patrick.net

Strategist says

25% down stated income was always there. Not today.

Wrong, we have done plenty of stated income loans since 2013

Strategist says

SubPrime with 25% down was always there too. 30 year fixed.

You can get any loan you want with a 620 fico 25% down if you have the income to obtain the debt,

GSE, FHA, VA fico score limit is 560-620

Poor People don't buy homes

People who have low fico scores if you look at their applications have this issue

1. High revolving debt ( They don't make enough money to pay the credit card balance down)

2. They are late on their payments

Now people expect this group who don't make enough money to pay down their credit card debts to now buy a home which is the biggest debt in their life and the biggest cost they will ever have

Logan Mohtashami says

Poor people don't buy homes and now they don't have stated income, sub prime, option arm loans to get into housing anymore. We must always as a country fight any movement to allow the most unqualified Americans to buy homes that would place them in financial jeopardy. We are doing that even though the core standards to buy a home are very liberal, it clears the path for a more real market based on incomes and assets

Residential lending primary factors are 2

1. Debt to Income ratio

2. Liquid asset availability

Stated income is not necessarily for the poor. It's also for the business owners who have assets, high credit scores, and the equity.
Lenders need to focus on the odds of default and base their loan decisions on that. Let me give you 2 scenarios.
1. A young person with no college education, 650 FICO, barely manages to get 3.5% down with parents help. 2 years on a job.
He gets an FHA loan with high, but acceptable debt ratio.
2. A 50 year old married couple, 800 FICO, no debt. Net worth of millions. $600,000 in liquid assets. Get denied for a $300,000 loan on a $800,000 property in a prime area, because they want a stated income loan.
I ask you, which scenario is a better risk, which scenario would you lend your own money, and why does the screwed up system can't figure out something as simple as that.
The greatest protection a lender has is the equity a borrower has.

Strategist says

I ask you, which scenario is a better risk, which scenario would you lend your own money, and why does the screwed up system can't figure out something as simple as that.

The greatest protection a lender has is the equity a borrower has.

All you need is a

3.5% down-payment

560- 620 Fico score

and a 43%-50% debt to income ratio

That in theory is a sub prime loan because the credit score can be as low as 560-620

That is a very low bar to buy a home

The reason why you don't see poor people buy homes, is because they don't even try because they aren't financially ready to buy a home and they know it.

Logan Mohtashami says

Strategist says

I ask you, which scenario is a better risk, which scenario would you lend your own money, and why does the screwed up system can't figure out something as simple as that.


The greatest protection a lender has is the equity a borrower has.

All you need is a

3.5% down-payment

560- 620 Fico score

and a 43%-50% debt to income ratio

That in theory is a sub prime loan because the credit score can be as low as 560-620

That is a very low bar to buy a home

The reason why you don't see poor people buy homes, is because they don't even try because they aren't financially ready to buy a home and they know it.

You did not even come close to addressing the point I made proving loans are not available as they were pre bubble.
We caused a bubble by providing loans to those who could not pay back, and now we are preventing a recovery by denying loans to those who CAN pay them back. We go from one extreme to another in sheer panic causing even more problems. What a screwed up system.

Strategist says

You did not even come close to addressing the point I made proving loans are not available as they were pre bubble.

First Happy Easter :-)

2nd I said stated income loans are going to self employed borrowers, there is only 8.9 million Americans that are even in this category and a good portion of them have homes already. Strategist says

2. A 50 year old married couple, 800 FICO, no debt. Net worth of millions. $600,000 in liquid assets. Get denied for a $300,000 loan on a $800,000 property in a prime area, because they want a stated income loan.

This buyer you're talking about is so small that's it's material insignificant to the discussion and is in the category of what I called cherry picking on small data point to make a claim that lending is tight. Also, that person can get a loan today with that big of a down payment on stated income.

Tell that person to come to me and we will get him a $300,000 loan, trust me not a problem at all
As long as he has a job with that big of down payment we can get him a stated income loan.|

We see the stated income loan profiles from 2013-2015 it's an average of 33% down

:-)

Speaks for itself, the later stages of the economic cycle had massive PITI inflation which the capacity of main street to own the debt didn't have, hence the low level of sales from main street America but the strong sales from the Rich

So total volume is falling down but still a big level of total sales

Call it Crazy says

Logan Mohtashami says

This buyer you're talking about is so small that's it's material insignificant to the discussion and is in the category of what I called cherry picking on small data point to make a claim that lending is tight.

