U.S. "no down-payment" mortgages are BACK 1 Year, 6 Months ago
It turns out that at least a tiny PORTION of the (fictional) "U.S. housing recovery" might actually be the beginning of yet another mini-bubble in this sector. Note that one of the "reforms" made by the U.S. government to "prevent more bubbles" was to make sure that from now on all mortgages which the government "insures" (i.e. well over 90%) would be backed by AT LEAST 15% down-payments.
So what's going on here? A BIG clue can be found by looking into an article on the subject, which I first spotted at Sinclair's site:
...They’re almost exclusively being offered to clients with sizable assets, and they often require two forms of collateral—the house and a portion of the client’s investment portfolio in lieu of a traditional cash down payment.
So what this means is that U.S. Big-Banks are actually "backing" these mortgages themselves -- that's how they can avoid the 15% down-payment the government wants to prevent future bubbles.
But note the STRINGENT conditions for these mortgages:
1) "sizable" assets
2) MUCH more "collateral" being pledged
In other words, the banksters don't have the SLIGHTEST qualms about at least attempting to blow-up a brand-new "bubble" in the housing market. But where they have LEARNED from the previous bubble/crash they created is this: when they go on their NEXT foreclosure rampage -- against these current clients -- they want to make sure they can STEAL enough to make themselves 100% whole.
Note that in terms of mechanics, what they're essentially doing is creating a "first" and "second" mortgage on the same home, at the same time.
It’s 100% financing—the same strategy that pushed many homeowners into foreclosure during the housing bust. Banks say these loans are safer: They’re almost exclusively being offered to clients with sizable assets, and they often require two forms of collateral—the house and a portion of the client’s investment portfolio in lieu of a traditional cash down payment.
In most cases, borrowers end up with one loan and one monthly payment. [That's called "two loans" -- idiot!!] Depending on the lender and the borrower, roughly 60% to 80% of the loan can be pegged to the home’s value while the remaining 20% to 40% can be secured by investments. On a $2 million primary residence, for instance, the borrower could get a $2 million loan, which would require a pledge of assets in an investment portfolio to cover what could have been, say, a $500,000 down payment. The pledged assets can remain fully invested, earning returns as normal, without disrupting the client’s investment goals.
While these affluent clients may be flush with cash, this strategy allows them to get into a home without tying up funds or making withdrawals from interest-earning accounts. And given the market’s gains combined with low borrowing rates in recent years, some banks say clients are pursuing 100% financing as an arbitrage play—where the return on their investments is bigger than the rate they pay on the loan, which can be as low as 2.5%. Some institutions offer only adjustable rates with these loans, which could become more expensive if rates rise. In most cases, the investment account must be held by the same institution that’s providing the loan. See: Home improvement gets a makeover
These loans also provide tax benefits. Since borrowers don’t have to liquidate their investment portfolios to get financing, they can avoid the capital-gains tax. And in some cases, they can still tap into the mortgage-interest deduction. (Borrowers can usually deduct interest payments on up to $1 million of mortgage debt.)...
It was just a matter of time before the most powerful crony capitalist bank in America decided to join the housing trade. Making money running the food stamp program just wasn’t enough for Your Crony Highness Jaime Dimon and company, it’s time to join his financial oligarch brothers in the bidding war to corner the housing market and become your overlord. That way they can control how you eat (food stamps) and where you sleep. It’s become very clear what the large financial interests in these United States are attempting. Funnel all the low interest crony American money, with a dash of Chinese laundered money, into the “housing recovery.” From Bloomberg:
JPMorgan Chase & Co. (JPM) is giving its wealthiest clients the chance to invest in the single-family rental market after other investments linked to the U.S. housing recovery jumped in value.
The firm’s unit that caters to individuals and families with more than $5 million, put client money in a partnership that bought more than 5,000 single family homes to rent in Florida, Arizona, Nevada and California, said David Lyon, a managing director and investment specialist at J.P. Morgan Private Bank. Investors can expect returns of as much as 8 percent annually from rental income as well as part of the profits when the homes are sold, he said.
