Neighborhood Inscope

Back From Dead! How Subprime Became Nonprime Mortgages Forgetting the Lessons of the Global Financial Crisis

By Dr Denver H. Bubble

Fri Apr 13 2018

Our old friend, who many blame for the Global Financial Crisis, is back from the dead. Subprime mortgages aka home loans to those people with low credit scores and little down payments have returned after a long absence to the housing market. After the housing and market crash, these types of loan left the market because of new regulations and low investor demand. However, like a zombie from a horror movie, these types of loans have come back to the housing market although they are being referred to as nonprime loans and with different standards. Lipstick on a pig as one could say.

An article by CNBC highlighted a mortgage lender in California that was now offer loans in the nonprime space. They are originating and servicing the loans, but like a good little Wall Streeter, they are securitizing the loans and selling them to investors. The lender is Carrington Mortgage Services. My thoughts is that Carrington Mortgage Services knows how risky these types of loans are and wants to pass off this risk to investors who are starved for yield due to the policy of the Federal Reserve. If they were confident that they would make money in the long term off the loans, they would hold these mortgages on their balance sheet. Rick Sharga, executive vice president of Carrington Mortgage Holdings states that the "nonprime loans that have been properly underwritten," and "We're not going back to the bad old days of ninja lending, when people with no jobs, no income, and no assets were getting loans." But they are still going to sell the mortgages even with our awesomely high underwriting standards because they know that in times of trouble these loans don’t get paid back.

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