Deja Vu All Over Again? Subprime MBS Demand "Oversubscribed" And S&P Says Risk Is "Contained"

The stock market is at record highs and people with FICO scores as low as 500 are once again happily obtaining mortgages. Not only that, but these mortgages are once again being securitized and are in demand by yield chasers.

All of the elements that are necessary for the 2008 subprime crisis to repeat itself are starting to fall back into place. Aside from the fact that we have inflated bubbles across basically all asset classes for the most part, not the least of which is evident in the stock market, the Financial Times reported today that not only are subprime mortgage backed securities becoming prominent again, but that the chase for yield was what fueling demand:

Issuance of securities backed by riskier US mortgages roughly doubled in the first quarter from a year earlier, as investors lapped up assets blamed for bringing the global financial system to the brink of collapse a decade ago. Home loans to people with scratches and dents in their credit histories dwindled to almost nothing in the aftermath of the crisis, as litigation-weary lenders retreated to patch up their balance sheets.

But over the past couple of years a group of specialist firms has begun to bring the loans back, navigating a dense web of new rules drawn up to protect borrowers and investors in the $9.3tn US home-loan market. Last year saw issuance of $4.1bn of securities backed by loans that would have been called “subprime” before the last financial crisis, according to figures from Inside Mortgage Finance, with the pace picking up in the latter half of the year. The momentum has continued into 2018, with deals worth $1.3bn in the first quarter — twice the $666m issued in the same period a year earlier.

Our central banks have done such a great job of getting us out of our last crisis that the recovery has prompted a mortgage originators and real estate investors to basically do the same exact thing that they were doing 2006 to 2007. After all, mortgage levels are already almost back to 2008 levels.


If that wasn’t disturbing enough, the hedge fund partner that FT quotes in the article says that the subprime market has “a lot of room to grow“ as if it were some type of new emerging market generating productivity, and not just a carbon copy repeat of exactly what happen nearly 10 years ago.

“The market is . . . starting from such a small base that it has a lot of room to grow,” said Jamshed Engineer, a partner at Axonic Capital, a New York hedge fund with more than $2bn in assets under management.

“[Investors] are definitely chasing yields. Whenever these deals come out, for the most part, they are oversubscribed.”

The Financial Times article tries to couch the fact that all hell could be breaking loose yet again at some point soon by citing Dodd Frank reforms that we reported in March are already past the Senate. The key provisions of the rollback are:

  • Relaxes a host of reporting requirements for small - medium banks, and to a smaller extent, large banks

  • Eliminates a reporting requirement introduced by Dodd-Frank designed to avoid discriminatory lending

  • Relaxes stress testing requirements intended to show how banks would survive another financial crisis

  • Raises the threshold for banks which are not subject to enhanced liquidity requirements, stress tests, and enhanced risk management, from $50 billion to $250 billion - exempting several institutions which could pose systemic risks down the road.

  • Allows megabanks such as Citi to count municipal bonds as "highly liquid assets" that could be used towards the "liquidity coverage ratio," - assets which can be quickly liquidated during a crisis. 

  • Calls for a report on the risks and benefits of algorithmic trading within 18 months

Despite the fact that the FT states that 500 FICO scores are getting approved for mortgages, S&P, one of the willfully ignorant and blind rating agencies that missed the subprime crisis thinks that everything is going to be fine:

"The risk is contained, in our view," said Mr Saha.

For the way that our Federal Reserve has addressed the problems of 2007 or 2008, these are the end results that they deserve, but the American people ultimately do not.


BullyBearish Fri, 03/30/2018 - 18:51 Permalink


everything about these guys is

    +                                                   E   V   I   L         


notfeelinthebern BullyBearish Fri, 03/30/2018 - 18:56 Permalink

Can't be loaning for single families in my area as few are being built. Condo towers on the other hand are springing up all over like chicken pox used to in 1st grade. They are all "luxury" and by today's standard's that means "glorified dorm room". The party's got to continue right?

In reply to by BullyBearish

Grave Dancer 22 Déjà view Fri, 03/30/2018 - 20:13 Permalink

This article "fighting the last war" exaggeration bullshit.  Classic case of need something bearish to write about so just make some shit up.  Mortgage lending is very, very tight in historic terms still.  Radically different then 2000-2008.  In fact, it was easier to get a mortgage 30 yrs ago in the 1980's then it is today.  Something else will take the market down this time.  Not real estate in the U.S. 

In reply to by Déjà view

Tarzan BennyBoy Sat, 03/31/2018 - 07:29 Permalink

people with FICO scores as low as 500 are once again happily obtaining mortgages

There is only one reason this is happening, and Benny hit the bullseye!

The risk is contained.

In taxpayer bailouts.

I would have no problem with banks taking this risk, if banks where taking the risk....not you and I.

In reply to by BennyBoy

serotonindumptruck D503 Fri, 03/30/2018 - 19:20 Permalink

In other words, deadbeat renters who can barely afford to pay the electric bill.

Perhaps the phenomenon is similar to the 1960s "commune era", where 8 or 10 Millennials are crammed into a three bedroom, one bathroom house which would otherwise serve as "party central".

The lights are on. Somebody's home. But they're three months behind in their rent.

