Posted on 01/13/2016 9:02:03 AM PST by Kaslin
Fannie Mae, the federally sanctioned mortgage giant, has just announced a new program that shows that they learned absolutely nothing from the last real estate meltdown. This new program, called "HomeReady" in a fit of hopeful and wishful thinking, reduces loan underwriting standards.
It's designed to allow "underserved" individuals the opportunity to buy a home - focused primarily on low-income and minority borrowers. Other than the last group of under qualified borrower-friendly loans and regulations from the mid-2000s, it's the stupidest real estate loan idea that I've ever seen.
The new loan "features" reduced credit score requirements and allows borrowed funds for a down payment. Most significantly, it allows using the income from non-qualified residents of the home for debt ratio calculations - their income is included but they won't be legally obligated by the terms of the loan nor will their creditworthiness be evaluated.
The whole point of the loan is to increase opportunities to buy a home. The underlying purpose, as you can guess, is to allow elected officials to celebrate increased homeownership numbers and self-refer to their sense of fairness and caring.
What's actually going on is that Fannie Mae is using the backing of the Federal government ' i.e., the taxpayer - to get banks to makes loans to people that they would turn down in any other circumstance.
Having been in the mortgage business for most of the 1990s, this is a topic that is near and dear to my heart. Being a taxpayer since the early 1990s, it is also a topic that is near and dear to my brain, as well. I watched, from a front row seat, as the community loan programs under Bill Clinton expanded the population of potential borrowers, all under the guise of increasing homeownership. It increased and then exploded under George W. Bush.
Mortgage lenders were given both carrot and stick incentives to make more loans. The carrots were in the profits guaranteed by selling the loans in the secondary market to investors worldwide, backed by Fannie Mae. Shareholders and anyone else involved couldn't ignore the mountains of money to be made.
The sticks were in the threatened lawsuits and increased regulatory scrutiny should the preferred "underserved" loans not be funded with regularity. Disparate impact analysis, evaluating turndown percentages by race without regard to creditworthiness, could result in charges of racist underwriting practices. A lack of mortgages written in minority or low-income areas would have the same result.
The one thing that was NOT considered? Whether or not the borrowers would or could actually repay the loan. Fannie Mae wanted these loans made and provided a guaranty to the lender: as long as the loan was properly underwritten to their standards, they'd guaranty against the loss. In other words, banks were funding loans that were secured by other people's money, strongly encouraged by those that bore no consequence for the absurdity of the plan.
I distinctly remember a conversation between a senior executive and an underwriter at the mortgage bank for which I worked:
"These loans are insane. The default rate is going to be through the roof!"
"Doesn't matter. The guidelines are the guidelines and we’re going to make a fortune."
If you were conscious and sentient in the mid to late 2000s, you know the answer to this question, but go ahead and consider it anyway:
What happened to the real estate market when a huge number of borrowers, who had competed with one another to drive up housing prices to record levels, stopped making payments on loans they never should have received?
Exactly. The bottom fell out.
Understanding what Fannie Mae is doing with this new loan program, lets see if we can let the past inform an answer to a question about the future:
What will happen to the real estate market when a huge number of borrowers, who will be competing with one another and driving up housing prices, stop making payments on loans they never should have received?
Exactly. The bottom will fall out.
Within seconds, of course, Fannie Mae will make good on their loan guarantees - with our money - and the scam will be complete. Within a few seconds after that, predictably, politicians will decry lenders' abuses and call for further regulatory oversight. And then after a few years the cycle will repeat itself yet again.
How about a consideration of this crazy notion: Let banks loan their own capital at terms that the market will sort out and let them be utterly responsible for the risks. If they've risked wisely, then good for them and their net profits. If they've risked unwisely, then that's what bankruptcy courts are for. Let's keep the government and the taxpayer out of it.
Government (Taxpayer) loan buyouts.
Same model as the student loan debacle.
Geez. And here I thought it was the greedy banks that caused the last melt down.
There should be no connection between the taxpayer and the mortgage industry. Or crop-fuels. Or solar. Or Wind. Or food. Or 10,000 other gimme programs.
Democrat vote buying used to cost a buck or two a vote. Now it has escalated to thousands. When the money runs out then it will be at gun point or with threats of gulags.
“Mortgage lenders were given both carrot and stick incentives to make more loans.”
Banks were FORCED to make the CRA loans or face fines and AA discrimination suits. Those who could wrote them off immediately.
This was 100% responsible for the devastation of the last collapse. We all know that. Crap loans to low rent people is flat out out communist transfer of wealth to the undeserving.the loans were never going to be paid back!! Here we go again. Banks has ZERO to do with the financial collapse last time. Absolute “smoke and mirrors “ to say they did. The government( with the help of republicrats) guaranteed crap loans in the trillions of dollars that were sold with out recourse to investors in multi million dollar bundles BECAUSE THEY WERE GUARANTEED PAYBACK BY YOU!! Who wouldn’t buy them? Also know that AIG had the “PMI” coverage on the last 10% and was also bailed out by you, THE TAXPAYER!! This is flat out communism and needs to be stopped!! Where are the republicans???? Hiding again?
Fannie and Freddie are not independent, controlled by a government overseer, i.e., the Treasury Dept. Don’t blame F/F, blame the government.
Sorry, couldn't help myself.
That last paragraph sums up my thoughts. After the last mess the banks were fined for following the government’s orders, and the fines went to the government and community organizers, not the taxpayers.
You folks are mistaken: The only thing that matters is when. I’ll be ready to buy(again).
It was the government guaranty of their crap loans. It was a scheme and artifice to transfer the “good life” to total dead beats. If you are a tool to steal and complicit with that theft, you are to blame as an accomplice in crime.
Mistaken about what?
In the last sete of such home sales, there was one case I will not forget.
A bank in Fresno, California, loaned money to an illegal guy from south of the border who was a SEASONAL fruit picker. He bought a house for $650,000.
Yes, I said $650,000.
Needless to say, he was out of the house in about 6 months for not paying any payments.
Like a developer I know said: “IF you could fog a mirror, you could get a loan to buy a house”. She didn’t care as long as the banks were footing the mortgages. She got pretty mad when they sold a couple of properties near the time of the collapse & carried the papers themselves. Those went bust, also.
Fannie Mae just announced its "Homeready" program, its newest demand that (evil greedy mean capitalist) banks give home loans to "the needy" (ie, people who cannot and do not reliably pay back and would never qualify for a loan based on any actual financial information)... or else the banks would face fines that would bankrupt them. In a 2003 Congressional Committee meeting, Congressman Barney Frank was explicitly told that this policy would lead to a crash and he famously said "We want to roll the dice anyway." Democrats gambled ("for the poor" of course), the market crashed in 2008, and the US lost $6.2 trillion in home values... and now they want to do it again. SMH
Sounds just like what they did before. With the same results.
Yup! He pretty well nails it for what it is - yet another big scam
New disclosure regulations are supposed to prevent or minimize that sort of problem. Look up TRID for an explanation.
We’ll see if that helps; I have my concerns about it.
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