Zero % down mortgages. Are we going to see 2008 again?

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ChinchillaWhiplash
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Zero % down mortgages. Are we going to see 2008 again?

Post by ChinchillaWhiplash » Fri Jul 19, 2019 10:05 pm

Have been hearing ads on the radio about 100% financed mortgages again. Seems like the past is repeating itself. Are we going to see a mortgage crisis in the near future (1-3 yrs)? When did they start relaxing rules for mortgages again? Where I am, there is a building boom and prices are high and keep going up. It's looking all too familiar. :(

Iridium
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Iridium » Fri Jul 19, 2019 10:23 pm

It seems unlikely. Part of what what made the last bubble so dangerous was that every party assumed someone else was doing the due diligence, and people thought assets were practically risk free when they were not. Anyone buying these sorts of mortgages this time around knows exactly what they are getting into which largely defangs the danger. After all, banks have been issuing unsecured loan for decades without much issue. The obviously dangerous stuff (in foresight, not hindsight) rarely causes problems anywhere near the size of unknown dangers.

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JoeRetire
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by JoeRetire » Sat Jul 20, 2019 6:45 am

ChinchillaWhiplash wrote:
Fri Jul 19, 2019 10:05 pm
Are we going to see a mortgage crisis in the near future (1-3 yrs)?
No, that's not going to happen.

rashad3000
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by rashad3000 » Sat Jul 20, 2019 6:48 am

I had a zero down, zero closing cost, no PMI 15-year loan in 2015. It was $215,000. We now owe $155,000.

Bacchus01
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Bacchus01 » Sat Jul 20, 2019 6:53 am

Zero down is not a problem
Interest only is not a problem
ARMs are not a problem

Giving massive loans to people with terrible credit histories is a problem. Bundling those loans up and selling them off with no transparency in the risk is a problem. Underwriting that risk with no understanding of what’s in the bundle is a problem.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Grt2bOutdoors » Sat Jul 20, 2019 7:02 am

Bacchus01 wrote:
Sat Jul 20, 2019 6:53 am
Zero down is not a problem
Interest only is not a problem
ARMs are not a problem

Giving massive loans to people with terrible credit histories is a problem. Bundling those loans up and selling them off with no transparency in the risk is a problem. Underwriting that risk with no understanding of what’s in the bundle is a problem.
Agree. Have a bad recession and you’ll see many defaults - especially if mortgage payments are not made. Banks are not in the real estate business, they’ll start dumping properties and so starts the cycle of downward pressure on prices.
"One should invest based on their need, ability and willingness to take risk - Larry Swedroe" Asking Portfolio Questions

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Nissanzx1 » Sat Jul 20, 2019 7:06 am

Never underestimate the greed of lending institutions. I’d say it’s unlikely to be as bad as 2008 again. I think the bigger problem is consumer lending via credit cards, student loan balances, and auto loans which appear to be at record levels. I saw a dealer in my area yesterday pushing 84 month financing...

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Valuethinker » Sat Jul 20, 2019 7:29 am

Nissanzx1 wrote:
Sat Jul 20, 2019 7:06 am
Never underestimate the greed of lending institutions. I’d say it’s unlikely to be as bad as 2008 again. I think the bigger problem is consumer lending via credit cards, student loan balances, and auto loans which appear to be at record levels. I saw a dealer in my area yesterday pushing 84 month financing...
Yes and corporate loans on weak covenants.

10 per cent of *all* CLO tranches out there are held by 1 Japanese agricultural bank. And 18 per cent of the AAA tranches.

I had thought the next crisis starts w the Italian banks or in China, but maybe it is Japan.

There have been weakening of bank oversight and capital rules of late. Plus Fed lending to the Eurodollar money markets has been curtailed as I understand it. It was that lending, via REPOs, which played a key role in stabilizing markets Q4 2008 and Q1 2009.

You can see how if a US recession starts all of these chickens come home to roost. People can't make their car payments, company loans become impaired etc.

Another though is that US farm country seems to be in outright depression right now. There must be all those farm and equipment loans being impaired. A repeat of the 1980s.

Meanwhile Europe is barely growing. Ditto Japan.

China saved the world economy last time by a massive capital spending and infrastructure boom. The largest peacetime surge in world history.

They won't be able to repeat that next time.

