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Mortgage Standards Are Plunging – It’s Muppet Fleecing Time All Over Again

Tyler Durden's picture


Submitted by Mike Krieger of Liberty Blitzkrieg blog,

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 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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Tue, 04/22/2014 - 11:08 | 4682624 Squid Viscous
Squid Viscous's picture

Don't forget about muppet taxpayers, cued up for another TARP

Tue, 04/22/2014 - 11:11 | 4682637 just-my-opinion
just-my-opinion's picture

And I thought I would be first.....I own my house...you gonna take it away because of taxes


Tue, 04/22/2014 - 11:21 | 4682661 idea_hamster
idea_hamster's picture

But even 3% of 417,000 is more than 12 grand -- and most Americans have less than $3k in savings and would have a tough time coming up with $2k to cover a surprise medical bill.  


on what sort of bizarro crackhead planet is putting 3% down toward an asset mean you are “buying it.”

Well, you are assuming full down-side price risk -- that's something!


Tue, 04/22/2014 - 11:21 | 4682672 hedgeless_horseman
hedgeless_horseman's picture



Tue, 04/22/2014 - 11:23 | 4682678 centerline
centerline's picture

Nice to see you around HH.  Hope all is well with you and your family.

Tue, 04/22/2014 - 13:18 | 4683182 schoolsout
schoolsout's picture

I'm in the process of getting a mortgage and asked what was the least I could put down...Was told by my mortgage broker buddy I could finance 97%.  Kinda scared me...I'm putting 20% down, but just wondering when the next crash is going to come.  That said, hoping the market here stays near or where it has been for past few years.  Houses going up left/right with plenty of buyers...for now.

Tue, 04/22/2014 - 13:21 | 4683192 schoolsout
schoolsout's picture

Also, for anyone (first time buyers...or, I think those that haven't bought in past couple of years), you may want to check on a Mortgage Credit Certificate.  Little known tax CREDIT instead of deduction that few utilize.  Luckily, local paper ran a story about it as I was in process of lining up loan. 

Tue, 04/22/2014 - 13:47 | 4683336 max2205
max2205's picture

I don't know about the rest of you but i could use a nice big housing bubble so I can officially retire

Tue, 04/22/2014 - 15:07 | 4683729 N2OJoe
N2OJoe's picture

I could use a nice muppet slaughtering credit collapse so i can afford to move out of moms basement.

Tue, 04/22/2014 - 11:25 | 4682685 Cognitive Dissonance
Cognitive Dissonance's picture

Dude. Where have you been?

We thought Goldman Sachs kidnapped you and was gonna trade you to the Russians for unlimited natural gas.  :)

Tue, 04/22/2014 - 11:35 | 4682712 hedgeless_horseman
hedgeless_horseman's picture



All is well, thanks.  It has been insanely busy.  Only rarely have time to read ZH, nonetheless post.  It is all the same "news" from a few years ago anyway...

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.


Tue, 04/22/2014 - 11:36 | 4682728 Almost Solvent
Almost Solvent's picture

No news is good news, usually.

Tue, 04/22/2014 - 11:41 | 4682739 10mm
10mm's picture

Nathan will learn the hard way. They always do. You can put it all out in front of them how they will be suckered and played. "But it's the time to buy".

Tue, 04/22/2014 - 11:49 | 4682748 hedgeless_horseman
hedgeless_horseman's picture



Nathan Davenport, 26, who purchased a one-bedroom condo for $195,000 in Atlanta this month with a 5% down payment.

Hmmm.  Where is Atlanta on this old map from 2009?  Those that do not learn from history are doomed to repeat it.


Tue, 04/22/2014 - 11:46 | 4682755 tarsubil
tarsubil's picture

Ugh... if we weren't all crazy, the problems would be obvious.

Tue, 04/22/2014 - 12:06 | 4682846 Quus Ant
Quus Ant's picture

Indeed.  We're all mad here, so I do not trust anyone from this culture to diagnose the true problems, but there are at least a few who recognize problems exist. 

As with our forefathers and mothers, we'll know the truth when it bloody well kicks us in the teeth.  Then maybe we can be free.  And toothless.

Tue, 04/22/2014 - 14:17 | 4683494 moneybots
moneybots's picture

"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."


Wash, rinse, repeat.  I have heard this story a few times before.

Tue, 04/22/2014 - 11:29 | 4682704 SheepDog-One
SheepDog-One's picture

Who cares about downside investment risk when you can sign a piece of paper and move in payment free for years?

