"Liar Loans" Are Back In 2007 Housing Bubble Redux

Tyler Durden's picture

In the leadup to the financial crisis, lenders did some pretty silly things.

The securitization bonanza and the attendant proliferation of the “originate to sell” model drove lenders to adopt increasingly lax underwriting standards.

Put simply, the pool of creditworthy borrowers is by definition finite. That’s a problem because the securitization machine needs feeding. So what do you do if you’re a lender? Why, you expand the pool of eligible borrowers by making it easier to get a loan.

And we’re not talking about a giving would-be buyers a few FICO points worth of leeway here. We’re talking about the infamous “liar loans” which produced myriad tales of a market run horribly amok as everyone from maids to strippers could buy a McMansion with little to nothing in the way of documentation.

Well don’t look now, but the infamous Alt-As are making a comeback thanks to “big money managers including Neuberger Berman, Pacific Investment Management Co. and an affiliate of Blackstone Group LP [who] are lobbying lenders to make more of these “liar’ loans—or even buying loan-origination companies to control more of the supply themselves,” WSJ reports.

Once again, it’s the same old story. ZIRP has left investors starved for yield and that’s herding money into riskier and riskier assets and creating demand for paper backed by everything from subprime auto to P2P loans. Alt-As can carry rates as high as 8% which obviously looks great to anyone who’s stuck squeezing 300 bps out of something you picked up during last year’s IG issuance bonanza.

As WSJ goes on to note, the structure is a bit different this time around as large banks are steering clear of the market. “Virtually none of these Alt-A loans are being sliced and packaged into securities,” The Journal writes. “Instead, private-equity firms, hedge funds and mutual-fund companies are playing a larger role as buyers, placing the loans into private funds that are sold to institutional investors and wealthy clients.”

Of course pooling the loans and issuing ABS versus pooling the loans and selling shares of funds backed by those loans are really the same thing. In both cases, investors are betting on a pile of possibly risky mortgages extended to borrowers who for whatever reason don’t meet the requirement for a standard 30-year fixed.

For their part, money managers are rolling out the same tired excuse about reaching “underserved corners” of the market where unnecessary restrictions are keeping “some folks” from buying their dream home. Here’s WSJ again:

By backing these loans, money managers said they would reach an underserved corner of the housing market: Borrowers who have good credit but might be self-employed or report income sporadically. In part because more Americans work that way, some money managers expect the market could increase to hundreds of billions of dollars each year, or more than 10% of the total mortgage debt outstanding.


Alt-A loans gained prominence in the years leading up to the financial crisis, with lenders originating $400 billion at their peak in 2006, according to trade publication Inside Mortgage Finance.


Derided as “liar loans,” they were often extended to people who had no proof of income. By February 2010, about 26% of Alt-A mortgages were 90 or more days delinquent, up from 2% three years earlier, according to CoreLogic, a real-estate data and analytics company.


That compares with conventional conforming mortgages, which saw delinquencies of 7.2% in February 2010, up from 1.4% three years earlier.



The generation of Alt-A loans has been minimal since then. Just $17 billion in Alt-A loans were originated in 2014, compared with $767 billion for conventional mortgages, according to Inside Mortgage Finance, which estimates that $18 billion to $20 billion were made in 2015.

Some money managers are apparently making the rounds in an effort to convince mortgage companies to help get the ball rolling. Essentially, they want to act as the lender by bankrolling the loans, but aren't too keen on bothering with the actual homebuyers and all of the paperwork. The idea then, is to partner up with mortgage firms who would theoretically take care of the administrative side of things.

But that's not good enough for some asset managers. Take Minneapolis-based Varde Partners, for instance. Rather than haggle with mortgage companies, the firm simply went out and bought one through which it will lend to Alt-A borrowers.

Needless to say, this isn't materially different from what was going on prior to the crisis even if the "Alt-A" has been given a new nickname (the "nonqualified mortgage") in an effort to shed the stigma.

This is still just Wall Street forcing the issue on mortgages and selling the risk to investors who are happy to go along for the ride as long as the yield is there.

It will end in tears just as it did before, for everyone involved - especially the homeowners.

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RogerMud's picture

with the right jurisdiction, a default is the lender's wet dream. pennies-on-the-dollar!!

Future Jim's picture

So ... can just anyone start a business giving these loans and selling them to some financial institution?

buzzkillb's picture

Yes they can. Had a friend who did this. Made good money, and the guys working for him made even more than the owners. Eventually sold to a bank and left the country a few years after the last crash. All cashed out in his early 30's. If you want a template copy what (Ninja Loans) Countrywide/ (Worthless Ninja Loans) Indymac/ (Taxpayer funded bailout for Ninja loans) BofA did, and no one went to jail.

I will keep saying this, once you have the honest smart people ready to jump in, this place is over with. Hasn't happened yet, thankfully. Greedy scumbags yes, intelligent lifeforms, no.

I need more asshats's picture

Thank God! Maybe even Asshats can get a fucking loan from the fucking FEDeral bureau of fraud fiat!

FUCK YOU joo money changers!

Winston Churchill's picture

We know how the story ends.Not even 10 years since the last time,

I need more asshats's picture

Prior to Internet very few even knew who the FED was. Now we know how many hairs the chairman has in her left joo nostril.

Keep it up!

FreedomGuy's picture

I thought I was living in a time warp. I have studied housing in my area intensely since last summer. Skyrocketing prices completely out of line with incomes or even prosperity (lots of oil and gas here), easy quick loans with lots of lenders and flipping seminars every weekend. It feels like the de ja vous moment in the Matrix. We are playing 2008 all over again.

