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Trading Lessons

Zero Down Mortgages Restarted by the Biggest Subprime Lender in Town - Fannie

Housing-Market / US Housing Sep 12, 2010 - 10:08 AM GMT

By: Trader_Mark

Housing-Market

Good news folks... the "no skin in the game" mortgage is back.  You know the game right?  It's a one sided bet where the buyer can only win.  If the house goes up, you pocket that and hopefully get that granite countertop you so deserve with the home equity.  If it doesn't go up.... you walk - but only after living in the home rent free for at least 18-22 months as you strategically default your way to a mountain of savings while waiting for the sheriff to show up.  If you are smart you can save at least $30K during this time.  There are no losers here (except the U.S. taxpayer).  [Jan 5, 2010: WSJ - The Treasury Department's Christmas Eve Masscare of the US Taxpayer]  [Feb 1, 2010: 2 Graphs Showing Part of the Reason for the Christmas Eve Taxpayer Massacre] [May 12, 2010: [Video] Are Losses at Fannie and Freddie Now "National Policy"?]  


I could go on and on and on (and on) but let me save my breath - my warnings in late 07 and early 08 about Fanfredron (fannie + freddie + enron) went on deaf ears, so instead I'll clap and say good on you folks.  Buying a $115K house for 67 cents is something our foreign readers must only cry in agony they have no opportunity to do.  Those darn French and Germans still have to pay 20% down (snicker).

Can you see the 3 AM informercial now?

"For less than the price of a candy bar, you too can be a home 'owner'.  Only in America!"

Next step as we wind our way through the Ponzi Matrix?  When the government pays YOU to buy the home.

Via NYT:

  • When the housing bubble burst, one of the culprits, economists agreed, was exotic mortgages, including those that required little or no money down.  But on a recent evening, Matthew and Hannah Middlebrooke stood in their new $115,000 three-bedroom ranch house here, which Mr. Middlebrooke bought in June with just $1,000 down.  (well at least he had $1000 saved)
  • Because he also received a grant to cover closing costs and insurance, the check he wrote at the closing was for 67 cents.  (well at least he had 67 cents saved)  “I thought I’d be stuck renting for years,” said Mr. Middlebrooke, 26, who earns $32,000 a year as a producer for a Christian television ministry.
  • Although home foreclosures are again expected to top two million this year, Fannie Mae, the lending giant that required a government takeover, is creeping back into the market for mortgages with no down payment.
  • Mr. Middlebrooke’s mortgage came from a new program called Affordable Advantage, available to first-time home buyers in four states and created in conjunction with the states’ housing finance agencies.
  • Some experts are concerned about the revival of such mortgages.  “Loans that have zero down payment perform worse than loans with down payments,” said Mathew Scire, a director of the Government Accountability Office’s financial markets and community investment team. “And loans with down payment assistance” — like Mr. Middlebrooke’s — “perform worse than those that do not.”  (you and your... your... facts!)
  • This is subprime lending done right,” said John Taylor, president of the National Community Reinvestment Coalition, an umbrella group for 600 community organizations, and a staunch critic of the lending industry. “If they had done subprime this way in the first place, we wouldn’t have these problems.”  (yeh!  Wait, I thought people who could not even save 3% down used to be called renters?  Nevermind - that's old school)
  • The loans are 30-year fixed mortgages, with mandatory homeownership counseling, available to people with credit scores of 680 and above (720 in Massachusetts). The buyers have to put in $1,000 and must live in the homes.  After six months, there are no delinquencies so far, said Kate Venne, a spokeswoman for the agency.  (whew, made it through 6 months....  coast is clear)
  • The agencies buy the loans from lenders, then sell them as securities to Fannie Mae. Because the government now owns 80 percent of Fannie Mae, taxpayers are on the hook if the loans go bad.

By Trader Mark

http://www.fundmymutualfund.com

Mark is a self taught private investor who operates the website Fund My Mutual Fund (http://www.fundmymutualfund.com); a daily mix of market, economic, and stock specific commentary.

See our story as told in Barron's Magazine [A New Kind of Fund Manager] (July 28, 2008)

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


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