Tag Archives: Mortgage lending

Next Mortgage Default Tsunami Isn’t Going to Drown Big Banks but “Shadow Banks”, by Wolf Richter

Posted on June 17, 2018 | Leave a comment

Shadow banks like Quicken Loans have a bigger share of the mortgage market than they did back in 2007. That may not be a good thing, because their capitalization is thinner than banks’. From Wolf Richter at wolfstreet.com:

As banks pull back from mortgage lending amid inflated prices and rising rates, “shadow banks” become very aggressive.

In the first quarter 2018, banks and non-bank mortgage lenders – the “shadow banks” – originated 1.81 million loans for residential properties (1 to 4 units). In the diversified US mortgage industry, the top 10 banks and “shadow banks” alone originated 260,570 mortgages, or 14.4% of the total, amounting to $75 billion. We’ll get to those top 10 in a moment.

Banks are institutions that take deposits and use those deposits to fund part of their lending activities. They’re watched over by federal and state bank regulators, from the Fed on down. Since the Financial Crisis and the bailouts, they were forced to increase their capital cushions, which are now large.

Non-bank lenders do not take deposits, and thus have to fund their lending in other ways, including by borrowing from big banks and issuing bonds. They’re not regulated by bank regulators, and their capital cushions are minimal. During the last mortgage crisis, the non-bank mortgage lenders were the first to collapse – and none were bailed out.

So let’s see.

Of those 1.81 million mortgages originated in Q1 by all banks and non-banks, according to property data provider, ATTOM Data Solutions:

  • 666,000 were purchase mortgages, up 2% from a year ago
  • 800,000 were refinance mortgages (refis), down 11%from a year ago due to rising interest rates.
  • 348,000 were Home Equity Lines of Credit (HELOCs), up 14% from a year ago

HELOCs, which allow homeowners to use their perceived home equity as an ATM, are once again booming: $67 billion were taken out in Q1, though that’s still less than half of peak-HELOC in Q2 2006, when over $140 billion were taken out.

To continue reading: Next Mortgage Default Tsunami Isn’t Going to Drown Big Banks but “Shadow Banks”

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“Bank of Mum & Dad,” Huge Prop under UK Housing Bubble, is Running Out of Liquidity, by Don Quijones

Posted on June 1, 2018 | Leave a comment

Mums and dads are one of the biggest mortgage lenders in the UK. From Don Quijones at wolfstreet.com:

“Mum & dad are lending money to their kids so their kids can afford to pay the prices demanded by mum & dad & their friends. It’s like a giant Ponzi scheme but where the victims are your children.”

As the economic growth in the UK stutters — for the first quarter, the UK posted the worst GDP figures in five years on weak business investment and household spending — the country’s all-important housing market is beginning to show signs of strain. In April house sales were down 9.4% on the previous year. In the UK’s most valuable market, London, house prices had their worst month since 2009, slipping 0.7%, according to the latest figures from the Office for National Statistics (ONS).

As credit demand slips, some banks have decided to bring back a financial relic that should never have seen the light of day in the first place: the 100% mortgage. Both Barclays Bank and the recently privatized Post Office have recently unveiled 100% mortgage deals.

A high-risk loan instrument that helped fuel madcap property booms in countries like Spain and the UK, the 100% mortgage allows property buyers to borrow the entire amount of the purchase price. During the heady days of the UK’s pre-2008 property boom, some banks even offered loans that were 20% more than the property value. They included Northern Rock, one of the first lenders to collapse in the Global Financial Crisis.

Mortgages for 100% (or above) of the purchase price not only help fuel high-octane housing bubbles, they also make them a lot riskier when home priced decline, and when more and more borrowers end up with negative equity – where someone’s home is worth less than their debt. That, in turn, significantly raises the likelihood of borrowers defaulting on their loans. And that’s why these 100% mortgages are risky for banks.

Today’s new breed of 100% mortgages has a twist in its tail: to provide the banks extra security, they are insisting on family members acting as guarantors for parts of the loans. In other words, if a borrower falls behind on repayments, a parent’s home can also be put at risk.

To continue reading: “Bank of Mum & Dad,” Huge Prop under UK Housing Bubble, is Running Out of Liquidity

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Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History, by Tyler Burden

Posted on April 27, 2017 | 2 comments

This is how debt implosions get started. From Tyler Durden at zerohedge.com:

Call it Canada’s “New Century” moment.

We first introduced readers to the company we said was the “tip of the iceberg in Canada’s magnificent housing bubble” nearly two years ago, in July 2015 when we exposed a major problem that we predicted would haunt Home Capital Group, Canada’s largest non-bank mortgage lender: liar loans in particular, and a generally overzealous lending business model with little regard for fundamentals. In the interim period, many other voices – most prominently noted short-seller Marc Cohodes – would constantly remind traders and investors about the threat posed by HCG.

Today, all those warnings came true, when the stock of Home Capital Group cratered by over 60%, its biggest drop on record, after the company disclosed that it struck an emergency liquidity arrangement for a C$2 billion ($1.5 billion) credit line to counter evaporating deposits at terms that will leave the alternative mortgage lender unable to meet financial targets, and worse, may leave it insolvent in very short notice.

As part of this inevitable outcome, one which presages the company’s eventual disintegration and likely liquidation, Bloomberg reports that the non-binding rescue loan with an unnamed counterparty will be secured by a portfolio of mortgage loans originated by Home Trust, the Toronto-based firm said in a statement Wednesday. Home Capital shares dropped by 61% in Toronto to the lowest since 2003, dragging down other home lenders. Equitable Group Inc. fell 17 percent, Street Capital Group Inc. fell 13 percent, while First National Financial Corp. declined 7.6 percent. In short, the Canadian mortgage bubble has finally burst.

To continue reading: Canada’s Housing Bubble Explodes As Its Biggest Mortgage Lender Crashes Most In History

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