This Really Is The Everything Bubble: Even Subprime Mortgage Bonds Are Back

Authored by John Rubino via DollarCollapse.com,

Record student loan balances? Check. Trillion dollar credit card debt? Check. Six tech stocks dominating the Nasdaq? Check. Subprime auto loans at record levels? Check.

All that’s missing is subprime mortgages and we’d have every bubble base covered.

Oh wait, those are back too, just under a different name:

Subprime mortgages make a comeback—with a new name and soaring demand

They were blamed for the biggest financial disaster in a century. Subprime mortgages – home loans to borrowers with sketchy credit who put little to no skin in the game. Following the epic housing crash, they disappeared, due to strong, new regulation, and zero demand from investors who were badly burned. Barely a decade later, they’re coming back with a new name — nonprime — and, so far, some new standards.

California-based Carrington Mortgage Services, a midsized lender, just announced an expansion into the space, offering loans to borrowers, “with less-than-perfect credit.” Carrington will originate and service the loans, but it will also securitize them for sale to investors.

“We believe there is actually a market today in the secondary market for people who want to buy nonprime loans that have been properly underwritten,” said Rick Sharga, executive vice president of Carrington Mortgage Holdings. “We’re not going back to the bad old days of ninja lending, when people with no jobs, no income, and no assets were getting loans.”

Sharga said Carrington will manually underwrite each loan, assessing the individual risks. But it will allow its borrowers to have FICO credit scores as low as 500. The current average for agency-backed mortgages is in the mid-700s. Borrowers can take out loans of up to $1.5 million on single-family homes, townhomes and condominiums. They can also do cash-out refinances, where borrowers tap extra equity in their homes, up to $500,000. Recent credit events, like a foreclosure, bankruptcy or a history of late payments are acceptable.

All loans, however, will not be the same for all borrowers. If a borrower is higher risk, a higher down payment will be required, and the interest rate will likely be higher.

“What we’re talking about is underwriting that goes back to common sense sort of practices. If you have risk, you offset risk somewhere else,” added Sharga, while touting, “We probably are going to have the widest range of products for people with challenging credit in the marketplace.”

Carrington is not alone in the space. Angel Oak began offering and securitizing nonprime mortgages two years ago and has done six nonprime securitizations so far. It recently finalized its biggest securitization yet — $329 million, comprising 905 mortgages with an average amount of about $363,000. Just more than 80 percent of the loans are nonprime.

Investors in Angel Oak’s nonprime securitizations are, “a who’s who of Wall Street,” according to company representatives, citing hedge funds and insurance companies. Angel Oak’s securitizations now total $1.3 billion in mortgage debt.

Angel Oak, along with Caliber Home Loans, have been the main players in the space, securitizing relatively few loans. That is clearly about to change in a big way, as demand is rising.

“We believe that more competition is positive for the marketplace because there is strong enough demand for the product to support multiple originators,” said Lauren Hedvat, managing director, capital markets at Angel Oak. “Additionally, the more competitors there are, the wider the footprint becomes, which should open the door for more potential borrowers.”

Big banks are also getting in the game, both investing in the securities and funding the lenders, according to Sharga.

“It’s large financial institutions. A lot of people with private capital sitting on the sidelines, who are very interested in this market and believe that as long as the risks are managed well, and companies like ours are particularly good at managing credit risk, that it’s a good investment opportunity,” he said.

So today’s subprime mortgages are being written with lots of common sense safeguards. But demand for the resulting bonds is soaring and lots of new players, big and small, are getting into the game.

Wonder what that means for underwriting standards going forward…

Comments

slowimplosion Sat, 04/14/2018 - 11:27 Permalink

Oh boy.  Deja vu all over again.  This is what happens when not a single bankster goes to jail.  It will all start out with the best intentions and then suddenly they will be giving mortgages to Fido just to have some CDO to sell.  Jeez.

FireBrander wwwww Sat, 04/14/2018 - 11:32 Permalink

Mania alive and well here. House on my street sold at $10k above asking within 24rs of being listed. I know the realtor that listed it...she said "you ain't seen nothing"..she has people waiting for houses to come online in certain neighborhoods and she's not alone. Homes in the right neighborhoods will have 5 bidders the instant they hit the market.

