Remember when banks and hedge funds didn't fail, remember when waves of regular folks didn't go bankrupt and file for foreclosure, and remember when there was sanity in lending?
The lack of down payments and PMI insurance will be cataclysmic. Here comes the predictable credit tightening though, that happens with all bubbles.
Default rate of 'piggyback' loans spurs Wall Street to action
Wall Street is sounding the alarm on one of the most popular ways to buy a house in many high-cost areas around the country — so-called "piggyback" programs that mesh first mortgages with second-lien credit lines or mortgages.
The reason for the change, according to Standard & Poor's credit analyst Kyle Beauchamp, is that an exhaustive study of piggyback loans found them anywhere from 43% to 50% more likely to go into default than comparable stand-alone first-lien purchase transactions.
In a sample of loans in California markets, according to the SMR study, the percentage of piggybacks exceeded 60% in some cases.
More ominous still for the piggyback market: Federal financial regulators are expected to issue guidelines for lenders within the next few months that will force them to throttle back on piggybacks, payment-option loans and interest-only loans to borrowers with marginal credit scores and incomes.
July 12, 2006
Remember when you had to have a downpayment to buy a house (and you didn't lose it)?
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18 comments:
Damn. Now how will I afford a home!!???!
Shocker! People who buy houses they can't really afford tend to default on those loans. Some deep insight there...
Too little....Much too late. This game is over.
Do you really think WWIII is starting?
I don't give a phuck till it hits me.
an exhaustive study of piggyback loans found them anywhere from 43% to 50% more likely to go into default than comparable stand-alone first-lien purchase transactions.
Let me see if I have this straight, when you lend hundreds of thousands of dollars to people who have NO money - they tend to not pay it back. Wow, who got the research grant to come up with this statistic?
And they are going to issue guidelines in "THE NEXT FEW MONTHS"
That will be like rowing up to Titanic survivors in their lifeboats and warning them to be on the lookout for icebergs!
This is great, I could smell it coming. I am self employed and needed 30% down to no qualify my last 3 houses that I financed.
This is bad news but just to clarify... 43-50% more likely is NOT the same as 43-50% OF.
For example, if 3% of all mortgages default, among piggy back loans, it could be as high as 4.5%.
The inmates have been running the asylum for years....and it is only coming to light now?
Wow, who got the research grant to come up with this statistic?
Suzanne?
The marginal buyers will increasingly be squeezed out of the real estate market in coming months by tighter lending standards, less "creative" programs, and high interest rates.
That should provide some energy to the rental market, perhaps even allowing some well priced properties out here to cash flow.
The silver lining?
CNN
Report: Israel hits Beirut airport
What happens to real estate in
WW III ??? Does anyone even care?
osman - tell us your thoughts on the denver foreclosure situation - how bad is it getting there, and do those houses get bought and lived in, or turned into rentals as well?
why is denver of all places the foreclosure capital of the country? is it these no-down loans?
"The marginal buyers will increasingly be squeezed out of the real estate market in coming months by tighter lending standards, less "creative" programs, and high interest rates."
I can't wait for the marginal LENDERS to be squeezed out of the real estate market, like permanently.
What were THEY thinking?
They aren't naive non-english speaking rubes.
Oh yeah, they were thinking, "GREED IS GOOD". And "Heads I win, tails, taxpayers lose. Ha-ha! I love owning Republicrat Congressmen."
"The second trust deed."
I never liked the sound of that.
I think the foreclosure situation in Colorado will put downward pressure on pricing for a considerable period of time. Oh and unless people move out of state (or back in with mom and dad), every primary home in foreclosure creates another renter.
This this article from today's RMN is a good assessment.
We have a bank here in CO bragging about their assets increasing from $1B to $2B in just the past couple of years. For a bank assets are mostly loans on the books, so in effect these guys are trumpeting the fact that they've been handing out money like drunken sailors!
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