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Thread: it looks like new mortage loans for 'self-employed' people are now a dead issue ...

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    Banned Melonie's Avatar
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    Default it looks like new mortage loans for 'self-employed' people are now a dead issue ...

    (snip)"Those who made loans and expected to sell them quickly did not care much about assuring that the loans would be repaid. It turns out that the financial wizards who made it easy to transfer risk also assured that more risks would be taken. They produced innovations like Nina loans, which, Mr. Piszel said, “found their way into prime space.”

    Nina loans?

    The abbreviation stands for “No income, no assets.” It does not mean the loans went to people without either assets or income, only that the borrowers were not asked if they had either. I had known about “stated income” loans — also known as “liars’ loans” — in which the bank took a borrower’s word for how much he earned. But I had not realized you could borrow money without even being asked about your income.

    Starting this month, Freddie won’t guarantee such loans, which seem to default more often than other loans.

    Each week seems to turn up more evidence of just how wide open the credit markets were, particularly for mortgages. Freddie Mac reports that two-thirds of the reserves it has set aside for bad loans come from 2006 and 2007 loans.

    Freddie’s principal business is buying loans, guaranteeing them and then selling securities backed by those loans. It is the only link in the chain that has any reason to care about credit quality, and it appears that it did not care very much.

    A kinder way to look at it is that competition forced it to lower its standards. Either way, Freddie this week released data showing how its standards had eroded. None of the loans on its books from 2003 or earlier call for payments of interest only. Almost a quarter of the loans it bought this year had that characteristic."(snip)

    from


    basically, in the current climate of fear on the part of mortgage lenders, no guarantee by Fannie / Freddie equals no loan approval by the mortgage lender.

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    God/dess sxybrat07's Avatar
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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    Ugh, NINA loans. I never understood why ANYONE thought those were a good idea. When I was a loan officer, I helped my boss with a NINA loan for a friend of his.

    He had a 750k house, and no job. He kept refi-ing his 450k loan to get cash out to continue paying his payments. It was really bizarre. Wonder if he ever got a job or if he'll be losing his house soon...
    I believe you Dottie and you have my support

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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    yeah, I don't understand that either. It almost is like the type of loan someone gets when they are doing something shady.

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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    Simple - banks have been throwing prudence out of the window.

    The first rule of sound banking to to make sure you can get back what you lend.

    So, if I default on my mortgage, my house reverts to the bank - and they can recover what I owe.

    All these Nina mortgages are a nonsense, because the probability of a bank recovering a bad debt is nil - it's not secured on any assets.

    We have similar in the UK. Northern Rock (now nicknamed Northern Wreck) lent 125% of the value of the property to borrowers with poor credit ratings. You don't have to be a rocket scientist to see the first thing a lot of these people will do is blow the extra 25%. So now the UK government is propping up northern Wreck to the tune of $50 billion, and it looks like it's going to lose a good chunk of that.

    Why do banks make idiot loans like the above - and they are idiot loans because the probability of them turning in bad debts is extremely high - because it's all about short term profit. CEO's get salarys and bonuses based in this years performance, not what happens in 5 years time. So they go for short term profit and hope they've moved on when it all blows up.

    There is reckoned to be $500 billion of bad debt associated with the housing market in the system - and it's going to claim a few more vitims yet.

    Phil.

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    Banned Melonie's Avatar
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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    Well in the US at least, banks were actually under obligation to the gov't to lend a certain percentage of their total loan money in a specific geographic area that they serve. Thus if banks wanted to make lucrative loans to 'rich and stable' areas, they also had to make risky loans to 'poor and unstable' areas that would never have been approved otherwise. Also in the US at least, the gov't sponsored mortgage entities Fannie Mae and Freddie Mac were under the same obligation to the gov't to accept mortgage loans from low income 'minorities' who otherwise would be rejected due to their income and credit rating. After a successful anti-discrimination lawsuit this obligation was extended to include low income people who couldn't really afford to buy homes of all races, creeds and colors. Thus if you research the history of US gov't policy towards mortgage lenders and towards banks who service poor areas as well as rich ones, you'll discover that prior to the late 90's the banks and gov't mortgage entities were allowed to use their own judgement as to which loans they would approve vs which loans they would reject. After the late 90's the gov't effectively told these banks and gov't mortgage entities that they MUST write some number of shaky loans. So in truth, you can't blame all of this on bad judgement by the financial industry ... because one of the big root causes was bad judgement on the part of otherwise well intentioned US lawmakers who didn't think far enough ahead to project the possible effects of the 'law of unintended consequences' !