Townhomes, Condo's and apartments...different story...glut! Stuff is just hard to sell...the problem is the monthly payment on a T or C is more than a house due to association fees...and apartments are just silly expensive with ~600sqft demanding $1000/month. Recent radio ad, 3 months free rent with a year lease...they are getting desperate.

In reply to by wwwww

AlphaSeraph FireBrander Sat, 04/14/2018 - 12:15 Permalink

We have the opposite here in Toronto. The single family homes have already come down in price while the condos keep exploding higher.

My apartment is 1760$ a month for rent, 480sqf. The avg condo for rent is 2200$ a month for about 550sqf.

It's gross.

In reply to by FireBrander

Paul E. Math AlphaSeraph Sat, 04/14/2018 - 13:15 Permalink

I think you might be overstating it a bit.  I moved away from Toronto just a year ago and my rent there was $2,200/mo for 670 sqft in the Festival Tower, one of the best buildings in the very heart of downtown.  The Shangri-la is nicer and the Ritz is nicer but that's about it.  That included parking, storage, heat, hot water and I was on a mid-level floor that overlooked the Hyatt to the west with great afternoon sunlight and a little glimpse of lake Ontario.

The price of anything will rise when more money becomes available to spend on it.  Consumers pay for rent with their incomes, rather than with borrowed money and incomes haven't risen, unlike the availability of money to borrow.

That's why home prices can rise where rents do not.

The bitch of it is though, eventually consumers need to pay for that borrowed money with incomes so if market forces are left alone, home prices have to come back down.

It's when people feel entitled to a rise in the price of their real estate speculations and the media gives them a platform to bawl and whine for government help then all bets are off.

In reply to by AlphaSeraph

Madolf Sanders… AlphaSeraph Sat, 04/14/2018 - 20:13 Permalink

It doesn't matter whether homes go for 10mil in paloalto or 10k in detroit, what's odd is when the 'climes' bunch up so tightly that you can get similar homes for >10x differentials relatively close apart. In iowa the same crappy old wooden house built in 1890 might go for 300k in iowa city but barely 30k in cedar rapids 20miles away. In phoenix you have walled-off 1/2mil$ compounds just a mile from slum villages, in chicago you have 1/2mil dollar 3story stone stoopers a few miles from shoot-em up ghettos. There's plenty of opportunity in this country to arbitrage the middle-ground if you're a developer.

In reply to by AlphaSeraph

Snaffew FireBrander Sat, 04/14/2018 - 12:23 Permalink

all you have to do is watch the media, listen to the radio...home flipping channels hosted by moronic yuppie couples are rampant, audio commercials for seminars on how to flip homes and make supplemental income all over the radio.  This is truly indicative of a bubble peak and the johnny come latelys will all end up getting fucked as they try to sell wildly inflated home prices because of new tile and granite counters to the next greater fool.  We are completely out of fools as it seems most are in the game and have no remembrances of 9 short years ago and the aftermath that followed before the fed and the US gov't threw trillions of printed money at the problem.  Global debt now stands at $247 trillion, up 10 percent in the last year alone.  The next crash will be epic and the survivors will be those with fully paid off hard assets---real estate, physical gold and silver imo.

In reply to by FireBrander

Endgame Napoleon wwwww Sat, 04/14/2018 - 11:53 Permalink

Calling all single moms: Play house on the house!

Need a home loan? Part-time job with hours and low wages that keep you under the earned-income limits for monthly welfare programs, no worry. 

You have a family. We have your back. 

Need a down payment? Use that up-to $6,431 in refundable EITC child tax credit money.

We’ll advance it to you. 

You had the sex and the kids. You deserve the picket fence to go with it....at least until Housing Collapse 2.0 commences. 

 

In reply to by wwwww

Jackprong Endgame Napoleon Sat, 04/14/2018 - 14:05 Permalink

Endgame, you're a breath of fresh air.  The government has been the prime Snake in the Garden Eden USA for generations to the point whereby it's an impossible task to dismantle the programs that have Anaconda'd the country.  If you look at Habitat for Humanity the housing government arm, you'll see 25 year mortgages for clap trap built single family houses with little or no resale value.  What resale?  They're designed to permanently strand a so-called owner because the owner isn't really an owner but just a higher class of riff raff on the slave plantation.  The creativity of this Anaconda system bears a striking resemblance to China's rating it's citizens.  The clock cannot be turned back.  http://www.wired.co.uk/article/chinese-government-social-credit-score-privacy-invasion

In reply to by Endgame Napoleon

ZENDOG Sat, 04/14/2018 - 11:28 Permalink

But, But, Bitcoin will save us all!!!!