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JoMoney
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by JoMoney » Sat Jul 20, 2019 8:24 am

I wouldn't say it can't happen, but it's unlikely to be like 2008 with regard to the broad systemic meltdown... at least not any time soon.
One of the missing pieces so far, that started in years prior to 2008, is the rapid rise in interest rates that put pressure on the investment banks ( TED spread widened indicating banks less willing to lend to each other), which trickled down to making it difficult to sub-prime borrowers who took "teaser" rate adjustable mortgages that started to adjust up.
Image
Cramer had his infamous "Meltdown" on TV indicating the problems investment banks (Bear Stearns in particular) were having
https://www.youtube.com/watch?v=rOVXh4xM-Ww
and eventually some government stimulus kicked in to try to stem the issues in the financial markets... but the problems continued to spread despite efforts to contain it. Lehman Brothers was "allowed to fail" in the later half of 2008. Some mark this as the pebble that started the avalanche that dried up the credit markets where nobody wanted to lend to anyone fearing exposure to counter-party risks.
So far, we don't have any signs of rapidly rising interest rates, nor any lack of willingness from banks to support the financial markets.
"To achieve satisfactory investment results is easier than most people realize; to achieve superior results is harder than it looks." - Benjamin Graham

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by willthrill81 » Sat Jul 20, 2019 8:29 am

Bacchus01 wrote:
Sat Jul 20, 2019 6:53 am
Zero down is not a problem
Interest only is not a problem
ARMs are not a problem

Giving massive loans to people with terrible credit histories is a problem. Bundling those loans up and selling them off with no transparency in the risk is a problem. Underwriting that risk with no understanding of what’s in the bundle is a problem.
:thumbsup

For better or worse, the next 'crisis' will probably be unlike any other that's come before it.
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Dottie57 » Sat Jul 20, 2019 8:57 am

Credit default swaps are still sold and not regulated. The swaps amplified the problems with mortgages. The seller could get excellent ratings on garbage products because the seller paid for ratings instead of seller - think this may still be a problem.

Valuethinker
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Valuethinker » Sat Jul 20, 2019 9:06 am

JoMoney wrote:
Sat Jul 20, 2019 8:24 am
I wouldn't say it can't happen, but it's unlikely to be like 2008 with regard to the broad systemic meltdown... at least not any time soon.
One of the missing pieces so far, that started in years prior to 2008, is the rapid rise in interest rates that put pressure on the investment banks ( TED spread widened indicating banks less willing to lend to each other), which trickled down to making it difficult to sub-prime borrowers who took "teaser" rate adjustable mortgages that started to adjust up.
Image
Cramer had his infamous "Meltdown" on TV indicating the problems investment banks (Bear Stearns in particular) were having
https://www.youtube.com/watch?v=rOVXh4xM-Ww
and eventually some government stimulus kicked in to try to stem the issues in the financial markets... but the problems continued to spread despite efforts to contain it. Lehman Brothers was "allowed to fail" in the later half of 2008. Some mark this as the pebble that started the avalanche that dried up the credit markets where nobody wanted to lend to anyone fearing exposure to counter-party risks.
So far, we don't have any signs of rapidly rising interest rates, nor any lack of willingness from banks to support the financial markets.
That interest rate spike is a symptom of fears over bank counterparties, not a cause.

It therefore will be a coincident indicator not a leading one.

If interbank rates to Itslisn banks spike, say, we will know that they are already in trouble, not that trouble is coming.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Valuethinker » Sat Jul 20, 2019 9:07 am

willthrill81 wrote:
Sat Jul 20, 2019 8:29 am
Bacchus01 wrote:
Sat Jul 20, 2019 6:53 am
Zero down is not a problem
Interest only is not a problem
ARMs are not a problem

Giving massive loans to people with terrible credit histories is a problem. Bundling those loans up and selling them off with no transparency in the risk is a problem. Underwriting that risk with no understanding of what’s in the bundle is a problem.
:thumbsup

For better or worse, the next 'crisis' will probably be unlike any other that's come before it.
Yes.

But also it will have been foreseen by some analysts and commentators. Who may have not been the majority but they will be out there.

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dm200
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by dm200 » Sat Jul 20, 2019 9:08 am

I am wondering the same thing myself?

Valuethinker
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Valuethinker » Sat Jul 20, 2019 9:14 am

Iridium wrote:
Fri Jul 19, 2019 10:23 pm
It seems unlikely. Part of what what made the last bubble so dangerous was that every party assumed someone else was doing the due diligence, and people thought assets were practically risk free when they were not. Anyone buying these sorts of mortgages this time around knows exactly what they are getting into which largely defangs the danger. After all, banks have been issuing unsecured loan for decades without much issue. The obviously dangerous stuff (in foresight, not hindsight) rarely causes problems anywhere near the size of unknown dangers.
Not quite true.

In the negative interest rate environment, 13 trillion dollars of negative yield instruments out there, financial institutions and find managers have a problem. Their deposit holders and investors will not accept a negative nominal return. They have to invest in assets that give positive returns.