If someone needs to score a couple zips of weed, then there is a house to go to on the shitty side of town.

What's it like to be a slumlord millionaire in this economic climate? 

In reply to by D503

notfeelinthebern notfeelinthebern Fri, 03/30/2018 - 20:00 Permalink

Not just millenials buying them. Lots of retired boomers from the burbs selling and moving in town to "enrich their lives." Nowadays eating imported ethnic food and living in a beehive are somehow equated with having culture... "You can lead a whore to culture but you can't make her drink" - Dorothy Parker, when asked to describe "Horticulture". LOL!

In reply to by notfeelinthebern

notfeelinthebern Tarzan Sat, 03/31/2018 - 08:15 Permalink

I'm a dairy farmer and live 70 miles west of Minneapolis but do drive into town once or twice monthly to visit family. Noticing many of these hives are not filling up as fast yet there are more starts all the time. This will possibly be where the next crisis come from. Don't know how they are financing them but if like commercial loans that get reset often, in a rising rate environment this should be augured.

In reply to by Tarzan

jackstraw001 BullyBearish Fri, 03/30/2018 - 19:02 Permalink

Yawn, just some Friday ZH doom porn.  Based on the numbers above, subprime market equates to 0.0004% of the overall housing finance market which doesn’t strike me as nearly as worrisome as subprime auto or student loans.  The louder ticking bomb in my opinion is un/under-funded local and state pension liabilities. 

In reply to by BullyBearish

SmittyinLA Fri, 03/30/2018 - 18:55 Permalink

My neighbor a flaky single mom inherited her house with a $250k mortgage, the house was worth 400-500k she then drew equity out for vacations and stuff running the mortgages up to 660k, the bank took back the house and gave it to her mom, a disabled elderly women on medicaid, then they gave her an equity loan on a home with no equity, they still occupy that house, I think they're paying for it with a reverse mortgage in spite of it having no equity.

There has to be hundreds of thousands of similar homes on the banks books.

The same banks are also doing this liquidation with municipal bond debt.…

California's sanctuary cities are sanctuary for municipal bond fraud.

Chuck DeBongo Fri, 03/30/2018 - 19:01 Permalink

It's still growing so there's plenty of time before it starts to implode. 


I just simply can't believe they have the balls to do this again and PRETEND like it's new territory! Do they seriously have zero respect for anyone? Or are they really this stupid? Or maybe, they KNOW they'll get bailed out and simply don't care?


Either way, plenty of time to load up on cash, gold and silver.

Yen Cross Fri, 03/30/2018 - 19:09 Permalink

  Same shit, different decade. All the shysters sell their shit, whilst leaving the uneducated lemmings holding the bag.

 A new generation of useless eaters gets taken advantage of, and the markets crash, just like clockwork.

itstippy Fri, 03/30/2018 - 19:10 Permalink

And when it all goes pearshaped again we'll be treated to Cramer flailing his arms around and Schumer saying, "Get to work, Mr. Chairman."  Again.

Meanwhile, back at the ranch, Mrs. Tippy's youngest brother is again asking his Big Sis to "Borrow me some money until I get my taxes back."  Again.

NVTRIC Fri, 03/30/2018 - 19:13 Permalink

I told you months ago, my house appraised $150K below market value.  Those old rich bitch appraisers that drive the white SUV Lexus, those cunts know the backside of the market.  Doom I tell you.  DOOOOOOOOOOOOOOOOOOOOOOOM.


It is probably because they were never "womb-productive".  LOL.

BrigstockBoy Fri, 03/30/2018 - 19:29 Permalink

"We believe the effect of the troubles in the subprime sector on the broader housing market will be limited and we do not expect significant spillovers from the subprime market to the rest of the economy or to the financial system," Bernanke said in his remarks, copies of which were distributed in Washington."

May 17, 2007

Alexander De Large Fri, 03/30/2018 - 19:37 Permalink

Fight Club gonna show guys how to trade these or just sit back slack-jawed as the Tribe assrapes everyone?

Guys been running "Oh shit, MBS again!  They said they wasn't gonna do it no more but look y'all, they doing it again!" for the past 3 or 4 years.

We gonna make some money or what?!?

franzpick Fri, 03/30/2018 - 23:09 Permalink

The asshole government and their lackey authorities know they can fool all the taxpayers all the time, as they did in 2009 and many times before: allow the gains to be privatized, and after the collapse, socialize the losses. It's sickening to see and hear the same bullshit again, hidden in plain sight out of the public's view.

squid Sat, 03/31/2018 - 07:31 Permalink

The FED and the American people are ultimately responsible for the current state of affairs and will utimately pay for it.

The Bernak was a student of the great depression but not in the way you think. He DESPERATELY wanted to avoid a reimposition og Glass-Steagal which he did by printing money. if the 5 big banks had gone down and whiped out deposites for companies and individuals, the pitch folks would have come out and Congress, owned as they are, out of fear would have brought it back. Buying the bonds by the fed prevented that and so, here we are.


but it didn't really revent anything, it just delayed it. the next crash will be worse by several times and if allowed, they'll do exactly the same thing....but i'm not sure the world will allow them to get away with it this time.