for sale, homebuilders will be motivated to do what they can to keep supply from rising further or worse, spiking – as seen during the housing bust.
So we may have a housing bubble that bursts on top of a subprime mortgage crisis. Neither one of these are good. And if both happen, it would be a disaster.
The signals are there. If the U.S. is steering a ship into port, and it ignores the lighthouse, the U.S. economy could end up crashing on the rocks.
Don’t Let Risky Mortgage Lending Hurt Your Retirement
It sure seems like old lending habits die hard. Insanity has been defined as “doing the same thing over and over and expecting a different result each time,” which is what’s happening here.
Only time will tell what will actually happen in the credit markets, but all of the signals are pointing to an economic roller coaster with steep drops ahead.
So start preparing yourself for the worst. You can get started by hedging your bets.
After 8 long years of ultra-loose monetary policy from the Federal Reserve, it’s no secret that inflation is primed to soar. If your IRA or 401(k) is exposed to this threat, it’s critical to act now! That’s why thousands of Americans are moving their retirement into a Gold IRA. Learn how you can too with a free info kit on gold from Birch Gold Group. It reveals the little-known IRS Tax Law to move your IRA or 401(k) into gold. Click here to get your free Info Kit on Gold.
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The truth is debased before the currency.
The article starts off with two falsehoods. That the financial crisis of 2008 was caused by faulty mortgages and that the new regulations put in place didn’t solve the risky lending problem.
There is no price discovery anywhere in anything. Everything has been so regulated and subsidized and offshored that it is impossible to find the true price of anything any more, no matter what it is. Political, social, religious or economic affairs have been so badly corrupted and deliberately confused it takes a small army of computer wizzes to get to the bottom o.f any issue.
Total collapse is the only remedy, whether by design or by natural causes.
Fleabaggs..
Very good.
Now if we can only fix our display names and get rid of this: http://www.gods-kingdom-ministries.net
Who is surprised this is happening? Anyone?
Here I am, once again, talking about the lunacy that is the current housing market.
And for the cheap seats, you may or may not know I sell real estate. Specifically foreclosures. Coming up on 15 years. This is what I am seeing now:
BARELY qualified FHA buyers with $6000 to their name buying a house that has a 15 year old roof, a 7 year old hot water heater. Yes, both of these things CURRENTLY function, but will cease to do so, and in the case of the hot water heater, probably very very soon and the day before Christmas.
You, the buyer, have zero savings. You make 45K per year and your wife works part time and makes 15K a year and you have one, possibly two children both in elementary school.
You wake up Christmas morning to zero hot water and a small flood in your basement. You have blown all your cash on Christmas and your credit cards are almost maxed out. Your paycheck on Friday will 840 bucks after taxes and insurance.
Your wife works at a restaurant and isn’t going back until Friday and it’s kind of slow until New Years eve, so maybe she’ll bring in another 200-250 bucks between Friday night and Saturday. Maybe.
Your mortgage on your overpriced, 1950’s cape on a postage stamp is due in two weeks too…and that will be 1200 bucks.
You have a 450 car payment due in two weeks. You need that car to get to work. A plumber will come out to replace your hot water heater on Christmas but of course that’s going to cost you extra, so instead of the usual 1500 bucks the plumber says it’s going to be 2000. Christmas is on a Wednesday and your progeny are home for the week so it’s not like you can give them the old sponge bath a few days and ship them off to school.
The wife has a pile of laundry to the sky because you let that shit go for the holidays.
You start calling around if anyone knows a cheaper plumber. No one is answering because it’s Christmas and no one cares about your problems anyway.
You get down in the basement and start shop vac-ing up that water and pray it dries out enough and you don’t get mold.
So folks, you can see the dilemma.
Two weeks of income from you and maybe your wife:
$2280
minus the mortgage:
$1080
minus the car payment:
$630
and folks the kids have to eat, amiright?
minus groceries:
$430
And god in heaven help you if you have to buy oil too:
$230
And put gas in the car
$140
and pay the electric bill
0
So where does the hot water heater money come from?
And if anyone in that family is on any kind of asthma meds with copays, then you are looking at a negative.
So you push the car payment out to the third week and eat the late payment
You skimp on groceries a little
You skip the electric bill this month
You put diesel in the oil tank to “get by”
And you borrow some cheese from mom and dad down in Florida
And now your behind a significant amount and you pray you don’t get a flat tire or your wife doesn’t get sick and miss work.
It’s that easy. Two months of “unforseen” expenses (which is total BS because who thinks a hot water heater is going to last forever??????????) and you are in the red and it snowballs.
Now you and your wife are fighting like cats and dogs over money.
