A branch manager gets home loans for borrowers with weak credit or low incomes—and taxpayers back him up. – Bloomberg.com
Bloomberg News featured a story today that I find to be an outrage. It seems that some punk kid in Houston – Angelo Christian – has recreated the Jordan Belfort story (“The Wolf Wall Street”) using subprime quality, Government-backed mortgage.
The Government now guarantees mortgages which require no money from the buyer’s pocket for a down payment, a 50% DTI (monthly total debt payments = 50% of pre-tax personal income), no income restrictions and will finance down to a 580 credit score. Someone with a 580 score has a track record of debt default, serial delinquency and, quite likely, a recent bankruptcy:
This would-be homeowner has a 596 credit score, putting him in the subprime range. His car has been repossessed, something that would likely disqualify him at the Bank of America branch next door.
“Usually a repo that’s like three years old, we’re not really going to sweat that,” he assures the caller. “We’re pretty lenient here.” He steers his prospect to several $400,000 homes with swimming pools. “Have your wife check that out,” he says, referring to a remodeled kitchen with granite countertops. “She’s going to love it.”
Christian works for American Financial Network, which underwrites, funds and services the entire spectrum of Taxpayer-guaranteed mortgage programs: Fannie Mae, Freddie Mac, FHA, VHA and USDA (yes, the USDA guarantees “rural area” zero-percent down mortgages). AFN receives fees up to 5% – or $15,000 – a on $300,000 mortgage. This in and of itself is an outrage because it takes zero skill to underwrite a Government-backed mortgage.
“Zero-skill,” that is, unless fraud is involved. I’m not accusing AFN of fraudulent activity, however, as we witnessed during the Big Short housing bubble, fraud was oozing from every crevice in the U.S. mortgage underwriting industry. And subprime mortgages pumped and dumped by a character like Angelo Christian are usually the standard breeding ground for unscrupulous behavior.
Even Bloomberg expressed skepticism: “This kind of lending echoes the subprime mortgage boom that preceded the credit crisis of 2008.”
In civil fraud complaints, the Department of Justice has accused many companies, including Quicken and Freedom Mortgage, of improperly underwriting FHA loans and then filing claims for government insurance after borrowers defaulted. In 2016, Freedom Mortgage settled for $113 million, without admitting liability.
Angelo Christian and American Financial Network use Taxpayer guarantees to underwrite mortgages with an elevated probability of default and yet, they bear zero risk. They pocket a big fee-skim upfront and face no consequences when the 580 FICO score borrower declares bankruptcy – again. Just for the record, after accounting for a 0-3% down payment plus all transactions costs – which approximate 10% of the cost of the home – these mortgages are upside-down vs. the value of the “net” value of the house at close. Not a good business deal for the Taxpayers.
FHA loans are now experiencing a 30-day or more delinquency rate with nearly 10% of its loans. Fannie Mae and Freddie Mac combined wrote-down over $15 billion worth of loans in Q4 2017. They required a $4 billion cash infusion from the Government (taxpayer) as a result of both accounting and cash losses.
This is going to get worse. But until this collapses again – and it will – mortgage brokers like Angelo Christian are proliferating. They employ a salesmanship resembling that of dirty boulevard used car salesmen (“we finance any credit / bankruptcy o.k.”) as a means of transferring a massive amount of money from the Taxpayer to their own pockets.
I would urge everyone to read this Bloomberg article so you can read about how Angelo uses taxpayer-funded fees to pay for his fancy sports cars in exchange for pushing subprime mortgages destined to blow-up onto people who have no hope of supporting the cost of home ownership on a sustainable basis.
Hmmm. So now the government is making completely unsecured loans to people with terrible credit histories that have no possibility of servicing those loans?
This doesn’t sound at all familiar….to anyone that was living on the moon 10 years ago.
It used to take 20 years for people to start doing the same stupid things as the last generation.
Deflation has clearly taken hold as that is now down to 10 years.
Well, the loans are secured by overvalued real estate. The mortgages are well underwater at close.
Most who read this site and other sites similar have been calling
for a market implosion of magnitude. The arguments for a massive
implosion are all very logical and most well thought out. The incredible
amount of collusion between the central banks is truly criminal. Paper
dollars, yen, euros, etc etc. The cracks are there and getting larger by
the day. Italy and now Argentina are experiencing what happens when
currency is printed out of thin air. I wonder what trick(s) the central bankers
will pull out of their hat(s) to circumvent the next crisis.
We are currently experiencing housing bubble 2.0 as part of the greater “everything bubble”; the third asset bubble of the 21st century. Through the marvel of “financial engineering”, the U.S. has created an economy with limited “real economy” output, and opted instead for debt-based asset growth. This is directly due the misguided policies of the Fed and all other Central Banks. Unicorns all the way down.
Summary: Don’t be suprised by this kind of behavior. “We have all been here before.” Angelo Christian (surname is misnomer) is just Angelo Mozilo , of Countrywide “fame” reincarnated.
Have a good day. See you on the other side of the bubble.
Central bankers are like ‘pyromaniac firefighters’ and they are lighting another blaze
May. 18, 2018, 2:00 AM
No excerpts need to be provided here, the title speaks for itself.
Financial (asset) bubbles are largely the same. Here’s how to tell if your in one. While this applies to (Canadian) real estate, it could be any asset. Of course The Fed would never admit to recognizing such an asset bubble; such an acknowledgement would be part-and-parcel to an outright admission that this is and has been official Fed policy for the past 20-30 years.
The anatomy of a housing bubble
May 21, 2016
A necessary step in the euphoria stage is the occurrence of “irregular” lending practices, irregular sales practices, and financial engineering. Through magic, the impossible is made possible. People who could never otherwise afford real estate suddenly can. As the panic to buy increases, it is a self -fulfilling positive feedback loop. Prices go up, people panic to buy more and they outbid each other in an orgy of greed. Amazingly even the experts begin to extrapolate out recent trends well into the future,
So let’s back up and ask, are there irregularities going on right now in the real estate market? Of course there are. Is there some form of fraudulent activities going on or at least a massaging of the truth? The answer is most likely – it is a necessary component of the bubble, an effect of the euphoria.
It is also a natural progression of the underlying asset, in this case real estate, which has become too expensive for the consumer to buy. In a competitive system, people will find creative ways to finance the boom. For it to continue, they must find ways to financially engineer it.
For now, all is good in fairy-tale land, but this level of speculation has the ability to destroy the dreams of people for the next 20 years.
real estate markets in many cities are red hot simply because of 240-year lows in interest rates. This type of thing ends badly.
How can these Federal Government programs (Fannie Mae, Freddie Mac, FHA, VHA and USDA) allow for this to happen AGAIN? Where are the controls in place to prevent these liar loans, undocumented loans, no 20 percent down payment, etc. This is sickening.
You think the Federal Govt works for the public?
Wow, this guy looks like a 5-alarm douche, and looks just like the cocky mortgage brokers in The Big Short. It’s like we didn’t learn a damn thing from the last bubble, boom or bust. History may not repeat itself exactly, but it’s playing a damn familiar tune.