Mortgage Crisis Looming

Some things I wanted to point out that I have been seeing in the mortgage industry lately. I work for a bank (I know, I know...evil) that has a large presence in the mortgage lending community. Been working in the industry since 2001, so I've seen some major things go down.

First, I've been watching for the last 2-3 years as banks have been loosening their lending standards. When the subprime mortgage debacle hit the fan back in 2008-2009, banks were quick to add "overlay" guidelines to protect themselves. Overlays are guidelines that banks implement over and above what industry standards recognize (i.e. Fannie Mae, Freddie Mac guidelines). Examples of this are requirements for certain (higher) credit scores, additional assets (called "reserves"), etc. These overlays are dropping like flies these days. This tells me they are starting to get desperate.

Second, the bank I work for has been selling loans at a furious pace the last several months. This tells me that banks (can't speak for all of them) are needing to raise additional capital. With rates as low as they have been for so long now, the margin for profit is small as well. In other words, the lower the rate the less the bank makes on the money it lends. Upper Management even announced recently that they were going to start funding loans prior to the "clear to close" being issued. Which means, even though not all of their "conditions" have been met to satisfy their underwriters, they were going to allow the loans to close. Then, if necessary, go after the missing documentation after the fact. Never seen that done before in all my years in the industry. They were obviously trying to pad the bottom line prior to the end of the quarter.

Here is where it gets scary. The credit reporting agencies (Trans Union, Experian, Equifax) recently announced they are no longer going to be reporting civil judgments and tax liens on the credit reports. So mortgage lenders will not be as aware of borrowers with these types of "public records" in their history.

I saved the best (or worst) for last. Word is now getting out that mortgage brokers are starting to rehire the individuals that were responsible for originating the subprime loans that (most claim) lead to the mortgage/housing meltdown of 2008/2009. What does this mean? The end is near. When lenders start blatantly repeating the mistakes of the past it means only one thing: they are scraping the bottom of the barrel. It won't be long now, my friends.

https://thedailycoin.org/2017/06/13/everything-bubble-part-1-return-subprime-mortgage/