That's exactly what I noticed... Strat seems to focus on such small, out of the ordinary situations, instead of the big picture.

This particular buyer is "so small" because of a lack of available loans in any meaningful quantity. If they get the loans, they will emerge from the woodworks. Think about it....If 30% of buyers are cash buyers, we could have lot more buyers with 50% down, no questions asked, other than their assets.

Strategist says

Think about it....If 30% of buyers are cash buyers, we could have lot more buyers with 50% down, no questions asked, other than their assets.

No, cash buyers buy with cash ... don't need to waste $$$ on interest

Also, there is great value for Auction buying which can only be done with cash, not a mortgage :-)

Logan Mohtashami says

Strategist says

Think about it....If 30% of buyers are cash buyers, we could have lot more buyers with 50% down, no questions asked, other than their assets.

No, cash buyers buy with cash ... don't need to waste $$$ on interest

You miss out on those with large down payments, or those who want to buy multiple properties.

Logan Mohtashami says

Also, there is great value for Auction buying which can only be done with cash, not a mortgage :-)

Hey, there are hardly any foreclosures going to auction. :) :)

Strategist says

You miss out on those with large down payments, or those who want to buy multiple properties.

If they want to get a mortgage with a huge down payment and go stated they can. Nothing is preventing them, I have been on the other side of these deals, trust me, getting a mortgage is not on their agenda

Strategist says

Hey, there are hardly any foreclosures goingtoauction. :) :)

Yes, the auction bids have dried up, the best year for profit was in 2010 with the Home Buyer Tax Credit these investors were salivating.... because they needed a mortgage buyer to buy these home off of them

Let me give a you a specific example

X Firm bought this home for $329K cash total debt owed was over 600K.... they bought it in auction... and then sold it right away to a mortgage buyer for $485,000K home appraised for that value as well.

Not bad % profit there

Logan Mohtashami says

Tight Lending Debate On Twitter

Debate on Twitter? How does that go?

bigpenis32: u up fed rsv?
fedres120: yeah
bigpenis32: u hrny?
fedres120: not 4 u
bigpenis32: :( y u dis me
fedres120: it's 2 am go 2 sleep
bigpenis32: nllnn

Dan8267 says

Tight Lending Debate On Twitter

Debate on Twitter? How does that go?

bigpenis32: u up fed rsv?

fedres120: yeah

bigpenis32: u hrny?

fedres120: not 4 u

bigpenis32: :( y u dis me

fedres120: it's 2 am go 2 sleep

bigpenis32: nllnn

http://www.housingwire.com/articles/33447-epic-twitter-discussion-erupts-is-credit-really-that-tight that's one today was the CNBC version

There is a 13 point reference today to CNBC on this matter here

https://twitter.com/LoganMohtashami

13 points I made on twitter today to counter this thesis

1.)Fico scores are pricing models, some loans require higher end score but the core min is low

2.) VA loans
620 Min
3.5% Down Payment
60% debt to income ration
#TightLendingMyth

3.)FHA loans
560-620 Fico Min
3.5% Down Payment
43% debt to income ratio
#TightLendingMyth

4.)GSE Loans
620 Fico Min
3%- 5% down payment
43%-50% debt to income ratio
#TightLendingMyth

5.) Poor people don't buy homes, when income needs to be verified and liquid assets are needed

6.) Low Fico Score borrowers have this common trait
1. High Credit Card balances
2. Late payments

7.) This group doesn't make enough money to pay down credit card balances and have late payments

8.) Why are we surprised that this group coming off the Great Recession can't buy homes

9.) Those who have worked in the financial lending sector can say it's a lack on income & assets

10.) Affordability is the issue for both new and old homes, #DTI

11.) No matter how low rates go the velocity of low rates bad

12.) 2001
1. Stated Income
2. Option Arm
3. Sub Prime
I was working in 2001

13.) Final ask people who have worked in the lending business for decades not those who haven't

This is the CNBC version of the article above

Here was the clip on CNBC last year explaining this

10:35
https://www.o9O_FDLPdgA&t=10m35s

Sir,

When looking at the Subprime of 2000-2007 compared to current rising home value situation which is a more significant issue?

