Post by jeffolie on Jul 13, 2007 12:04:42 GMT -6
You probably know that Low/No-Doc loans are also called "stated income" or "liar" loans. That's because the borrower was allowed, and in some cases encouraged, to overstate their income in order to qualify for the loan. Obviously, these borrowers are at a higher risk of default than borrowers who are living within their means, who borrowed only what, by traditional measures, their income will permit. A low credit risk has in effect be turned into a high credit risk by the act of lending more money than income will reasonably allow these borrowers to repay. If in addition to subprime borrowers, a significant number of Alt-A, Jumbo, and Prime borrowers were also granted Low/No-Doc loans, then risks in the mortgage market cannot be confined to subprime loans.
How many Low/No-Doc loans were originated for each class of securitized loan? As it turns out, more than 80% of Alt-A, more than half of Jumbo, and 36% of Prime securitized loans (approximately 75% of all mortgages are securitized).
Piggyback loans are another risky mortgage. Piggyback loans get their name from a second mortgage that is "piggybacked" onto a first mortgage to compensate buyers who are unable to come up with a larger down payment or any at all. Piggyback borrowers are another group that is vulnerable to default. More than 50% of subprime and Alt-A mortgage holders fall into this category.
an average of one quarter of all mortgage loans made since 2003 were to "homeowners" who are doing nothing more than renting a house from the bank. There is no equity built in a home during the period when the borrower is paying only the interest on the loan. This borrower has no incentive to fight to stay in their home if the price falls and the mortgage goes underwater, especially if they lose a source of income. They have no equity to lose.
Freddie Mac and Fannie Mae hold about 50% of all mortgages. Guess who bails these guys out when the time comes?
Picture of millions of borrowers who, as No-Doc and Piggyback mortgage holders, have taken on more debt that they can afford even when the monthly payment on their ARM is low. As trillions of dollars in mortgage loans reset to higher monthly payments before the end of the year, the already historically high rate of foreclosure, and falling sales and prices accelerated by more frequent abandonment of homes by borrowers with negative equity, along with negative wealth effects, reductions in consumer confidence, will drive the US economy into recession.
Go to the thread and see the great charts.
www.itulip.com/forums/showthread.php?p=12232#post12232
How many Low/No-Doc loans were originated for each class of securitized loan? As it turns out, more than 80% of Alt-A, more than half of Jumbo, and 36% of Prime securitized loans (approximately 75% of all mortgages are securitized).
Piggyback loans are another risky mortgage. Piggyback loans get their name from a second mortgage that is "piggybacked" onto a first mortgage to compensate buyers who are unable to come up with a larger down payment or any at all. Piggyback borrowers are another group that is vulnerable to default. More than 50% of subprime and Alt-A mortgage holders fall into this category.
an average of one quarter of all mortgage loans made since 2003 were to "homeowners" who are doing nothing more than renting a house from the bank. There is no equity built in a home during the period when the borrower is paying only the interest on the loan. This borrower has no incentive to fight to stay in their home if the price falls and the mortgage goes underwater, especially if they lose a source of income. They have no equity to lose.
Freddie Mac and Fannie Mae hold about 50% of all mortgages. Guess who bails these guys out when the time comes?
Picture of millions of borrowers who, as No-Doc and Piggyback mortgage holders, have taken on more debt that they can afford even when the monthly payment on their ARM is low. As trillions of dollars in mortgage loans reset to higher monthly payments before the end of the year, the already historically high rate of foreclosure, and falling sales and prices accelerated by more frequent abandonment of homes by borrowers with negative equity, along with negative wealth effects, reductions in consumer confidence, will drive the US economy into recession.
Go to the thread and see the great charts.
www.itulip.com/forums/showthread.php?p=12232#post12232