2008 Deja Vu
Reports are piling up that mortgage fraud is on the rise. For now, the rise focuses on non-QM mortgages. Why? A QM mortgage has extensive requirements in underwriting verification. These verifications include employment, income, source of funds, and other items. Mortgage fraud played a central role in the 2008 crisis. Blame fell on lenders for not doing enough verification. Virtually all fraudsters got a pass from blame as politicians in Washington quickly blamed the problem on lenders. As a result, fraudsters got even more relief from their fraud. They were able to skip payments while living in a home for years and years. Or they even rented it out and pocketed the money. Will 2022 be 2008 deja vu? Are lenders and government forces rebuilding the 2008 financial crisis? Lenders would not be taking the actions shown on their own – heavy regulatory pressure is being applied to make loans to poor credit borrowers for political reasons.
A specific home in my neighborhood went 7 years without foreclosure, no one in it, and no payments. In the end, it had to be gutted and rebuilt. The backyard pool was a disease breeding swamp. And, it finally was occupied but by a drug dealer prior to its eventual foreclosure. Will we see this again? Be prepared with a copy of Winning Mortgage, Winning Home from Amazon.
September 2022 – Another pieces falls into place in the 2022 – 2008 Deja Vu puzzle.
Zero-down loans make a comeback heading into recession
Bank of America recently announced a loan for lower-income households that doesn’t require homebuyers to come up with a downpayment. Or closing costs. It doesn’t base the loan on a minimum FICO score. Are we really doing those types of loans and promoting homeownership again without understanding the risks? And B of A is doing it when home prices are way out of whack already. What could go wrong with someone overpaying for a house with no money down? Isn’t that just renting with a higher payment?
Pressure Tactics
Were lenders blameless in 2008? Absolutely not. But the federal government encouraged risky lending by directly buying those mortgages as well as politically pressuring the lenders. What type of pressure? Critical bank exams hammered many lenders for not doing enough lending to poor risks. Sub-prime became all the rage as the federal government unilaterally lowered credit and repayment standards. As a result, lenders followed. In our previous post regarding Those Wacky Politicians, we outlined many similarities politically and governmentally to the causes of the 2008 meltdown. Add rising mortgage fraud to that list.
Does that mean we definitely are heading into a meltdown? No. But warning signs are there in the loosening standards, governmental command and control, falling markets, rising rates, and others items. So keep an eye out for 2008 deja vu.