Subprime Mortgages Are Poised To Make A Come Back

By
Real Estate Agent with Coldwell Banker Residential Real Estate SL3277959

According to an article written by Angela Pruitt at The Wall Street Journal, Lewis Ranieri is back and is preparing to enter the subprime mortgage market with a company call Shellpoint.  Ranieri's company, which acquired New Penn Financial, is poised to enter the subprime mortgage market, but will need to raise millions of dollars in capital to hold mortgages that they may not be able to sell on the secondary mortgage market for some time to come.

"[] there is little doubt that consumer demand for alternative mortgage financing is growing as traditional banks shut out all but the most pristine borrowers."

The article (published on June 23, 2011) states that the pendulum has swung too hard the other way.  Almost four years have passed since the summer of 2008 when the mortgage market all but locked up and no one, not event the squeaky clean, could obtain a mortgage to buy a home.  Today, lenders are lending, but only to the triple-A borrowers.  Borrowers who purchased homes anywhere between 2003 and 2007 will likely be those who will best fit Penn Financial's customer profile since those borrowers where hardest hit by the mortgage crisis, who may have defaulted on adjustable rate mortgages or they simply had no choice but to purchase homes at the peak of the market and can no longer sell them for what they were once worth and have to default in order to get out from under the thumb of their current lenders.

"Shellpoint says it has no plans to bring back the most discredited forms of subprime loans, including the infamous no-documentation mortgages, often dubbed liar loans, which allowed borrowers to obtain loans without proof of income or employment."

Shellpoint will start off on the right foot, but, what's to keep Shellpoint, or any other mortgage originator who enters the subprime market, from lowering the bar again and lowering it again after that?  Just before the big meltdown, if you were breathing and could sign your name, you could qualify for mortgages and home equity loans.  And, many people used the run up in home prices to fuel purchases of second homes, indulge in luxury lifestyles, and pay for expensive kids' college tuitions, and much, much more.  Homeowners used their homes as giant ATM machines to dispense cash in the tens of thousands of dollars.

"The aim is to target borrowers whose credit profiles prevent them from obtaining conventional mortgages in the tight market but who are nevertheless good credit risks and can make a down payment of at least a 15%. The company said a typical borrower could include self-employed contractors and other professionals who have assets and a steady income stream. The self-employed have been the hardest-hit by bank credit-tightening trends."

So, Shellpoint aims to lend to borrowers who are currently under-served by traditional lenders.  Those lenders, including Bank of America, Wells Fargo, Citibank, Chase and others have a lot of work to do to absorb the fallout from the prior subprime mortgage meltdown.  It could take years for the traditional lenders to process all the pending short sales and foreclose on defaulting borrowers.

The run up in home prices that fueled greedy lenders to lower standards for loans time and again started at the beginning of the last decade, shortly after we rang in the New Millennium.  It's going to take the rest of this decade, perhaps until 2020, for housing prices to recover and for the system to wash out all the bad loans and defaulting borrowers.  Until then, there will be continued pressure on the rental market while borrowers cannot obtain financing to live out the American dream of home ownership.  Homeowners will continue to be displaced from the homes they own that are either over priced or over financed.  This crisis has scared forever the first ten, and maybe twenty, years of the New Millennium.

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Re-Blogged 6 times:

Re-Blogged By Re-Blogged At
  1. Charlene Hammontree 06/24/2011 08:51 AM
  2. David Ames 06/24/2011 02:05 PM
  3. Leah Henderson 06/24/2011 02:06 PM
  4. Chuck Carstensen 06/24/2011 03:17 PM
  5. Glenn Freezman 06/24/2011 05:05 PM
  6. Dan Edward Phillips 08/04/2011 10:58 AM
Topic:
Lending / Financial
Groups:
Advice for Buyers
Tags:
subprime mortgages

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Rainmaker
696,106
Pamela Seley, REALTOR®
REALTY EXECUTIVES OTF - Temecula, CA
Seals the Deals in Temecula Valley California

Stephen, great post. I'm not too surprised to hear this, just not this soon. I'm on the fence whether this will be good in the long term for the real estate market. There are some terrific prices on homes right now, and with increased lending that might not last too long. Depending on one's perspective that could be good or bad.