1 $5T Subprime pop due to NINJA, and other creative loans in 2007 - or

2. ZIRP driving increases in property values, very few new origins for new and existing housing, and home valuations nearing 2007 level, but with 5% of us workers out of labor pool, and with many jobs going to seniors, more outsourcing, and with fewer organic prospects for government funding with private sector driven job taxation, and increased entitlements?

Entitlemented says

Sir,

When looking at the Subprime of 2000-2007 compared to current rising home value situation which is a more significant issue?

These charts show why housing demand has been soft and tight lending has nothing to do with it because tight lending doesn't exist

For the new home sector it's a lot worse

Which leads to data points like this

Now matter how low rates gets, No escape velocity

Logan Mohtashami says

For young Americans and those lacking dual income capacity, that market place has been hit.

This is why I won't buy soon: I'm gen-X, and there's is no viable demand in the pipeline behind me for a few years yet. If my earning power takes a hit, I might have to kiss off my 20% down payment along with the house.

At these prices, either the current under-35s will have to get better jobs (not happening yet), or prices will have to drop hard. I can't see any reason to buy.

(Of course, I couldn't see any reason to buy 7 years ago, but I didn't anticipate Housing Bubble Part II.)

HydroCabron says

At these prices, either the current under-35s will have to get better jobs (not happening yet), or prices will have to drop hard. I can't see any reason to buy.

To me always.

Housing is the cost of shelter to your own capacity to own the debt. You as an individual will always know best when to take that debt on for shelter.

We are never going to see a collpase like the housing market anytime soon because we have debt owning capacity in this cycle and 40%-50% of all homes bought by the rich and 1/3rd cash

Hydro says:
At these prices, either the current under-35s will have to get better jobs (not happening yet), or prices will have to drop hard. (never happening)
There.....I fixed it for you.

Logan Mohtashami says

To me always.

Housing is the cost of shelter to your own capacity to own the debt. You as an individual will always know best when to take that debt on for shelter.

We are never going to see a collpase like the housing market anytime soon because we have debt owning capacity in this cycle and 40%-50% of all homes bought by the rich and 1/3rd cash

We finally agree. :)
There are only two ways for the average person to get rich. Stocks and Real Estate.

Strategist says

We finally agree. :)

:-)

Logan, can you explain this....

http://www.cnbc.com/id/102563222
"When you look at more moderate credit score borrowers, those with a FICO of between 660 and 720, that's a score that in a year like 2001 we would consider eligible for a purchase mortgage, but today we see a 37 percent decline in the number of loans in that category," said George.

Tight lending excluding TBTF. I'm expecting my zero interest loan this week.

Strategist says

When you look at more moderate credit score borrowers, those with a FICO of between 660 and 720, that's a score that in a year like 2001 we would consider eligible for a purchase mortgage, but today we see a 37 percent decline in the number of loans in that category," said George.

This right here is why I am trying to get Laurie Goodman to go on national T.V. with me and debate this topic. Once I get a one one one debate live on T.V. the rest is history.

Credit scores are the 3rd factor model in getting a loan and not a very important one if your debt to income ratio is good and you have good liquid assets.

You can have 780 Fico score but have no capacity to own the debt of a home but you can have 640 fico score and have the capacity to if your debt to income ratio is 27% and you're putting 10% down

Poor people don't apply for loans and the fact that Laurie is now going back to 2001 when she has no idea what loans were out there is very obvious now.

Residential lending is backed by two things

Income = Debt to Income Ratio
Liquid assets = Down payment, closing cost, liquid reserves

A fico score is total irrelevant in that equation, it paints a picture for a pricing model because poor people tend to have lower fico scores thus why
FHA
VA
GSE Loans all have a min of 620 fico

Professor Sanders and myself talked about this before he got interviewed on that CNBC article and this was a counter article to that

What he said in that article

"What the researchers are not really looking at is that although credit looks like it's tighter than it's ever been, the fact of the matter is that income is lower than it's been in a long time," said Anthony Sanders, a professor of finance at George Mason University who claims credit is no tighter than it was in 2001. "Therefore there are a lot fewer households that can even qualify for a loan, so they're not even applying."

