Author Topic: 'Shadow banks' are setting up the next housing euphoria  (Read 2612 times)

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Offline Compressed-Village

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'Shadow banks' are setting up the next housing euphoria
« on: October 27, 2016, 05:22:31 AM »
Creative financing setup the last housing collapse. Pricing has risen steadily since it bottomed in late 2011 which lead to very high prices result in Shadow Banks. The tight financing of traditional banks created and funnel a new method of getting loans for the sky high home prices.

https://www.yahoo.com/news/m/f8858ac1-45f7-3f09-803e-e37cf8ab5d0e/ss_%26%2339%3Bshadow-banks%26%2339%3B-are.html

Offline best_potsticker_in_town

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Re: 'Shadow banks' are setting up the next housing euphoria
« Reply #1 on: October 27, 2016, 08:06:36 AM »
This article seems misleading. It doesn't really matter who originates the loan as long as it meets the underwriting requirements. At the end of the day, these mortgages are still being underwritten to the standards of the gov't entity (FHA) that insures the loans. Fannie/Freddie won't buy unless that's the case. And from personal experience, it is not easier to get a loan through a "shadow" bank such as Quicken Loans.
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Offline Perspective

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Re: 'Shadow banks' are setting up the next housing euphoria
« Reply #2 on: October 27, 2016, 09:26:14 AM »
Business Insider is a tabloid/clickbait website, no? These aren't "shadow banks" in the sense we think about such creditors in China. The mortgage originators are simply non "banks" (depository institutions). They're regulated by the states, the CFPB and many other federal agencies, just like banks. The mortgages they make are subject to the same laws, regulations, and underwriting guidelines as the banks.

The loans originated by these mortgage lenders are subject to ATR/QM. If the lender doesn't verify the borrower's real income and ensure the borrower has the reasonable ability to repay the real mortgage payment, the borrower has recourse (statutory damages totaling up to three years’ finance charges and fees, actual damages, court costs, and attorney’s fees).

Offline paydawg

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Re: 'Shadow banks' are setting up the next housing euphoria
« Reply #3 on: October 27, 2016, 09:47:04 AM »
The moment I found out this article is from Business Insider, I moved on.  The site has no credability whatsoever.   
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Offline Compressed-Village

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Re: 'Shadow banks' are setting up the next housing euphoria
« Reply #4 on: October 27, 2016, 10:02:24 AM »
My whole point is IF there is any loopholes in regard to borrowers credibility and credits it should be stop as soon as possible. If anything it is the tight borrow standards that keep the housing on the sounds path.

Offline Perspective

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Re: 'Shadow banks' are setting up the next housing euphoria
« Reply #5 on: October 27, 2016, 10:10:34 AM »
My whole point is IF there is any loopholes in regard to borrowers credibility and credits it should be stop as soon as possible. If anything it is the tight borrow standards that keep the housing on the sounds path.

Agreed. Not all holes were closed with recent legislation (Dodd-Frank). ATR does a good job of keeping mortgage lending within reasonable boundaries, but also lets lenders get creative if they can find investors willing to assume much greater risk.

Some of these non-bank mortgage lenders are entering the non-QM space. These non-QM loans tend to be focused on: 1) self-employed borrowers who can't prove their "real" income with tax records, and 2) borrowers with poor income/decent wealth relative to the size of mortgage they're seeking. To offset the greater risk assumed by originating non-QMs, these loans often require much lower LTVs, well below 80%.

Offline Soylent Green Is People

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Re: 'Shadow banks' are setting up the next housing euphoria
« Reply #6 on: October 27, 2016, 11:25:56 AM »
I'm starting to get more calls that go like this:

Borrower: Hi, I saw you on (Yelp/TI/Redfin) and need help.
Me: Thanks for the call. What's your story?
Borrower: I'm thinking of taking cash out, but I'm self employed and don't report my income.
Me: Hmmm. Not in my wheelhouse. Good luck out there.
Borrower: But... but... you're my only hope.
Me: Obi-Wan I am not. Sorry.

An upswing in self employed cash out borrowing when these customers real income isn't reported was a pretty clear cut sign of the pending apocalypse back in 2007-2008.  So what does a loan like this look like?  I got a quote from BANC of California on their Non QM lending on Tuesday for a client. Here's what a 5/1 ARM 75% LTV Cash Out Refi looks like:

Base rate: 3.750 at (.25 rebate )
75% LTV adds .25 to rate.
DTI over 43% adds .125 to rate

So 4.125% on a 5/1 ARM with about .75 in fee, no possible buy ups to remove the points. BANC is actually at the lower end of the rate spectrum for most Non-QM program providers out there. Imagine a 5% rate handle at some other shops! Pretty spicy stuff here.

With QM rates spiking, LIBOR racing higher, and a PRIME rate increase in December, the weirdness quotient of all things Real Estate is about to start spinning at ludicrous speed. (IMHO)

SGIP
« Last Edit: October 27, 2016, 01:58:25 PM by Soylent Green Is People »
My .02c

SGIP

Offline Perspective

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Re: 'Shadow banks' are setting up the next housing euphoria
« Reply #7 on: October 27, 2016, 11:44:45 AM »
In this non-QM example of a borrower who can't prove their income with tax records, the investor (entity/entities holding the loan after it's made) is assuming a great deal of risk.

This borrower within three years of the loan's origination, can sue the note holder(s) claiming they failed to consider and verify the borrower's reasonable ability to repay the loan. This borrower can also defend a foreclosure action at any point in the life of the loan (30 years?) if s/he defaults. A successful lawsuit could result in statutory damages totaling up to three years’ finance charges and fees.  Other statutory damages are available, in addition to actual damages, court costs, and attorney’s fees. 

Offline USCTrojanCPA

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Re: 'Shadow banks' are setting up the next housing euphoria
« Reply #8 on: October 27, 2016, 12:52:12 PM »
I used Banc of CA for a 70% LTV cash-out loan on a rental that I purchased for all cash (no other lender would touch it).  Recently refi'ed into a lower rate traditional non cash-out reply after I owned the condo for a year (so my LTV came in below 60% since they looked at the appraised value and not the purchase price).  So there is a place for lenders like Banc of CA, but yeah them going above the 43% DITI is not a good thing.
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