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Peak Insanity: Retail Investors Are Making Direct Subprime Loans In A Reach For Yield
Submitted by Michael Krieger of Liberty Blitzkrieg blog,
It has come to this. Unable to save enough for retirement with traditional investments, baby boomers in search of yield are becoming their own private Countrywide Financials. They’re loaning cash from their deposit accounts and retirement plans and hoping for a big pay day: specifically large returns that will boost their income and maybe even allow them to pass an inheritance on to their children.
It used to be that individual lenders were millionaires who could afford to loan cash and handle the risk of not being paid back. Now middle-income pre-retirees, ranging from chiropractors to professors, are joining their ranks.
- From an excellent MarketWatch article: Want 18% returns? Become a subprime lender
Being a somewhat conscious human being in a world in which our “leaders” have completely lost their minds can be challenging at times. One side effect of this condition is a certain emotional numbness when it comes to reacting to new events occurring in the world around you. It’s simply hard to shock me these days, but every now and then it does happen. The following article published by MarketWatch had me literally shaking my head the entire time. If this isn’t peak insanity, I do not want to know what is. We now have chiropractors and orchestral conductors competing with Blackstone in a crowded, insane trade.
Read it and weep:
Barry Jekowsky wanted to build “legacy wealth” to pass down to his children. But the 58-year-old orchestral conductor, who waved the baton for 24 years at the California Symphony, didn’t trust the stock market’s choppy returns to achieve his goals. And the tiny interest earned by his savings accounts were of no help. Instead, Jekowsky opted for an unlikely course: He became a subprime lender, providing his own cash to home buyers with poor credit and charging interest rates of 10% to 18%. It may sound risky, but “it helps me sleep better at night,” he says. “Where else can you find [these] returns?”
Go ahead and read that twice. Ok, now let’s move on, it gets worse.
It has come to this. Unable to save enough for retirement with traditional investments, baby boomers in search of yield are becoming their own private Countrywide Financials. They’re loaning cash from their deposit accounts and retirement plans and hoping for a big pay day: specifically large returns that will boost their income and maybe even allow them to pass an inheritance on to their children. There is no official data, though it’s estimated that at least 100,000 such lenders exist — and the trend is on the rise, says Larry Muck, chairman of the American Association of Private Lenders, which represents a range of lenders including private-equity firms and individuals who are lending their own cash. “We know the number of people who are doing this is increasing dramatically — over the last year it’s grown exponentially,” he says.
The baby boomers will not rest until they destroy the entire world.
It used to be that individual lenders were millionaires who could afford to loan cash and handle the risk of not being paid back. Now middle-income pre-retirees, ranging from chiropractors to professors, are joining their ranks.
The move toward mom-and-pop lending comes in the wake of what experts say is the creation of a perfect storm: Banks are still skittish about lending to home buyers with poor credit. Meanwhile, investors who have endured years of low returns from plain-vanilla investment portfolios are itching for something more.
The operations often function like a game of telephone. Subprime home buyers, who know they have no shot at getting a mortgage from a bank, start spreading the word to friends and acquaintances that they are on the lookout for anyone who will lend to them. Eventually, the word reaches someone who is willing to lend his or her cash. Other times, a group of individuals pool their cash together to fund the loan.
A game of telephone…
What all these lenders have in common, however, is their willingness to lend to borrowers with low credit scores. In some cases, they do not even check their scores. They point to examples of otherwise reliable borrowers who fell on hard times during the recession and were unable to keep up with loans. Many say they work with borrowers who intentionally stopped paying mortgages (even though they could afford the payments) when they ended up owing more on the loans than the home was worth.
Separately, lenders are supposed to be registered with the state where they are originating loans, but many mom-and-pop loan officers are not, says Guy Cecala, publisher of Inside Mortgage Finance, a trade publication. And since most of these lenders do not originate a large number of loans per year, they are not required to report their activities to the federal government. “It’s a shadow business,” says Cecala.
In a sign that the trend may be here to stay, boot camps are training average Joes to become private lenders. Last month, Wealth Classes, a financial-education company based in Walnut Creek, Calif., that launched in 2007, hosted a networking retreat for 250 students who recently became lenders. Many of the company’s students end up lending to subprime borrowers, though others lend to real estate investors who don’t want to wait weeks to get a mortgage from a bank, says George Antone, founder of Wealth Classes. (Private lending transactions typically take about a week or two to go through, while a mortgage from a bank usually requires at least one-month of waiting time.)
Randy King, 61, joined Wealth Classes about three years ago when he started using his own cash to fund other people’s mortgages. A former U.S. Air Force servicemember, King, who is based in Colorado Springs, transitioned to buying fixer uppers and selling them and is now a lender for borrowers — many of whom are subprime — who are buying investment properties.
Going forward, experts say, it will be difficult to slow down privately funded subprime loans. This funding spreads mostly by word of mouth, so there’s no official advertisement plug that anyone can pull. Consider King. He recently visited his chiropractor who inquired about his lending operations and then asked if he could jump into one of the deals as well. The chiropractor explained where he would get the funds to become a loan officer: He would use some cash he had saved and withdraw equity from his home using a home-equity line of credit.