Jun 25, 2011 03:19 AM #44
Rainer
44,724
Michael Smith
Michael Smith (Homexpo Realty) - Orlando, FL

In the past subprime loans appeared to be designed to force a homeowner to refinance every 2-3 years. As long as this is not the case with future products I would be for a return of the subprime market.

Jun 25, 2011 10:33 AM #45
Rainer
133,432
Gretchen Bradley
Meridian Capital-Giving Back 4 Homes - Roseville, CA

I am so happy to hear some other loan options may be on the way. How frustrating is it when you have buyers that have over 700 Ficos and make over $12k/mo, with minimal debt but a current house that only has 10% equity unable to qualify for a home purchase because they don't have 25% equity to offset the rent on their current home. That's my situation. So because they want to keep their investment until things turn around and turn it into a rental, they cannot because they don't qualify with 2 mortgage payments! I understand the reasoning behind the 25% equity rule but have some common sense. I was an underwriter for 20 years, and if you truly know how to underwrite, you can look at the big picture and say "this makes sense". The guidelines have removed that ability and automated underwriting was to blame for a LOT of the mortgage issues. Loan officers were taught by the Fannie Mae & Freddie Mac reps on how to "work the system" to input info you knew was inaccurate but would never have to verify to receive the outcome they needed. I sat in on many of these "training" sessions. There are a lot of smart, financially responsible people out there that want to buy homes, but because guidelines have them tied, they cannot.

I have been saying for years that the pendulum has swung too far the other way & I'm glad to see that Shellpoint is coming out to help correct this problem!

I'm going to Google them right now!

 

Gretchen Bradley

www.givingback4homes.com

Jun 25, 2011 11:20 AM #46
Rainmaker
636,533
Patricia Feager, MBA, GRI, Cert Negotiations Expert, Military Relo Prof
Keller Williams Realty - Flower Mound, TX
The Little REALTOR® That Could

Congrats on your FEATURE! It's well deserved and an excellent source of information for all of us in the RAIN. Your post is of value to me!

Patricia

Jun 25, 2011 11:26 AM #47
Rainmaker
487,723
Jan Green
Scottsdale, Phoenix, Cave Creek, Carefree, Fountain Hills - Scottsdale, AZ
RE/MAX Excalibur Scottsdale REALTOR®, GREEN

Great post!  Boy does this open up a lot of debate.  There is certainly a market for those who can make payments but don't qualify for a loan.  Self-employed practitioners are in that same boat.  I'm one of them!  I did not short sell my home, but sold it in 09 and put my equity in the bank and have been renting ever since.  I have great credit, money in the bank, but claiming my deductions excludes me from buying.  If I can rent a luxury condo every month, you'd think I could make a mortgage payment!  Renting is all that bad, but the rates, prices and tax deduction are so enticing that I'm itching to buy a home.  I definitely know how others are feeling, except that we have so many who have short sold their home, have poor credit, but are still making money and could also pay a mortgage payment.  It's unfortunate as we are all victims of the economy!  Best of luck to  you.

Jun 25, 2011 12:26 PM #48
Rainmaker
754,456
David Shamansky
US Mortgages - David Shamansky - Highlands Ranch, CO
Creative, Aggresive & 560 FICO - OK, Colorado Mtgs

I agree with a lot of the comments but want to be clear that I do not believe sub-prime (or whatever they get tagged with for a new name is) is NOT the end of the real estate world NOR was it the demise of it to give us the current state of affairs for the last 4 years. Subrpime is a product initially created to help bwrs who didnt fit the mold of the "cookie cutter bwr" and take some additional price hits to offset risk and allow for an approval. The problem is it originally started out as a performing loan that made great money and then the "greed" set in.