    If you do a bit more research, you'll discover that the widespread resale of mortgage loans into a secondary mortgaged backed bond market, as well as the use of derivatives to hedge mortgage risk, really began to take off AFTER local banks were obligated by the gov't to write risky loans in poor neighborhoods that they did not want to write, and previously had not written. Even though the banks knew that some loans were risky, they thought that they were 'insulating' themselves from default risk via selling the risk to someone else and/or by buying insurance against default. And after the secondary mortgage market had developed into the huge animal it is today, bank management discovered that by reselling loans there was no longer any requirement for bank capital to be tied up for the life of the mortgages they were writing and reselling thus no limit in regard to the number of new loans that could be written and no limit on the amount of profit that could be pocketed. Unfortunately, once the economy took the least bit of a downturn such that the shaky mortgage borrowers started falling behind in their payments en masse, suddenly the mortgage resales were not 'final', suddenly the mortgage insurers were bleeding money, and suddenly the banks were having to take write-offs !

    By most accounts, compared to the 1/2 billion in shaky mortgage loans that have already gone belly-up, based on the number of shaky mortgages already written it is expected that another 2 trillion dollars worth of shaky mortgages will also go belly up before the end of 2008. So yes there are probably another 2 million Americans who will wind up being booted out of their homes due to foreclosure by the end of next year.

    As to taxpayer money being channeled into bailing out troubled financial institutions, what choice is there really. The last time that there was a huge rash of bank failures i.e. 1929 there was no insurance to cover losses by bank depositors and the depositors took the loss. The FDR New Deal saw the creation of the FDIC to insure future losses by making the US taxpayer the backstop. So if the gov't can head off bank failures via Fed cash injections, it is actually less expensive than it would be if the bank were allowed to fail and the FDIC had to make good the losses (up to $100,000 anyhow). Same goes for the US taxpayer being the backstop for making good losses at the gov't mortgage entities Fannie Mae and Freddie Mac.

    If you put all of these things together i.e. FDIC deposit insurance, taxpayer backing of Fannie and Freddie, Fed bailouts etc. it adds up to one huge package of 'moral hazard' ... where banks, borrowers and depositors alike were able to stop worrying about risk of loss since 'THE GOVERNMENT' officially or unofficially had their back ! So they all did things that weren't exactly prudent in terms of risk versus reward BASED ON the belief that 'the government' had their back. So today the risk is coming home to roost, and who's got whose back ?

    At least the mortgage lenders have been forced to stop writing additional shaky mortgages ! In fact they have been told by the gov't that they can and must apply stringent creditworthiness standards to ALL future loans - which will again result in people of all races, creeds and colors who couldn't afford to buy a house not getting approved for a mortgage !!! However what's done is done. Quite a few of the mortgage lenders have already gone bankrupt, and lots more will follow. And the US taxpayer hasn't yet had to 'pay the bill' that is soon headed in their direction.

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    Banned Katrine's Avatar
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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    Aren't NINA the same as no-doc? Stated income loans are a bit different.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    ^^Yes, stated income loans are slightly different. NINA's are no doc loans. Scary scary no doc loans.
    I believe you Dottie and you have my support

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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    Ok, most self-employed people can do stated income loans if they have a few years of tax returns, statements, etc. Its not as bad as Melonie is quoting, all I'm saying. You do however, have to keep track of the above things.