You decide that maybe not coming home right away at night and drinking after work with the guys is a way to cool things off, she strongly disagrees.
6 months later the house is a mess, your wife and you hate each other, and your filing for divorce. No one pays the mortgage because why bother?
Fast forward a year later and I’m standing at your door saying
“Hi, I’m here on behalf of XYZ bank, are you aware the foreclosure auction took place? XYZ Bank would like to offer you relocation money to move out are you interested?”
This is a common theme among almost every bank owned property I have sold. That and the ding bats refinance every single year for 5-10 years and now owe possibly double what they bought the place for yet have zero to show for it. Oh, they’ve been to Disney, and the wife has an amazing rack brought to you by Dr. Doogood. There’s a four wheeler in the garage and a pool table in the basement. The kids have every game system made, which they each play on their own flat screen TV. And everyone has new phones every year.
It’s a simple solution to the problem. Really. If you don’t have 3-6 months of expenses saved up, or the ability to get it in a week, then you should not be buying an older home with older shit in it with a 650 credit score and 40-50% DTI ratio.
Buy a multi family. But that’s a whole different can of worms for another time.
Love the story.
Sad and truthful as it is, it’s a tale from the front lines, Pup.
The best kind.
Experience.
Platform monkeys are quite aware of the lumpen’s fatal flaws.
And it all boils down to failure to save, distinguishing between wants vs. needs, discipline, and living within one’s means.
Then the guilt trip pity party, when it all goes south.
As Cougar sang,
“Aw, but ain’t that America.”
Little pink houses, baby.
Mellencamp won’t admit it but he’s more of a conservative now…I wonder if he will do another Farm Aid…..yet another group of complete hypocrite’s living way above their means and sucking as much milk out the government teat (which means your taxes!) as possible.
Damn, that sounds like a Griswald Xmas Vacation.
Pup, what are the numbers looking like though. It’s all about the data configured as a number to show how bad it is or is getting. What are the numbers?
That was a great screed,
So, tell us, do you think real estate is a good investment? (JK)
This article is so wrong, the 2008 crash was not caused by homeowners buying too much house, it was caused by bankers, packaging mortgages into derivatives, and then selling them to sucker banks around the world. once the homeowners got into a little trouble (because gasoline went to $4-5 (how come nobody remembers this shit?) they were late on payments.
Then Banksters panicked, realized their own kind had conned them, and went ape shit, freezing the flow of interbank credits, which then impacted markets, blah, blah market crash of 2008.
The real culprit was GW Bush, his legacy of setting the ME on Fire, due to the false flag of 911, and the resulting banksters forever war that is still part of our reality.
NWO globalist+Neocons+Greed caused the 2008 crash, not the little idiot who bought too much house.
That is like saying, “the trade centers fell, due to jet fuel, causing physics to suspend reality for the 8 hours it took to demolish the trades centers and Bld. 7”
They really think we are stupid. (and they hate us)
Anonymous:
It was absolutely about buyers buying too much house they could not afford. The very fact that these loans were known colloquially in the real estate world as “liar loans” or NINJA (No Income No Job/Assets) and were gleefully signed by ignoramus buyers who did not read any of the loan docs, shows greed knows no bounds.
Yes, mortgage brokers had zero guilt about pushing these loans onto these dupes, but no one held a gun to their head. Then the secondary market lied to investors who swallowed said lie hook, line, and sinker and put them in millions of people’s pension funds.
Now to answer Donkey:
NO. Real estate is not a good buy. RIGHT NOW. We are at the peak. You never buy at the peak. This is what I tell every investor who calls me to ask about investing (not buyers who are buying to live in their home as a primary residence) in rental property. The numbers make zero sense are headed for catastrophe.
It’s not a mystery folks.
Here’s the numbers:
Average sale price of a “triple decker” in the City of Worcester as of today:
$332,398
Average age of said building:
119 years
Average sale price in 2018 of same type of building:
$286,363
That’s an increase of $46035
In ONE year.
Average rent for a three bedroom apartment in 2018
$1544
2019:
$1575
So how do you support a mortgage that is now $2107 not including your water/sewer and maintenance costs on rents that have not gone up significantly yet building value has?
Ok, Ok, I hear you…you live in one unit and you rent the other two. Please note, that the AVERAGE rent does not mean you will get it either. For a three bedroom on Beacon St which is the South Main area of Worcester, the least desirable rental area for decent tenants, you can get $1300. So that’s $2600 bucks a month. Sweet! You get to live pretty much for free, right? WRONG.