So they chase yield eg higher yielding assets. That increases risk but as long as they can persuade the regulators and rating agencies that this is not excessive risk they will be ok.

If a recession hits and it turns out these risky assets default these financial institutions could be in real trouble.

The point is they may well know the risks of these things but that does not stop them buying them. Particularly now when economy is strong and default risks are low.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Glockenspiel » Sat Jul 20, 2019 10:04 am

I’ll never underestimate the ability of large financial institutions to be greedy. I also don’t think the government is in the interest of looking out for consumers over corporations. I believe it could happen again but on a lesser scale and people will be able to see the writing on the wall.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Valuethinker » Sat Jul 20, 2019 10:42 am

Glockenspiel wrote:
Sat Jul 20, 2019 10:04 am
I’ll never underestimate the ability of large financial institutions to be greedy. I also don’t think the government is in the interest of looking out for consumers over corporations. I believe it could happen again but on a lesser scale and people will be able to see the writing on the wall.
You would rather they offer depositors accounts that pay negative interest?

Insurance policies that pay less than face value?

To stay in business they have to make a return for investors and customers.

I agree that financial institutions need to regulated. For savings funds they offer many products which are spectacularly bad value for consumers or inappropriately risky.

On the lending side the problem is competition.

Unless regulated the industry will tend to offer credit inappropriately. Pay day loans. Sub prime lending etc.

Again though if they did not offer these products people would turn to loan sharks. We have forgotten just how big a business loan sharking once was. Just as legalized state lotteries ended "the numbers racket" so too deregulated lending hit the loan sharking game.

I favour protections for consumers, strongly enforced. And also default financial products: 50 50 balanced index funds in 401ks, simple low cost bank accounts etc.

But we have to accept financial institutions are operating in highly competitive markets and that they have to make returns.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by ClevrChico » Sat Jul 20, 2019 10:49 am

One similarity I've seen with the pre-crash era - People are now leaving stable careers to become Realtors.

Overheated market or future crash? Who knows.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by abuss368 » Sat Jul 20, 2019 1:22 pm

Bacchus01 wrote:
Sat Jul 20, 2019 6:53 am
Zero down is not a problem
Interest only is not a problem
ARMs are not a problem

Giving massive loans to people with terrible credit histories is a problem. Bundling those loans up and selling them off with no transparency in the risk is a problem. Underwriting that risk with no understanding of what’s in the bundle is a problem.
Well said.
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by abuss368 » Sat Jul 20, 2019 1:23 pm

ChinchillaWhiplash wrote:
Fri Jul 19, 2019 10:05 pm
Have been hearing ads on the radio about 100% financed mortgages again. Seems like the past is repeating itself. Are we going to see a mortgage crisis in the near future (1-3 yrs)? When did they start relaxing rules for mortgages again? Where I am, there is a building boom and prices are high and keep going up. It's looking all too familiar. :(
When will the banks and home buyers ever learn? Has 2008 not tough us anything?
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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by runner540 » Sat Jul 20, 2019 1:31 pm

ChinchillaWhiplash wrote:
Fri Jul 19, 2019 10:05 pm
Have been hearing ads on the radio about 100% financed mortgages again. Seems like the past is repeating itself. Are we going to see a mortgage crisis in the near future (1-3 yrs)? When did they start relaxing rules for mortgages again? Where I am, there is a building boom and prices are high and keep going up. It's looking all too familiar. :(
The real estate industry says lending is tight - not so!! I have posted several times over the last year about the increasing risky mortgages that keep house prices high by allowing greater leverage on the same amount of income. Non bank lenders are a big player.

There are several levers: downpayment and debt-to-income ratio and credit scores. Fannie and Freddie allow 50% DTI. Detailed data here: http://www.aei.org/housing/mortgage-risk-index/


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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by dm200 » Sat Jul 20, 2019 1:46 pm

Nissanzx1 wrote:
Sat Jul 20, 2019 7:06 am
Never underestimate the greed of lending institutions. I’d say it’s unlikely to be as bad as 2008 again. I think the bigger problem is consumer lending via credit cards, student loan balances, and auto loans which appear to be at record levels. I saw a dealer in my area yesterday pushing 84 month financing...
In my opinion, this is not necessarily driven by "greed", but maintaining "profitability" in a very competitive market.

Yes - 84 month auto financing is now very common.

