The seeds of subprime are back...

Subprime mortgages make a comeback—with a new name and soaring demand

 

DTI maybe we should go back to that rather than UMI and then living costs baloney goes out the window.

 

Securitising sketchy mortgages. What could possibly go wrong

 

Back in 1990s before subprime was a similar securitisation and it ended in the book Liars Poker by Michael Lewis. Michael ran a massive scheme to find the good mortgages then one day wondered what would happen if his employer sold the bad debts and kept the good. .....They sold to Savings&Loans who borrowed against their investments so they could lend to even more dubious borrowers . He spent time in jail. He also predicted subprime would crash and recently suggested it would start up again.

Just change the names of the securities. What was a CDS becomes a WTF. All it takes is someone to exploit the game.

They are just making america great again.

Our markets are different ? Maybe not...Our banks do the same. Westpac declines a loan. A non-bank lender picks it up and writes another 200 a day that Westpac wont touch. And push IO loans and bad servicing calcs. Then try to hide the issue.

 

As the saying goes: the only thing we learn from history is that we don’t learn from history.

 

I think that's an oversimplification.

Yes, some non bank lenders will write non prime loans. Sure. But most non banks have tighter credit than the majors and 2nd tiers. They dont enjoy DLA. Almost everything goes to insurers for sign off. Also, the ones that do write non prime don't offer it at 100% or 105% or 100% LVR like NINJA loans were offered. Nor do they offer those loans at rates of 3 point something % They tend to write them at much lower LVR's with LMI or LEF and they tend to charge a premium.

As for the old school servicing calcs..... agreed. They are definitely going to have to pull that in at some point. Pepper and Liberty I mean.

Its should also be acknowledged that Australian non bank RMBS have lower spin rates ( arrears) than RMBS issued by ADI's.... so that tells us the banks write "riskier" ( if thats what a 1.5% spin rate equates to) business than the non banks as a general rule.

Just saying....

 

APRA are meant to safeguard the system but the more I hear about how banks play the system I fear they and other tiers of lenders and ADIs also play APRA.

 

I don't think there is a problem with sub-prime mortgages or securitization of them. There should be a market for higher risk loans with higher yields to compensate.

The problem comes with the entities holding the debt not understanding/managing the risk, and when they get in to trouble the government bailing them out instead of having them go under.

 

Ahh the USA. Making it great again. Financial regulation in the USA needs to be eased says the Don. Under Trump everyone will do better so regulation isnt needed.

Wall street types out to make billions at someone elses expense

 

Within 6 months me thinks.

 

The sub-prime was further compounded by people double and triple mortgaging their homes I believe. Add to that the non-recourse borrowing of the US where the borrowers could walk away from their loan and you have a crisis.

Agreed.