Welcome back, and glad to have you here. It is October, and as much as I don't want to face it, it is the month that I will turn the big 4-0 (On 10/31 - Halloween). Oh well !
One other sad thought is one of the people who have been hit between the eyes due to the subprime mortgage crisis. Subprime mortgages are loans made to people with less than perfect credit or financial situations, and these types of loans dominated the lending market until the house of cards fell down, literally. Subprime has become a household name, and most people cringe when they hear it...but there are others who get very excited at the very thought of these types of loans!
According to Preston Howard, a Mortgage Broker/Owner with Rose City Realty, Inc. in Pasadena, California, "subprime financing is poised to make a re-entry into the market place in a big way", in a recent story he wrote, titled, "Can Subprime Make A Comeback?", on the BrokerAgentSocial.com Website. "Where there are payments to be chopped up into little pieces, someone on Wall Street will dice and transform them into some form of marketable security to be sold to the masses at a cost, and generate profits for the investment bank that brings them to the Stock Exchange floor", says Howard
But how can this happen, after what we have all suffered from the subprime fallout? "The answer lies in the structure and the insurance", Howard says, pointing to a Money Backed Securities (MBS) offering with "seven times the insurance protection that is normally required for a high quality, private securities offering", but has earned a "debt rating that is better than the United States of America".
Are we really going to do this all over again? At first glance, the pool of sub-par mortgages looks more like FHA loans (as opposed to subprime deals), with a 4% yield, >640 Credit Scores of the borrowers backing the mortgages, and an LTV at about 95% on average. But, as Howard adds, "It appears as though the product is being packaged in a “sub-quality wrapper” to prep the market for additional, lesser quality deals in the future."
Let's look at the good here: "this could be the start of something beautiful as the housing market is languishing in a rut, awaiting products to unleash pent up demand", says Howard. Very true.
"Conversely, this could be the lever that pulls us into a second recession", says Howard, who says that there is a moral hazard potential here, where the needs of unqualified borrowers will take a back seat to the fees generated. This is a big risk.
Are you willing to take the risk? Will it hurt us again, or have we learned our lesson?
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Have a Great Week, and Happy Rent-to-Owning !
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TAGS: #subprimemortgage #MoneyBackedSecurities #MBS #FHAloan #lending #mortgagebroker #financing #WallStreet #recession