I think, at one time - in the 1960's - 36 month auto financing was the most common. I think 24 month loans were also common.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by cherijoh » Sat Jul 20, 2019 1:54 pm

dm200 wrote:
Sat Jul 20, 2019 1:46 pm
Nissanzx1 wrote:
Sat Jul 20, 2019 7:06 am
Never underestimate the greed of lending institutions. I’d say it’s unlikely to be as bad as 2008 again. I think the bigger problem is consumer lending via credit cards, student loan balances, and auto loans which appear to be at record levels. I saw a dealer in my area yesterday pushing 84 month financing...
In my opinion, this is not necessarily driven by "greed", but maintaining "profitability" in a very competitive market.

Yes - 84 month auto financing is now very common.

I think, at one time - in the 1960's - 36 month auto financing was the most common. I think 24 month loans were also common.
Back when I took out car loans the longest term I ever took was 36 months and I paid it off early. At that time, I'm pretty sure they offered 48-month loans and maybe 60-months on "luxury" cars.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by Carlos Danger » Sat Jul 20, 2019 2:16 pm

Nope. There are things being done I think unwise, but housing now is nothing like housing 2000s.

We'll likely see something worse than 2008 though in my investing lifetime though. Housing bubble, bad housing loans, idiotic financial instruments then. Commercial real estate bubble, bad commercial real estate loans, idiotic financial instruments now, an economy built on the heroin of zero rates and QE for nearly a decade and inflation redirected towards asset prices ("wealth effect"), and a global economy featuring the ECB and BOJ clown shows and a Chinese leverage bubble that makes everything else seem like child's play. I had a hearty chuckle recently when the Chinese extended the trade war olive branch of perhaps opening wide to the west the doors of their financial system. Yeah, I'll bet you'd love to do us that favor. :oops:

I have no idea when we will be departing on the next economic calamity, but it's going to be one wild ride.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by garlandwhizzer » Sat Jul 20, 2019 2:22 pm

Debt secured by asset prices alone (i.e. zero down mortgages in no-recourse states) are fine as long as the following interrelated things happen: asset prices continue to rise and remain liquid while the overall economy continues to grow. When and if the economy stops growing and contracts, unemployment increases, mortgage defaults and other debt defaults increase and the leverage built up in the system can unwind in a self-reinforcing down spiral. So it was in 2007-9 and the Great Depression, extreme examples of how much paper wealth can be destroyed in a short period of years as consumer and investor confidence swings from one extreme to the other. There are no warning signs that we are in such a situation now with very low unemployment, persistent economic growth, and what appear to be manageable debt levels. Those levels are manageable as long as the economy remains strong and euphoria driven asset bubbles do not occur from excessive credit and debt. I foresee no crisis in the near term future but it's important to realized that in general very few, experts or amateurs alike, have foreseen these catastrophes before they happened. In retrospect they were obvious which tells you. something about the ability of humans to predict the future. Unemployment was low and the economy was booming in 1929 and in 2006 right up until it collapsed. What does have some degree of predictive power is The Leading Economic Index which typically begins to flatten out and then start declining months or even years before a recession hits. In contrast Current Economic Index readings typically continue to rise right up until the recession hits which points out their lack of foresight predictability.

Recently the Leading Economic Indicator index has flattened out after 10 years of persistent growth. It has been flat now for about 9 months. In June it declined slightly. This may simply be due to temporary factors like uncertainty about future trade and tariff policy, slowing global economic growth, and heightened geopolitical risks, all of which are reversible if these things play out in favorable ways. On the other hand it may be prudent to keep an eye on the Leading Index rather than the Current index as a harbinger of the near term economic future. If it turns persistently negative It may not be a good time to take on more risk or more debt. When the economy contracts leverage and debt that seemed innocent and worked so well when times were good shows the ugly side of its face.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by sergio » Sat Jul 20, 2019 2:22 pm

Carlos Danger wrote:
Sat Jul 20, 2019 2:16 pm
Nope. There are things being done I think unwise, but housing now is nothing like housing 2000s.

We'll likely see something worse than 2008 though in my investing lifetime though. Housing bubble, bad housing loans, idiotic financial instruments then. Commercial real estate bubble, bad commercial real estate loans, idiotic financial instruments now, an economy built on the heroin of zero rates and QE for nearly a decade and inflation redirected towards asset prices ("wealth effect"), and a global economy featuring the ECB and BOJ clown shows and a Chinese leverage bubble that makes everything else seem like child's play. I had a hearty chuckle recently when the Chinese extended the trade war olive branch of perhaps opening wide to the west the doors of their financial system. Yeah, I'll bet you'd love to do us that favor. :oops:

I have no idea when we will be departing on the next economic calamity, but it's going to be one wild ride.
Don't forget about student loans. I know a few people with $100k+ in student loans making $35-50k/year and they are beyond choked.

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Re: Zero % down mortgages. Are we going to see 2008 again?

Post by LadyGeek » Sat Jul 20, 2019 5:35 pm

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