Tue, 04/22/2014 - 12:06 | 4682839 Quus Ant
Quus Ant's picture

So why isn't everyone jumping on this golden opportunity? 

Tue, 04/22/2014 - 11:21 | 4682670 ugmug
ugmug's picture

 Subprime Sherpa's on the Mount Everest of Debt - Our US Government

Tue, 04/22/2014 - 11:26 | 4682690 tarsubil
tarsubil's picture

From street level, things look exactly like they did in 2006-2007. The only real difference is that there are more unemployed and homeless. Guess this will repeat until no one has a job or home.

Tue, 04/22/2014 - 11:39 | 4682734 Bunga Bunga
Bunga Bunga's picture

You're dreaming, permanent wall-st-tax will that be.

Tue, 04/22/2014 - 11:10 | 4682631 khakuda
khakuda's picture

It's baaaack!

So glad Ben and Janet learned the right lessons in 2008.  Can't let reality happen ever again.

Tue, 04/22/2014 - 11:59 | 4682813 Harbanger
Harbanger's picture

Reality? There is no reality in centrally planned economies.  This is all being directed by the Fed chief.  Yellen was very bullish about the housing market before the 2008 crash.  It's a one way train, their biggest fear is deflation, they will never allow it even if they have to give away free money.

Tue, 04/22/2014 - 12:29 | 4682944 donsluck
donsluck's picture

Money, at 1%, is already free, as in below inflation. As for loans, no-one in their right mind would loan to someone who ALREADY defaulted on their last mortgage. But since it all gets bought by the Fannie and Fready, the lenders are protected. Yep, here comes TARP 2.

Tue, 04/22/2014 - 12:36 | 4682974 Harbanger
Harbanger's picture

You're right, banks wouldn't lend subprime unless they were backed by the Gov.  This is how they trickle down money to the street and into system because they must have inflation for it to continue.

Tue, 04/22/2014 - 11:11 | 4682638 youngman
youngman's picture

here comes the credit train...get the new generation hooked on the easy money....what crash....this is now...and they want it now..

Tue, 04/22/2014 - 11:12 | 4682639 10mm
10mm's picture

They lowered to 5% in NJ, NY.Shitholes.

Tue, 04/22/2014 - 11:13 | 4682641 Its_the_economy...
Its_the_economy_stupid's picture

I’m sorry, but on what sort of bizarro crackhead planet is putting 3% down toward an asset mean you are “buying it.”?

see Chicago Mercantile Exchange or a freindly futures market near you.

Tue, 04/22/2014 - 11:28 | 4682698 disabledvet
disabledvet's picture

ever try and lever your house 1000 to one? I didn't think so. I've been trying to lever my pick up truck 100 to one and that isn't even working.

I tried to tell the Banker phuck "hey, you're paying 100 million for a fighter jet that can't even fly. This truck runs even better WITHOUT the computer! Certainly it's worth at least a hundred thousand?"

On the good side i picked up one of those piece of shit teledyne mircro rockets...shredded a bunch of "pre 2007 George W. Bush tires" and am pretty sure it's got at least a range of 500 miles...in excess of 5,000 miles per hour no less.

Facebook is my guidance system so the error rate should be measure in microns actually.

Tue, 04/22/2014 - 11:14 | 4682643 Squid Viscous
Squid Viscous's picture

if you can come up with 5% surely you're good for the rest... in this booming economy

Tue, 04/22/2014 - 11:15 | 4682645 vote_libertaria...
vote_libertarian_party's picture

Ummm...so the Fed will be buying all of these 'AAA' bonds?

Tue, 04/22/2014 - 11:30 | 4682707 waterhorse
waterhorse's picture

Man, that Timberwolf was one shitty deal.

Tue, 04/22/2014 - 11:15 | 4682646 Max Damage
Max Damage's picture

Well they made billions each with no consequences last time so why not fucking rob everyone all over again? Hang the fuckin bastards!!!!!

Tue, 04/22/2014 - 11:17 | 4682647 NoDebt
NoDebt's picture

Not good enough.  I need a loan where I have the option of paying:

1.  P&I, like a normal mortgage

2.  Interest only.

3.  Nothing at all, with that month's payment being added to the principal amount owed.

Oh, and of course it should be an adjustable rate mortgage.


Now THAT is a loan that could help MILLIONS of potential first-time home buyers     (become debt slaves, like their parents before them)

Tue, 04/22/2014 - 11:28 | 4682696 waterhorse
waterhorse's picture

Countrywide Pick-A-Pay?  Countrywide's former execs have started up PennyMac.  Will that be the next Countrywide?