Subprime - YES

SISA, SIVA, NIVA, NINA - NO

If you cant produce income (or prove it) why do you deserve a loan. Credit can have problems, and be priced to offset risk, but when all disregard for underwiring standards are removed dont expect different results just because its round II

 

Jun 25, 2011 12:45 PM #49
Rainer
289,233
Kimo Jarrett
WikiWiki Realty - Huntington Beach, CA
Kimo's Lifestyle Solutions

New mortgage products with flexible terms and conditions should be created to serve the market. Affordable rates and terms or equity share products are a quick solution or simply change the landscape of the MBS by creating a new financing product that eliminates the traditional mortgage lender. The market will always provide the solutions to its challenges, so when the opportunity is unveiled, will you be ready to take action?

Jun 25, 2011 12:51 PM #50
Rainmaker
835,426
Marte Cliff
Marte Cliff Copywriting - Priest River, ID
your real estate writer

Randy in #25 said the magic words: Common sense.

The banks were using none of it when they handed out loans to people with no hope of paying once the ARMs reset. But they were motivated by greed - and instructions from Washington.

Self-employed individuals - like all of us here - do deserve to get mortgage loans, as long as we are producing the income to make the payments. And don't we have a better chance of continuing to produce income than some person whose "job" could be eliminated next week?

I'm all for this - as long as they're risking their own money. I thought it was criminal when banks sold their subprime paper as "A" paper - and more criminal when the folks who are supposed to be representing the taxpayers handed over the money to bail them out.

 

Jun 25, 2011 12:52 PM #51
Rainmaker
89,605
Brad Yzermans
First Time Home Buyer & Down Payment Assistance Specialist in So Cal. - Temecula, CA
Temecula-Murrieta-Menifee FHA/VA Mortgage Lender

I find it odd that so many people think our RE markets will ever get back to how it was from 2002 to 2007. I hear agents today who think it will.   The demand was driven by stated/no income, no asset, low FICO, high LTV loans....and interest only/neg am loans helped as well. 

There will be no subprime lender ever offering that combination again. You can get stated/no income with low LTV right now......but how many people have 40-50% cash for a down payment?

I agree with Bryant Tutas.....let the lenders lend....just don't allow rating agencies lie about how good of an investment they are on the secondary market. 

We need lower unemployment to get the market going again in my county........we are still at 15% unemployment.  Not only high unemployment, wages have dropped due to reduced hours or cut wages.

Can someone please stop allowing jobs to move out of state (CA) and out of the country?

 

 

Jun 25, 2011 01:17 PM #52
Rainmaker
682,641
Ruthmarie Hicks
Keller Williams NY Realty - 120 Bloomingdale Road #101, White Plains NY 10605 - White Plains, NY

New mortgage products would be a welcome tonic to the current market.  Too many decent buyers have been pushed out of the market and housing can't really recover without a little thing called DEMAND.  Many would love to take advantage of scrumptously low prices.  Some may have capital but battered credit due to a period of unemployment or because they are self-employed - you name it.  If the banks won't do it - someone else will fill the vacuum.  I just hope they do it in a SENSIBLE way.   And this may serve as a lesson to the big banks.  They will not ALWAYS be the only game in town.

Jun 25, 2011 01:46 PM #53
Rainmaker
827,260
Lyn Sims
RE/MAX Suburban - Schaumburg IL Real Estate - Northwest Suburbs of Chicago - Schaumburg, IL
Schaumburg Homes

Anything would help the current situation. What will the market do when we run out of all the 810+ AAA buyers? Not everyone was a risk & not everyone is currently behind on their mortgage or has bad credit.  Great post.

Jun 25, 2011 02:22 PM #54
Rainer
17,000
Joey Arce
NUllennium Realty/NUllennium Lending - Huntington Beach, CA

Maaan, This is a very good forum! I also recently read the story about Mr. Ranieri/Shellpoint and had many thoughts and concerns about this. Everyone here raises great points here! I personally could write a novel on this one as I have spent 14 years in the lending industry and seen things that would make people cringe. This is truly a difficult issue.

