In February, I highlighted the fact that subprime loans were about to make a return in my piece: Subprime Mortgages are Back…This Time Marketed as “Second Chance Purchase Programs.” In that article, I posited that with the “all cash” private equity shops and hedge funds no longer able to make good returns through buying new homes to rent, these investors would need some sucker to sell to in order to realize a return (Blackstone’s purchases have plunged 70% recently). That sucker, as always, will be the retail muppets, and those muppets will be lured in through subprime. This is now starting to happen in earnest.
The following article from the Wall Street Journal is both depressing and disturbing. Rather than allowing home prices to reset at a lower level after the 2008 crash where to normal buyers could afford a sane 20% mortgage, our central planners decided to do “whatever it takes” to re-inflate the housing bubble. This was achieved through wealthy investment pools buying properties for all cash. The trouble is, with home prices now inflated by these financial buyers and no real increase in wages, homes are simply unaffordable. So what do you do? You bring back subprime and get the peasants long real estate with essentially zero money down all over again. Truly remarkable.
From the Wall Street Journal:
While standards remain tight by historical measures, lenders have started to accept lower credit scores and to reduce down-payment requirements.
One such lender is TD Bank, Toronto-Dominion Bank’s U.S. unit, which on Friday began accepting down payments as low as 3% through an initiative called “Right Step,” geared toward first-time buyers and low- and moderate-income buyers. TD initially launched the program last year with a 5% down payment. It keeps the product on its books and doesn’t charge for insurance. Borrowers also don’t need to put down any of their own cash if a family, state or nonprofit group provides a down-payment gift.
So a measly 5% downpayment wasn’t good enough. They had to drop it to 3%. Frightening.
The changes also are a recognition by lenders that the business of refinancing old mortgages, which had been a huge profit center for banks, is nearly tapped out. To generate future profits, banks will have to compete for borrowers who may not have perfect credit or large down payments.
Valley National Bank, a community bank based in Wayne, N.J., lowered down-payment requirements to 5% from 25% this month on mortgages for certain buyers in New York, New Jersey and Pennsylvania. Next month, Arlington Community Federal Credit Union, based in Arlington, Va., will begin accepting 3% down payments on mortgages up to $417,000, down from 5%.
Yes, you read that right, 25% to 5%. Holy fuck.
Over the past year, however, more than one in six loans made outside of the FHA included down payments of less than 10%, the highest share since 2008, according to figures from data firm Black Knight Financial Services. That still is lower than the nearly 44% of the market they accounted for at the peak of the housing bubble in early 2007.
While smaller lenders are trying to appeal to first-time buyers, larger lenders are gradually reducing down payments for jumbo loans—those too large for government backing—to woo wealthy customers. EverBank began accepting down payments of 10.1% for jumbo borrowers with strong credit this year, down from 20%, and Wells Fargo reduced to 15% from 20% its minimum down payment for jumbos last year. Bank of America made the same change for mortgages of up to $1 million.
Any easing should give more options to first-time buyers like Nathan Davenport, 26, who purchased a one-bedroom condo for $195,000 in Atlanta this month with a 5% down payment. Mr. Davenport, who works for a phone-and-Internet services provider, says he has a high credit score but was worried that if he waited longer to save up for a larger down payment he would be priced out of the market.
“Twenty percent of this price and only being out of college a handful of years would have been really hard to pull off,” Mr. Davenport said.
I’m sorry, but on what sort of bizarro crackhead planet is putting 3% down toward an asset mean you are “buying it.”
The Truman Show rolls on…
Full article here.
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