Saturday, September 30, 2006
The End of "Liar Loans"?
Well, this will crimp the Bay Area house buyer's style -- lenders will be able to easily verify potential borrower's income in a couple of days over the internet. Hopefully, we'll be able to say goodbye to "liar loans" which have been helping to prop up Bay Area prices. This is potentially big news. But as I am a little late in the game on this one and since my esteemed fellow blogger up in Seattle has done a much better job of discussing it than I could, I will refer you to that blogger's discussion -- "The Mother of All Weekend News".
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17 comments:
With all the inventory just sitting all over the U.S., shrinking the pool of buyers is huge.
I think we all know that if lending standards hadn't been wink, wink over the past few years, prices could never have reached these absurd levels.
I'm not completely convinced the change will mean much in the market. The later half of the article paints a much different picture where, basically, the fraud continues on but deeper into the system - at the broker/lender level. There is a sucker born every minute and the majority of people taking out a "liars loan" don't really seem the critically analyize what the broker is telling them in the first instance. If you're dumb enough to squeeze yourself in a house you can't afford in the first go around, what is going what is going to stop you from leaving the document with blanks for the broker or loan company to fill in later (especially if the broker tells you its the only way to get the loan you 'need'). As long as the bank can resell the 'liars' loan' into the broader market and shield themselves from the fraud, they won't care.
What is more intriguing is the argument made in the link by the federal regulator that the underlying practices themselves are problematic. These statements are going to be great fodder for lawyers if and when these loans go belly up. I'd hire that regulator as an expert witness any day. She hit the nail on the head. The problem is systemic in the market itself.
"Well, this will crimp the Bay Area house buyer's style -- lenders will be able to easily verify potential borrower's income in a couple of days over the internet."
I'm not so sure that greedy, fee-whore lenders were ever interested in being able to verify a borrower's income. As long as their bad loans could be palmed off on someone else, income verification was of no interest to them.
However, if income verification becomes a legal requirement and the lenders don't comply, they could be stuck with all of the bad loans they make.
The problem is systemic in the market itself.
FWIW, I agree.
So make the lenders/banks/etc financially accountable for loans gone bad and problem solved. Financial self-interest is always a strong motivator.
these guidelines will make a big difference in the loan biz,especially the subprime and refi markets.yhose who buy pools of mortgages will want complying loans,or a higher risk premium.qualifying borrowers based on their abilty to pay the amortized rate will cut out about 25% of those that wish to refi their arms,the IRS anouncement of T-4506 verification online will be huge,and i expect the number of sisa and nina loans to drop precipitately,perhaps not to 10-15%,but close.even without fines or sanctions,this is more than enough to accellerate the downturn.it will no longer be easier to finance real estate than a car.although big ford pickups might be a different story.
it will no longer be easier to finance real estate than a car
Wouldn't that be just so sweet?! I so hope you are right.
I am also not sure if changing lending laws will really affect the level of stupidity buyers will be willing to accept to get into a home. I was reading a report yesterday that discussed just how much people in various parts of the country were willing to commit to get into a home.
Now remember that the traditional percentage of income deemed sufficient for a mortgage is 30% or less, 30% being the maximumum percentage you should ever spend. In many parts of the country, this has krept up to 45-50%. In the Bay Area, this percentage is even higher, as in over 60%. I'm sorry, but that's just ridiculous. Some of the examples were of people who were paying 60% of their incomes on a ARM loan. In reality, they were paying most of their income on a band-aid loan that doesn't apply towards the principal. it'll be interesting to see what will happen once all those loans convert and some of these people start spending 90-100% of their incomes on housing. What I'm trying to say here is that if people are willing to pay almost all of their incomes on a house, then that says an awful lot about buying intelligence. Take away all those bandaid loans and people will probably be willing to accept even more risk and financial sacrifice.
Basically, this latest bubble to me proves what an ingenious scheme this has all been. The dot-com in comparison didn't last very long. 3-4 short years. It ended because investors realized that they wern't making any money. While there were a lot of stupid people who knew nothing about the stock market, there were enough professionals to yank the cord and claim the party was over.
But what happens when you shift the market to Real Estate, thus putting the control of the economy in the hands of the average citizen? You get lots of decisions made that are totally unwise- like deciding to spend 60% of your income on a stupid house. I think that industry cheerleaders are probably thrilled that the consumer was so happy to take whatever advice they were told, and to accept way more wayward financial absurdity than I'm sure any of them ever imagined.
Perhaps in the future, economics 101 needs to be an essential class that all school children must take. It might just save us from another one of these fiascos.
For those of you looking to make money on the next biggest thing, I introduce the single greatest invention of all time: the Egg Wave- the amazing egg cooker that makes scrambled eggs in half the time! Yes- start your own business. Forget the fact that you might be an absolute embecile when it comes to managing finances... the egg-wave is absolutely fool-proof!
Did you buy an overpriced home? the egg wave somehow pays for your house too. How? It broadcasts tractor beams to homebuyers, dulls their senses, lowers their IQs, and gets them to continue to buy overpriced homes, assuring that your piece-o-crap house will be worth double what you paid for it in 6 months!! you cannot lose!!!!!
call today!!
the EGG WAVE!
Basically, this latest bubble to me proves what an ingenious scheme this has all been. The dot-com in comparison didn't last very long. 3-4 short years. It ended because investors realized that they wern't making any money. While there were a lot of stupid people who knew nothing about the stock market and loans, there were enough professionals to yank the cord and claim the party was over.
But what happens when you shift the market to Real Estate, thus putting the control of the economy in the hands of the average citizen? You get lots of decisions made that are totally unwise- like deciding to spend 60% of your income on a stupid house. I think that industry cheerleaders are probably thrilled that the consumer was so happy to take whatever advice they were told, and to accept way more wayward financial absurdity than I'm sure any of them ever imagined.
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