It's the greatest salvation ever created by man......

HAHAHHAHAHAHAHAHAHAH!

Fucking idiots.

Snaffew ZENDOG Sat, 04/14/2018 - 12:29 Permalink

I'm loading up on shitcoin...it's colored brown, has impregnated hair and peanuts and is molded in the form of a turd for visual purposes.  It is an etf comprised of all the big players in virtual currencies---bitcoin, ethereum, ripple etc.  Starting prices are $10k a coin, but there are a limited amount of 1billion coins and you have to mine them in a virtual kitty litter box that takes an extraordinary amount of energy.  Should be a big winner as an alt coin because it serves no purpose and was created from nothing...oh wait--what?  there are 1700 other cryptos trading like this?  Oh well.

In reply to by ZENDOG

ken1990 Sat, 04/14/2018 - 11:32 Permalink

In the news

This robot that plays basketball can challenge you: http://enternations.com/thread/614/robot-plays-basketball-challenge

Man Kills Himself And His Children Because His Wife Enjoyed Masturbating: http://enternations.com/thread/572/man-kills-wife-enjoyed

 

Airport staff member get punished for being too handsome: http://enternations.com/thread/528/airport-staff-member-punished-handsome

Girlfriend saves her lover’s life by cutting his throat: http://enternations.com/thread/522/girlfriend-saves-lover-cutting-throat

Woman dies after husband uses mortar bomb as sex toy:http://enternations.com/thread/499/woman-dies-after-husband-mortar

Father Joins Son To Rape His Young Daughter:http://enternations.com/thread/445/father-joins-son-young-daughter

 

Last of the Mi… Sat, 04/14/2018 - 11:42 Permalink

And you thought 10 trillion in QE as a reward was somehow going to encourage (teach) them not to do it ever again?

The Fed response of QE defies common sense and logic on so many levels, not to mention that it simply further stuffed the US down the cosmic bunny hole of stealth inflation for the next decade or so.

Great job guys!

 

 

 

 

Ban KKiller Sat, 04/14/2018 - 12:03 Permalink

Carrington Mortgage Services....HUGE scumbags. LSF9 Trust....HUGE SCUMBAGS. Roosevelt and Rushmore Loan Management? Hedge fund boy cunts, majorly. They stay in their gated communities for good reason. 

 

"I won't be here when this shit blows up". Lehman and Bear Sterns brokers....putting together bullshit mortgage "backed" products. 

JP Morgan? Wells Fargo? Bank of America? EVERYONE knows they are CRIMINALS. 

Sonny Brakes Sat, 04/14/2018 - 13:32 Permalink

Do you smell that?

It's the smell of your government bailing out the, too big to fail, banks at the expense of generations of people who have yet to be born into this world.

To Hell In A H… Sat, 04/14/2018 - 15:56 Permalink

When you are officially doing Gods work and the political class is bought and paid off by your free to create FIAT money, you become immune to prosecution and effectively become Masters of the Universe, as they boast they are.

Given the facts on the ground and the realities we all see, the Jews run the show.

24Richie Sat, 04/14/2018 - 16:18 Permalink

There is no problem with securitizing subprime mortgages.  The problem was in making believe that the securities were investment grade. 

abgary1 Sat, 04/14/2018 - 18:56 Permalink

The central banks' low interest rate policy and QE are responsible.

Targeting asset valuations instead of the economy will not end well.

End the centrals banks and neo-classical economics.

everything1 Sun, 04/15/2018 - 09:45 Permalink

Government is on it.  My assessments over the last four years.  89,000, 100,000, 110,000, and 124,900.  Pretty decent bump from 17 to 18.  I'm getting priced out (again), but I'm not selling anymore, may as well rent and let someone else pay for it all, while I downsize yet again.  Interest rate seems to have little bearing.  The 30 year is the same now as it was when I first purchased late 2014.  Not much I can do except keep looking for something smaller.