QE insanity has arrived. Next up silicon bagel implants.
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they sleep at night?
I kept wondering how so many homes were being sold via cash. Now I know. Yikes! Sounds like a disaster waiting to happen when the next recession hits, or taper drops the stock market like a sack of potatos, whichever comes first.
But it just goes to show how desperate people are to find a high percentage return in this economy. Answer: Lend to people that walked away from underwater property. Well, guess what they will do when the houses they just bought go underwater? Then a much bigger % of the population will be in dire straits than even during the throws of the great recession.
Hey, remember that subprime lending insanity that caused the last huge collapse? What do you think....try that again?
Is this like Prosper.com?
Sort of. That site does only unsecured lending, and investors bid on smaller pieces of a large loan to spread the risk. Giving Joe Shmoe a large mortgage entirely yourself is a lot riskier.
Kina, they sleep at night but wake up real early worrying about that recurring nightmare they keep having when the monthly interest payment stops coming on the same day their eldest asks about college tuition fees and their family healthcare increases 30%. "Honey, better pay Stephen's tuition." "Yeah, with what?"
You know why these fuckers are idiots? Not because they are choosing to do what they want with their own money -- its because when it goes bad they can and will get the shaft. Zippo.
Group together and form a bank. Get a charter and get protected by the govt. But you better go big or do not go in at all. Regular failures are let be. Massive failures are rewarded.
The banks are smart - they do the same fucking thing x1000 and then get bailed out by the taxpayer. Now they sit on the sidelines and let others take the fall. There will be no bailout for the public, Facism does not work that way.
After receiving 1% interest from Bernanke for the better part of a decade and having to eat into their capital, is anyone really surprised at this sub-prime lending.
With Bernanke/Greenspan there was no chance of a return.
This sub-prime stuff might actually pay off something.
LOL, just like it did in '08....why do americans think in seconds and not years???
ADD
On a long enough timeline...
MSM 'induced' ADD. I'm related to few.
When will the fed buy private mortgage backed securities? We need to round up all these private lenders and create some derivatives!
Not necessarily stupid loans if LTVs are conservative, and I'd bet most are.
Peoople that have money to lend are not usually so stupid.
At least these Boomers you all seem to fret so much about have money to invest and speculate with AND have had a good run for most of their lives. A very, very good run.
GenX and Millennials are the folks that you should be fretting about.
it's not silicon, it's water that then goes into the body
This shit is also rampant in China. CD rates are artificially surpressed at ~3%, while banks won't extend any loans to small, private businesses (while loaning to the "prime", gov-sponsored corporations at ~5-6%). The loansharks collect "deposits" from mom and pop, promises ~10% return and lends it out at ~20% at the black market. 3% on the CD sounds like a lot but is really way below inflation if you count the real figures instead of the gov. official report.
...great!!
I just think of Artie Buco ("The Sopranos") trying to get his $50.000 back from this Frenchman who wanted to introduce Armagnac into the U.S. :)
I do hope these people have their own Furio Giunta at hand, too...
very good
Banks are becoming obsolete
People to people will work much better
But but... banks are corporations, and corporations are PEOPLE!!!
If only. The courts aren't going to treat 'Baby Boomer' lender the same as JPM.
It's madness i tell you, MADNESS
"... providing his own cash to home buyers with poor credit and charging interest rates of 10% to 18%. It may sound risky, but “it helps me sleep better at night,” he says. “Where else can you find [these] returns ? " "
So, turns out you can make a Wall-street banker even out of an "artist", these days .
Will he be bailed out too ?
In the end they will resort to prayer when the loan doesn't have a snowball's chance in hell of ever being paid.
Why are you picking on the boomers? For God's sake, pick on the Jews.
Moar cowbell.
The term 'Useful Idiots' comes to mind.
"Peak Insanity"?. No, I would think that "peak insanity" is when restaurants are fronting their waiters and waitresses their paychecks at 29% interest. Won't be long now.
I had never thought of this reaction to high inflation, but yeah, I could see it +1!
It's their money, it's their (mis)judgement of risk; Have at it folks.
However, I believe we are going to need a fitting name for these loans. We've had LIAR and NINJA, etc.
I christen thee WHAP loan (With Hardly A Pulse (and evidently no brain) ) May you sail into oblivion at speed.
Back to killin' snakes
Screw the banks. This is not just homes, this is the future of small & medium business financing.
On the few occasions that it is necessary to fund new production, consider letting small private investors bid on supplying short term capital collalteralized by the finished product.
Bottom line is stay debt free and out of the scumbag banksters reach. I'd pay extra interest to keep the money circulating locally, however most bids are at or lower than the banksters "prime rate".
Bankster America is getting an enema. DC is next.
This is standard in a third world country....happens all the time
Submitted by Michael Krieger of Liberty Blitzkrieg blog?...what the heck shows more understading of Liberty and the willingness to blitz the risk then saying "screw the banks & institutions, I think I'll just figure it out myself"...and who the heck cares about "credit ratings"?? Who says our financial futures are to be kept in a box designed by some idiot banker or gov't dunce.
Yo Michael...leave your blog post and go talk with some of people you think are reading your stuff...
This is an actual article on MarketWatch. You've got to be shitting me.