What are those sayings about history, again...?

Break_the_Bank's picture

If I was smart I would sell my house and buy it back for cash when the recession hits. I mean the "official" recession. 


Seasmoke's picture

Even smarter. Stop paying on that fraudulent mortgage. Live mortgage free. Then buy it back it for pennies in cash.

I need more asshats's picture

If you're a joo all you have to do is go to bank and say my name is Eli Gold-whatever and they will shower you in joo confetti. Repayment terms are "VERY" flexible if at all.

FreedomGuy's picture

I never saw that line on my application. Can you share a photo or recording of that? I have seen the VA questions and the likes for favorable loans.

Apart from that, I have thought of selling out before the collapse and just waiting for a buy-back opportunity. I would actually love to own an A-class RV, self contained and go wherever the hell I want to live.

However, it is a lot of work to act on that kind of conviction. Kind of makes you ask yourself how much you believe ZH.

I need more asshats's picture

HA ha that was a trap and I caught you!

FreedomGoy loves him some credit products so he can support the FED!

FU! go back to isral.

swass's picture

I'm a fan on NINJA loans personally.

live free's picture

Seriously, I am too.  Maybe as a self employed engineering consultant that makes 3-4X the common man, I could actually get a mortgage!



Yen Cross's picture

  What are the zoning codes for ATM's on houses?

  The helicopter drops will resume, when the weather improves.

 You get a couple free tanks of NatGas for the Summer " sauce season" because all those input costs of food production have translated into consumer " purchasing power".

jellen's picture

Why is every one bitching. Take the evil money changers fiat and stack on......

chunga's picture

Here's a interesting case that's still alive from the foreclosure fraud debacle. It's hard to stay angry about it since ~ 50,000 scandals have gone unpunished since then. I know the lady in this one that has now wound it's way into Ohio's Supreme Court and I hope it turns out well for her. (court room video of arguments at link)

Case No. 2014-0791 Deutsche Bank National Trust Company as Trustee v. Glenn E. Holden et al.


•In order to have standing, must a party seeking to foreclose have an interest in both the mortgage and the promissory note, or just an interest in either the note or the mortgage?
•When a promissory note is discharged in bankruptcy, does a party seeking to foreclose only need to show it has an interest in the mortgage to have standing, or must it have both an interest in the note and mortgage?


Seasmoke's picture

It's FRAUDclosures. Plain and simple.

847328_3527's picture

<< pile of possibly risky mortgages>>



chunga's picture

How do you steal money from people that don't have any again?

(hint - the same thing is happening right now with student loans and autos except the collateral is even crappier)

12357111317's picture

Bankers: "we PROMISE to stay off the blue meth of no-money-down mortgages!  We promise, promise, promise... 

WAIT!  Is THAT our daughter's college tuition bill?"

Houses Depreciate's picture

ZH is a bit late on this. LiarLoans never went away.


"we find that it was the lenders who put the lie in the 'liar's loans'."

Bill Black @ #occupywallstreet on arresting banksters:



Solio's picture

Fraud always makes a solid business plan.

nscholten's picture

Weh I did home loans back in the 1900's 700 was a high score.  

yogibear's picture

The bankster criminals are back, bigger and bolder than ever.

Make this Ponzi 2.0 bigger!

CHoward's picture

It's not that people don't learn lessons.  THEY JUST DON'T GIVE A FLYING FUCK!!

FreedomGuy's picture

How many people doing crack or meth do NOT know it is bad for them? But they do it, anyway, right? Same with the current home loan business. You can make money today and the future will have to take care of itself.

European American's picture

Speaking of Pinocchio...

Snow White, Superman and Pinocchio are walking along.

They see a sign: “Contest for World’s Most Beautiful Woman.” Snow White goes in, later comes out smiling, wearing a crown.

They walk along and see another sign: “Contest for World’s Strongest Man.” Superman goes in, later comes out smiling, wearing the belt.

They walk along and see a sign: “Contest for World’s Greatest Liar.” Pinocchio goes in, later comes out with his head down crying and asked,

“Who the heck is Hillary Clinton?”


That's so funny I almost feel sorry for her. Shared!

expres12's picture

The crime here isn't the loan or their origination. Just like 2008, the crime is the fraudulent securitization of the loans. Nothing happens on the street untill and unless the loan can be sold for securitization.

Houses Depreciate's picture

The real crime is grossly inflated housing prices. It is grossly inflated housing prices that has caused housing demand to fall to 20 year lows.


idk, the, how do you say "C-Suite?' fraud needed the origination fraud to build upon, yes? You're disagreeing with B. Black?

honestann's picture

Neo-business 101.  How to create your own short opportunities.  Sheesh!  Goldman Shafts must be involved in this somehow.

moonmac's picture

If you just lost your home it doesn't matter we can get you a mortgage says the radio commercial. Another 5 years of rent free living and an eyesore yard to prove it. We need to form posses to drag these deadbeats from their homes and burn them to the ground!!!


kelley805's picture
Vlad the Inhaler's picture

BLackstone wants MORE foreclosures so they can scoop them out in bulk on the cheap and rent them out at twice what the mortgage used to be.  http://www.zerohedge.com/news/2013-12-20/meet-wall-street-your-new-landl...

NihilistZero's picture

Actually I think Blackstone wants people to buy their current rentals at rediculous valuations with these loans.  They've gotta unload the inventory they have before they can buy low again as these high rents won't hold in the next cycle of the recession.  Wash. Rinse. Repeat.

DipshitMiddleClassWhiteKid's picture

mean while..the free shit army grows everydayy!!

starman's picture

"Back to the future"