Most would agree that there is a need for alternative programs that serve their place/purpose well however skin in the game and caution cannot be thrown to the wind nor should people be forced to pay for co’s. gambling losses. There were a good deal of past products that worked well but so many factors caused there demise. Additionally and probably most importantly, the bottom line is to look at this accurately and assess your thoughts and opinions, you have to factor in the most important component of any moving financial machinery....being the human element and/or greed factor which will never ever go away. Where does your wallets trust begin and end? Subprime co. A does one thing, and then Subprime co. B pops up and decides to be a little looser on guidelines and introduce new products to steal the competition and market share and on & on & on new co's/programs/products emerge, rating agencies say "they are a good risk" and so starts the veiled downward spiral. Soon the past is welcomely forgotten with thoughts that “we are smarter than we were in the past”. Not to harp on subprime only as that is not what single handedly brought collapse. There is plenty of blame to go around. Yet, when co.'s become enormous and go public, who will be left holding the bag/forced to pay upon failure? To many hand's get involved in the cookie jar straight up to the "street". I for one luv innovation, creativity and growth but without a governor that controls speed and common sense, the accidents can be catastrophic. I hope we can forge forward without arrogance and learn from the past pains and scars. Once again this is a great topic!

Jun 25, 2011 03:53 PM #55
Rainmaker
207,212
Woody Edwards
First Choice Realty, Inc - Chesterfield, VA
A Realtor® Who Answers His Phone!

I don't have a problem with sub-prime mortgages!  What I do have a propblem is the fact that people that should not have qualified........DID QUALIFY! 

Answer 1 question...........Can you name 3 people that you would not loan $100 to?  And some people (Banks, Washington, etc) want these same 3 people to be allowed to secure a loan for $200,00 to buy a house?

GET REAL!!!!!

Jun 25, 2011 04:18 PM #56
Rainer
64,537
Steven Turetsky
Comprehensive Building Inspections & Consultants - Staten Island, NY
Building Moisture Analyst

My word, this sounds like another nightmare waiting to happen. I say, if the banks are going to do these dangerous loans, they should have to eat them if they fail... and a bank must prove they can afford to eat such expensive food.

Jun 25, 2011 04:54 PM #57
Rainmaker
274,177
Paddy Deighan JD PhD
Aston McLaren Inc - Vail, CO
Paddy Deighan J.D. Ph.D

hopefully, THIS time they will allow the market to dictate the terms without federal government intervention

Jun 25, 2011 06:26 PM #58
Rainer
71,485
Jeff Hollister
Native Californian with 20 years serving OC Buyers & Sellers - San Clemente, CA
Real Estate Broker, Serving Orange County, CA

Great post, Stephen.

I would like to see lending requirements relaxed, and feel it is only a matter of time before they are. I expect basically the same thing we saw in the late '90's, and early '00's. If I recall correctly, they started lending to people with foreclosures and BK's in which at least 2 years had passed. There is no doubt that some things will need to change before the market recovers.

Jun 26, 2011 01:01 AM #59
Anonymous
Anonymous
Anonymous

Excellent Post, Stephen.

Thanks for sharing it, also great comments!

Jun 26, 2011 01:55 AM #60
Anonymous
Anonymous
Ben Yost

Good! It's totally ridicules were at now!

Use a little common sense and it could be a good thing - this time around!

Good Post!

I thought the feedback would have been different.

Jun 26, 2011 01:35 PM #61
Rainer
161,361
Jim Poole
Tampa, FL
Zero Down, USDA Purchase Loans, FHA 203(K) Rehab & VA Streamline Loans

Music to my ears. It is hard to spend your day explaining to people why you are not able to assist them with home financing. It will be nice to have alternatives for the people who deserve a second chance.

Jun 27, 2011 11:25 AM #62
Rainmaker
130,634
Matt Robinson
Professional Investors Guild - Pensacola, FL
www.professionalinvestorsguild.com

Someone please wake me up and tell me it's just a bad dream!  I seriously hope that nobody is really thinking about "filling the void" that subprime mortgages left behind...because some "voids" are there for a reason.  People with no money and marginal credit shouldn't be buying homes anyway, as it only takes one minor financial setback to put them in a tailspin towards foreclosure.  Will we never learn?

Dec 27, 2011 12:17 PM #63
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Rainmaker
338,019

Stephen Howell

Sarasota FL Homes For Sale 941-870-4141
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