Tue, 04/22/2014 - 11:48 | 4682758 813kml
813kml's picture

It's good to be a white collar criminal.  When a blue collar makes off with $1500, they do a few years hard time and are branded a felon for life.  When a white collar makes of with a few million (or billion), they get to go on vacation for a few years before rinse and repeat.

Tue, 04/22/2014 - 11:17 | 4682650 Rainman
Rainman's picture

Hooray ! .....Next up they go ballz out NINJA !!

Tue, 04/22/2014 - 11:29 | 4682703 centerline
centerline's picture

Hell yeah, mortgages, college loans and auto loans.  Trifecta of pain right there.  Epic debt cram down (spice must flow of course).

Grab the popcorn (and rifle).  It's gonna get real sometime soon.

Tue, 04/22/2014 - 12:05 | 4682837 Deathrips
Deathrips's picture

AKA Liar Loans, Must keep up with joneses.


RIPS Markets

Tue, 04/22/2014 - 11:16 | 4682652 fonzannoon
fonzannoon's picture

Last time around people were putting down 3% to keep liquid and leverage themselves by buying 5 homes. This time around they actually just have 3%.

Also fyi it's ho lee fuk, the way he wrote it was extremely vulgar.

Tue, 04/22/2014 - 12:11 | 4682868 813kml
813kml's picture

I recently spoke to a friend that just signed for a house in Austin.  The Austin market is beyond hot, and she had to buy in one of the shittiest parts of town.  I didn't ask the purchase price but I'm guessing in the $250,000 range.  She makes decent money (around six figures), so I guess should be applauded for not overextending.  But she would have been far better off renting, besides overpaying in a bad neighborhood she now gets the privilege of a long commute in horrendous Austin traffic.

She didn't learn from her previous bad experience in RE and let emotion cloud her judgement.  She is Irish and bought a home in Ireland back in early 2000s.  It was "worth" 4x what she paid at one point, but she held all the way to the bottom and is now underwater on it.  It's not as easy to discharge RE debt in Ireland, and that combined with Catholic guilt still has her paying on that albatross.  It's a very sore subject with her, I don't ask about it anymore.

House purchases are still largely emotion driven, there will always be buyers willing to scrape up whatever % it takes to mortgage their future for the American Dream.

Tue, 04/22/2014 - 11:19 | 4682663 Dr. Engali
Dr. Engali's picture

I'm looking forward to the return of Wachovia's pick a payment loan. Once they reappear I know it's time to GTFO.  

Tue, 04/22/2014 - 11:22 | 4682677 fonzannoon
fonzannoon's picture

honestly I don't know who even has 3% anymore. It's like you said yesterday on the personal savings thread...who the hell has any savings? I don't see how we can get a speculative bubble when 95% of the people are sucking wind this time around. 

Tue, 04/22/2014 - 11:31 | 4682710 br0ken
br0ken's picture

True story. Where's the 20, 5 or even 3% cash coming from? Most Americans are neck high in consumer debt, incomes are shit for the average American and savings retruns are in the gutter. 


Tue, 04/22/2014 - 11:39 | 4682736 Almost Solvent
Almost Solvent's picture

It comes from parents, or line of credit or cash advance off a card.



Tue, 04/22/2014 - 14:11 | 4683462 Blankenstein
Blankenstein's picture

This.  Examples of the above that I have observed:

The "star" of that HGTV flipping show was an "all cash" buyer at the foreclosure auction.  He said that his money came from equity lines on his rentals and credit cards.  

While doing indepth research on the market in my area, I found a house where a couple in their early 30's had paid $670,000 and put down $150,0000.  On the same day, one of their parents took out a loan of $150,000 on their home.  Coincidence?

Also have friends that are buying a home with 0% down using a USDA loan - and this is after a foreclosure.  

The market is a house of cards. 


Tue, 04/22/2014 - 11:35 | 4682722 Dr. Engali
Dr. Engali's picture

Based on this area here all I see are more businesses shuttering their doors, the infrastructure going to shit, and a bunch of druggies walking from dumpster to dumpster digging for aluminum cans. Houses are moving, but the majority are to 'investors'. 

Tue, 04/22/2014 - 11:39 | 4682737 Grande Tetons
Grande Tetons's picture

My borther in law sells real estate in Mexico. There is a buying frenzy apparently and almost all of the deals are cash from foreign buyers.  This is global mal investment at its finest. 

Tue, 04/22/2014 - 13:33 | 4683250 shitco.in
shitco.in's picture

And they are changing the laws soon so that foreigners are allowed to outright own land near the coast (not through a trust).

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