    IMO, a stripper that doesn't track her income and file her taxes has no place getting into a home in the first place. Same goes for any self-employed person in any industry. The lenders got greedy when they populace began to feel entitled to own their own home. Now I see ALL of these people trying to pay mortgages they can't afford.

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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    Banned Melonie's Avatar
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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    Again, what this is all about is a change in policy by Freddie Mac and Fannie Mae in regard to the minimum documentation requirements for mortgages that they are willing to 'buy' from the originating mortgage lender. With all of the subprime turmoil, and with all of the capital losses being written off by mortgage lenders, the de-facto point here is that extremely few mortgage lenders are going to be willing to write new mortgages that do not meet the minimum documentation requirements such that they can be 'resold' to Freddie or Fannie.

    Along those lines ...

    (snip)"Stated income loans are very popular with business owners. Since they write-off a lot of their expenses at the end of the year on their taxes they sometimes have very little net-income to qualify for a full-doc loan.

    Generally a no income, no asset (NINA) loan requires no verification of income or assets. However verification of employment is required and 2 years of same line of work is required. A No Doc loan is a NINA without verification of employment."(snip)

    (snip)"Stated Income programs are ideal for those clients with non-documentable income sources. Typically for those who may receive portions of income in cash.

    A stated income loan normally requires a slightly higher FICO score to qualify for the same loan to value as compared to a full documentation loan or bank statement program.

    There are two common types of Stated Income Programs:

    Stated Income Verified Assets Loan: (SIVA) - Loan approval is based on your stated income, credit history, and verified liquid assets (bank accounts, 401k, stocks, bonds, etc.). The Verified Assets should be consistent with the income claimed.

    Stated Income Stated Assets Loan (SISA) - This loan has no assets being verified. You only state your income and state your assets on the application. This program may have a slightly higher interest rate because the assets are not verified."(snip)


    From my read of the new Freddie policy, in order to accept a newly written loan the would-be mortgage borrower must now verify something ... they must either verify income or they must verify assets. This would mean that No-Doc loans (which verify nothing), NINA loans (which only verify employment not income level) and SISA loans ( basically = NINA but also acknowledge the existance of assets but do not verify them) will no longer be accepted by Freddie and Fannie.

    While I'm forced to speculate because there is not yet any history of acceptances versus rejections under the new Freddie policy, it would seem that if a dancer does not have a documented multi-year history of repeatable business income with associated tax returns, and also does not have any sizeable and verifiable assets (i.e. bank accounts, CD's, stocks & bonds, IRA), she now has no chance of getting a new mortgage backed by Freddie or Fannie.

    This does NOT mean that she can't get a new mortgage at all, but it DOES mean that she is going to fall right in the thick of the 'subprime' mortgage market where the money for the mortgage loan is coming from 'private investors / speculators' rather than a gov't agency ... which will probably involve a minimum 20% down payment plus closing costs up front, plus paying a nasty 'subprime' interest rate like 11.5% or higher. Thus under these new terms even buying a $125,000 'starter home' would now involve ponying up about $30,000 in cash at time of purchase plus a $1000+ per month mortgage payment (plus property taxes plus insurance). Thus under these new terms, would-be self-employed 'subprime' mortgage borrowers are actually far better off to rent !

    ~
    Last edited by Melonie; 11-24-2007 at 04:47 PM.

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    Default Re: it looks like new mortage loans for 'self-employed' people are now a dead issue .

    Agreed. And said dancer should never have had the opportunity to buy without at least being SIVA level. Same goes for anyone else self-employed. Creditor greediness and government backing of the greed got us into this mess to begin with.

    Its like the PL who can't say no to the aggressive stripper, "but Meeester Freedie Maaac, I wanna wanna wanna house! Preeety, preeeety please?'

    "Have you ever been to American wedding? Where is the vodka, where's marinated herring?" - GB
    "And do the cats give a shit? No, they do not. Why? Because they're cats."-from The Onion

    Quote Originally Posted by Mia M
    If a cupcake was tossed at me... well, I'd only be upset if it missed my mouth

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