His article after the CNBC one

https://confoundedinterest.wordpress.com/2015/04/06/mortgage-lending-on-the-planet-mars-why-todays-market-is-not-the-same-as-in-2001/

One day soon there is going to be live debate on T.V. on this issue and trust me once it's said and done, this entire tight lending thesis will Rest In Peace

They should be focusing on the horrible reasons that some loans are being called back, that is a legit issue but for the most part they don't have a clue what is going on with the repurchasing market

Call it Crazy says

When the majority of the "sheep" wake up to this fact, and realize that a house is shelter FIRST, and not their future retirement plan, then the housing market will return to sanity.

If people look at it as PITI cost of shelter everything is all good. Now that the system verifies income and assets we have a strong loan profile in this cycle. Just can't let these people get the speakers and not be challenged. This is a core reason why I challenge every single person when they say lending is tight

https://www.youtube.com/watch?feature=player_detailpage&v=iW5qKYfqALE

https://www.TD2_NmPevVs&feature=player_embedded

Barney Frank Congress 2005

https://www.youtube.com/watch?feature=player_detailpage&v=iW5qKYfqALE

Logan Mohtashami says

One day soon there is going to be live debate on T.V. on this issue and trust me once it's said and done, this entire tight lending thesis will Rest In Peace

You are very confident.

Call it Crazy says

Housing is the cost of shelter to your own capacity to own the debt.

When the majority of the "sheep" wake up to this fact, and realize that a house is shelter FIRST, and not their future retirement plan, then the housing market will return to sanity...

It's shelter FIRST, and future retirement plan SECOND. There I fixed it for you. I'm so nice. :)

Logan Mohtashami says

If people look at it as PITI cost of shelter everything is all good. Now that the system verifies income and assets we have a strong loan profile in this cycle.

Freeze. Hold that thought. "Now that the system verifies income and assets"
Implies tighter lending standards. I guarantee you if they bring back the same programs widely available in the 1990's our housing problems would be history.
Now the argument can RIP :)

Call it Crazy says

When the majority of the "sheep" wake up to this fact, and realize that a house is shelter FIRST, and not their future retirement plan, then the housing market will return to sanity...

Who still thinks this??

Strategist says

You are very confident.

Math,Data and Facts matters in these debates and I admit I have a great advantage since this is what we do for a living and I have all the data points to reference to my views.

90% of my debates with people in the past 100% of the them had no idea how the standards were with

GSE, FHA, and VA and the best is they all go check and then come back to me and say... wow you're right.

I am going to be the Galileo of this topic because my discipline will never allow me to deviate from the truth

Strategist says

Implies tighter lending standards

You're correct. We verify income now and no longer allow 100% loans that are stated income loans 2/28 & 3/27 and option arms which has a horrible default rate if the home owners couldn't refinance out of them

That's a good thing for this country and I will do my best to fight against any movement by the U.S. government to allow such garbage loans back into the system. Which I know 100% they won't since they have all been banned in America. This is a good thing for America and a bad thing for crooked financial types.

Stated incomes loans are being done every day with big down payments.

The days of fraud are over in America in terms of lying on your applications on your income. Now it's back to normal, which is

Paystubs
W2
4506-T
Bank Statements
Jobs

Tax returns
P&L YTD

Yes, this is the new America, the old days of lying are done!

IOW the worlds biggest case of the King's New Clothes.

I might add that housing is just one aspect of this story. War is another, TARP is another, Entitlements is another, ZIRP is another, Student loans is another, Public Transfers is another, and the one everyone claims is a conspiracy theory is the Fed.

With all of that we have an 18 trillion dollar GDP that is a real juggernaut that will probably survive the entitlement surge only because of this juggernaut, But theys going to have to be some changes or else it taint.

I think one of the big problems we will encounter, when depending on those most snake bit from the last crash to carry the next leg up for house prices,is that it's extremely hard to picture the kind of price appreciation we've known in the past, continuing into the future.

Everything is already prohibitively expensive. How can those emerging from credit jail be expected to buy with the assumption that appreciation will outpace debt service, even with rates already so low?

Its as fresh in their minds as anyone's, just how quickly the paper value of your house, can evaporate