2 ms·

A lot of subprime issues from 2000 had to with diligence on the originator. There was widespread fraud on income, and employment reporting to meet the demand f

by adrr 8y ago

A lot of subprime issues from 2000 had to with diligence on the originator. There was widespread fraud on income, and employment reporting to meet the demand for CDOs and other mortgage-backed securities. Subprime has its place to loan out money to people who have the capability of repaying the loan but might not have the credit history/score to get a standard loan.

notyourday 8y ago
This is a mantra repeated by everyone who is not business of making loans. There's enormous competition for people with capabilities of repaying a loan but no thin credit files/scores. Those are credit scores between 575 and 650. There are government programs that target these people administered via Freddie, Fannie and FHA for automatic underwriting. Those are done? No matter, USDA(!) would guarantee loans in rural areas! Banks themselves do manual underwriting for people who barely qualify or on a cusp of qualifying at prime + rates. Those were not the subprime loan customers. Subprime loans were originated with the same rationality as the loans covering Buy Here, Pay Here car loans: they were originated with a total knowledge that the buyer will fail to make payments and will be foreclosed on - no matter! Buyer would make payments for first 6-7 months, default, get foreclosed on and the house would be sold to someone else for higher amount than the defaulted loan. Housing was an appreciating asset when these loans worked fine on depreciating assets ( cars ). Structural inequality or not, people who have shitty jobs and shitty financial position typically make shitty financial decisions over the long term. 30 year mortgage is a very long term financial play.
- pmwhite 8y ago
  Perhaps I am misunderstanding your point, but that still sounds like a fundamental problem with the originator. If you are lending money with the unspoken understanding that the note is likely doomed to be a loss unless the real estate market continues to go up, then you are not really in the loan business anymore. You are putting letting your capital ride on the real estate roulette wheel, while enjoying the fat fees in the short term. The fact their were enough greater fools around to move your capital from new bad loans to newer bad loans may let you bank a few more fees, but it still means the originator is choosing to screw up while hoping to be rescued by real estate market forces completely beyond his control.

by adrr 8y ago

notyourday 8y ago

This is a mantra repeated by everyone who is not business of making loans. There's enormous competition for people with capabilities of repaying a loan but no thin credit files/scores. Those are credit scores between 575 and 650. There are government programs that target these people administered via Freddie, Fannie and FHA for automatic underwriting. Those are done? No matter, USDA(!) would guarantee loans in rural areas! Banks themselves do manual underwriting for people who barely qualify or on a cusp of qualifying at prime + rates. Those were not the subprime loan customers. Subprime loans were originated with the same rationality as the loans covering Buy Here, Pay Here car loans: they were originated with a total knowledge that the buyer will fail to make payments and will be foreclosed on - no matter! Buyer would make payments for first 6-7 months, default, get foreclosed on and the house would be sold to someone else for higher amount than the defaulted loan. Housing was an appreciating asset when these loans worked fine on depreciating assets ( cars ). Structural inequality or not, people who have shitty jobs and shitty financial position typically make shitty financial decisions over the long term. 30 year mortgage is a very long term financial play.

pmwhite 8y ago
Perhaps I am misunderstanding your point, but that still sounds like a fundamental problem with the originator. If you are lending money with the unspoken understanding that the note is likely doomed to be a loss unless the real estate market continues to go up, then you are not really in the loan business anymore. You are putting letting your capital ride on the real estate roulette wheel, while enjoying the fat fees in the short term. The fact their were enough greater fools around to move your capital from new bad loans to newer bad loans may let you bank a few more fees, but it still means the originator is choosing to screw up while hoping to be rescued by real estate market forces completely beyond his control.