The bank’s wealthy clients are joining a growing number of private-equity firms and individuals buying rental homes in the regions hardest hit by the U.S. housing crash. Blackstone Group LP (BX) has spent $2.7 billion, and said last month it accelerated purchases as home prices rise faster than anticipated. Even after home values in November gained by the most in six years, investors are wagering on rental properties as an alternative to housing-related stocks and mortgage debt that’s already soared.
The strategy is similar to institutional buyers including Blackstone, the world’s largest buyout firm, Thomas Barrack’s Colony Capital LLC, and Oaktree Capital Group LLC. (OAK) They’re aiming to profit from low prices on distressed properties, often those in foreclosure and sold at auction — and the demand for rentals from people who don’t want to own a home or can’t qualify for a mortgage.
Now here’s where the article gets really interesting.
“It’s hard to find a private-equity firm on the planet that doesn’t have a strategy in this space,” Gary Beasley, chief executive officer at Waypoint Homes, said last week at the American Securitization Forum’s annual conference in Las Vegas. The Oakland, California-based company has bought homes in California, Arizona, Illinois and Georgia.
Sure seems like the right time to buy housing. You know, after every single pool of aggressive private capital in the nation and abroad is already bidding.
Now take a look at how poor the returns are. This is what happens when things get too crowded.
“If you look at some of the really beaten down areas — Miami, Orlando, Vegas, Tampa — we do think the return on that asset, if you just buy a home, collect the rent and do whatever you need to do on the cost side, you’re getting a return of somewhere between 6 percent and 8 percent,” Bordia said. Non- agency mortgage-backed securities are generally yielding 4 percent to 6 percent, he said.
Even as the housing market probably will do well across the nation, areas where property prices already are high such as San Diego, Los Angeles, Denver and San Francisco, will see lower rental yields, of 4 percent to 5 percent, Bordia said.
Are you kidding me? A 6%-8% yield is all you get for taking on all the responsibilities of upkeep, rent collection as well as the risk of capital depreciation. I’ll take the check please.
Finally, just when you thought the lunacy couldn’t get any more extreme…
While buying single-family homes to rent is among “the smarter ways to invest going forward,” Pastolove advises wealthy clients to buy the properties to rent themselves if they are able. Morgan Stanley isn’t purchasing homes or managing them; instead it’s making loans to high-net-worth customers at rates lower than a typical mortgage, and using their investment portfolios as collateral. That provides people the capital to purchase investment properties, he said.
Re: U.S. "no down-payment" mortgages are BACK 1 Year, 6 Months ago
Earl, obviously most of this piece is a good expose on yet more bubble-blowing from the Banksters, and their cousins, the Vulture Capitalists. But note how difficult it is for even well-meaning sources to provide FULLY correct information/analysis to readers. I point to this quote:
Even as the housing market probably will do well across the nation...
No, there is no parallel universe where the U.S. housing market "will do well across the nation." Housing data is just as flawed/fraudulent as the inflation numbers, GDP numbers, and jobs numbers. Yet here we have a reasonably informed writer accepting the fantasy "housing recovery" as fact.
Subtract the actual rate of inflation, and U.S. housing prices are still falling. And all of the (10's of millions) of fraud-tainted land-titles have been swept under the carpet. Wait until that STARTS impacting prices.
My point here (other than correcting the flaw in the facts), is to make this observation: how much MORE alarmist would this article have been that things "will not end well" if the writer knew/understood that the U.S. housing depression has never ended?
This is why I'm such a stickler for accuracy when it comes to factual context. It generally only requires a SMALL error in facts to yield LARGE differences in one's conclusion. And where there are LARGE errors in fact, then you hear me with my familiar refrain:
Garbage in, garbage out...
P.S. Not to say that this piece is "garbage", however if you were someone currently THINKING of purchasing a home in the U.S.; then the author's LARGE error on the state of health of the U.S. housing market might make this article seem like "garbage."
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