215 Beacon St Worcester sold on April 30 for $333500.
Mortgage would be about 2100-2200. Your water bill for said property would be about 4500 per year. Yup, you heard me. You have, conservatively, 2 adults and 2 children per unit, which is 12 people taking showers, cooking, flushing toilets, and doing laundry. Water/sewer is billed quarterly.
Then you have shit that goes wrong every month. Some moron lets their kids stop up the toilet on the third floor, or you have a cold snap and the pipes freeze in the wall, because there is NO insulation in a 119 year old building. There is not. You cannot do blown-in insulation on a “balloon frame” building. And believe me when I tell you, the previous owners just slapped some vinyl insulation over the very old, very crumbling wood siding that was there. Now you have a flooded second and first floor with ceilings that need to be replaced, flooring, and of course the original damage that the idiots caused on the third floor that will never be admitted too. EVER.
So you have to cough up about 3000-5000 out of pocket, unless you want to file an insurance claim and have your insurance go through the roof.
And the tenants on the second floor don’t have to pay your rent until the repairs are done either.
So now you have an “unforseen” expense (again, how this is unforseen is beyond me) that smacks you in the ass.
Worcester has “city bags” that the tenants are supposed to pay for out of pocket and use for trash. I laugh hysterically because 90% of these people know that if they don’t feel like doing it, and just put the trash on the porch, the city says ultimately it’s the owner’s responsibility to get the trash picked up and you can just “fine the problem tenant” if they don’t comply. So the same asshole who won’t go buy a $4 roll of trash bags is going to pay your fine. Sure.
Unless you know WTF you are doing, you are going to go up in flames very quickly when one, and I do mean ONE bad tenant who knows the system plays you like a cheap fiddle, lives for free for a year while you pay money to take them to court.
Que earlier scenario…owner walks away.
Now you may say…but Pup, this can’t happen a lot, can it?
Oh, dear reader….it happens more than you know. I have worked not just in sales but have done property management for the worst neighborhoods and the dumbest land lords on the planet. Most people who are landlords have no business doing it. They don’t understand preventative maintenance, they don’t screen tenants correctly, or they hire the wrong management who end up making in worse. Much worse.
I managed some pretty bad apartments in 2016-2017. The tenants were for the most part, shiftless non-paying liars and I am pretty sure drug dealers based on the cameras they put up around the building. They didn’t pay, were excuse machines, and then when we got them out the units were in total shambles.
The owners lived in Florida, and were too cheap to fix things right. So the 2 good tenants who actually paid, were always calling about repairs that were 100% necessary. We are talking a leak around a shitty chimney were water would pour down the chimney into their apartment after every rain. My property guy was on a third story with a harness putting tar around it because they would not pay for a new roof. Which this place desperately needed. They actually hired a non-licensed “plumber” to put in a boiler that was not rated for MA. The guy showed up, pulled out the old one and never came back. In January. So now my plumber goes out there and they get charged more because he has to clean up that guy’s mess. And the city is PISSED. I warned them not to do this, they didn’t listen.
The laundry room was constantly broken into so local junkies could pry open the coin op machines and steal the quarters.
The dumpster I finally had removed and we went to city bags because the day the dumpster got emptied every dirt bag in a 2 block radius would haul their crap down there and fill it up. In one day.
I gave these people 2 months notice to find someone else because I had had my fill of the constant BS. These people begged me to stay and offered me more but no way. It just was not worth it. And my property preservation guy was ready to go insane.
So why would anyone pay 300K in this neighborhood?
Well, because in a decent area the same building costs $500,000.
So unless you are smoking some serious weed that has melted your cerebral cortex, wait.
In 2012, 215 Beacon St sold for $160,000. Guess what the rents were? Yup. $1300 per month.
Dear readers. Please. For the love of god. Wait. And save your pennies. Because when the shit hits the fan it will make 2008 look like a walk in the park. The wise will profit and the idiots will be crying in their soup.
Now, if you are a seller, don’t be a dumb ass. Get out now while you still can and take your cash and then wait with everyone else, and call me in 2020-2022 and I’ll sell you all these buildings for a song when they are foreclosures.
Go call a couple local real estate agents wherever you live right now. Let’s see if they tell you the truth, or if they say they will take you out tomorrow to go look, you can get “a great bargain!”.
Ask the hard questions, see if they have real answers.
That should be all you need to know right there. A real agent, one who understands fiduciary duty to their client, which would be you, would tell you the truth and then let you decide if you want to buy right now. It is my job, as YOUR agent, to give you the facts, the hard answers. So if anybody has 1 million plus floating around out there and you need to park it some where in a tax shelter, then real estate might be a good fit. But you better know what the hell you are doing.
The rest of you, save yourself some tears and anguish and don’t fucking do it.