I thought you were joking when you said that name. So now, you realize, I am required by all that is holy to seek out that show and watch it, right?
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Like any “fiscal conservative” worth their salt would allow that to happen.
Pork and public subsidization of failure, all with zero interest in reform, only promises of full deregulation.
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Taxpayers are always the bag holders when Wall St. gets too greedy.
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I just finally got around to watching The Big Short last week. They’ll make that money because we’ll pony it up again when the crash hits again. Lather, rinse, repeat. Grifting now has a life cycle.
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Is there any evidence that these loans are actually risky?
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I’m so glad you did, I’d never thought about the show in those terms at all. I bet you’d be fun to watch It’s a Wonderful Life with.
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These loans in particular, it is hard to know without knowing the details. In general, there is increased risk of loan failure when there is little or no downpayment, for various reasons. Ordinary underwriting standards might require, say six months or a year of employment at your current employer; reducing that to zero increases risk. What sort of debt-to-income ratios are they allowing? How much verification are the banks doing? The article is kinda scant on details.
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You’re welcome any time!
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notwithstanding that the banks are making a bet that enough of them will win the Silicon Valley lotto to pay for the ones who go to work for companies that tank
Other people have made the point obliquely, but no, they are making a bet that when the losers outnumber the winners, and it all goes to shit, the government will bail then out.
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That’s not a “2 million dollar” house in Palo Alto or SF. It’s probably in the 5-10 range. A 2 million dollar house is a 1400-square-foot one-story Eichler on a postage-stamp lot.
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Well, that is why your local bank doesn’t care – they are just going to sell the loan to one of the big players, but even if they were going to hold the note until maturity, what kind of road blocks could they put up? Include a prepayment penalty? Most people wouldn’t agree to that because the average person doesn’t stay in their home for 30 years. Refuse to give you a loan when you already have one? They would rather reduce your interest cost from $200k to $80k rather than lose it entirely to the bank across the street. Also, when you get a 15 year loan, they can loan the money to someone else in 15 years, when chances are, interest rates will be higher. So over 30 years, they may very well make more money with less risk by letting you refinance down to 15 years at a lower rate.
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I like it. If the idea of a bunch of hillbilly squids living off the government because they’re an endangered species (Appalachian Hill Squid) by the creators of Aqua Teen Hunger Force appeals to you, go for it.
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You might be surprised at the number of people who just…didn’t know what was going on and still don’t.
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Yes, Cory - the rich get richer no thanks to favorable banking situations and the trickle down is negative, but there’s nothing, NOTHING in the original article that indicates your speculative pricing.
Sure, given the favorable rates, buyers have the ability to not only borrow more than they can afford - which you are correct in noting causes trouble, but also overpay, though not to the degree you are talking about where the pricing is inflated that much.
As a home seller and buyer in Los Angeles at the moment, I can attest to the crazy pricing and rising home values, but even here in Silicon Beach where they emulate the Valley, people are not paying several hundred thousand dollars more for houses because they’re missing out on the ones starting at that same price. Favorable rates or not, you assume the stupidity of the buyers overextending themselves means they’re stupid enough to pay $1.2m for a $1m home, or $800K for a 500K one, etc. They’re not.
Market correction - which absolutely exists in home buying, will not allow for those giant jumps in a short period of time. For example, in our 8 unit building, the 4th floor unit above mine sold at about 31K over asking. Ours is going out two months later about 10K over asking. The unit below listed at the same time as us and is unsold still because they priced themselves just below the amount the 4th floor sold at, which we we’re priced much closer to the asking of that unit. All three units are the exact same layout, size, and amenities (except our units has less hardwood flooring than the other two). In-building and local comps all make a difference in the asking and sale price - even with their new top price, the upper unit is shy of 4% of a sale price boost. To think that paying 20% and up above asking / value (as you posit) is absurd, and I’m only using our Beverly Hills / Santa Monica adjacent location because I have real numbers to draw from.
It’s not stipulated in the original article, but even based on the assumption that these banks that are giving silly loan amounts and rock bottom rates, they have to appraise the value of the homes before giving away the money - it’s unlikely that they’re willing to over-value a home by several hundred thousand dollars again and again. You can’t have it both ways and suggest the banks are setting up a future crisis with bad loans and also making money on these exorbitantly high priced loans for the ones that don’t default. The bank is stuck with an overpriced asset if the buyer defaults, and auction / foreclosure would not benefit them as the titleholder.
Also, loans do not process in 24 hours. Pre-approval? Sure, and that’s if the battery of papers and copies of bank statements, employment records, tax forms, and so on are filled in…
TL:DR - Cory, you’re fouling up a decent headline and basic complaint about rich privilege with unsubstantiated numbers and a fearful vision of the future that’s based on a process you don’t really know much about.
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Fowling? I don’t think that’s right bro…
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no, he’s hunting fowl…typo has been corrected and now it’s 100% argument-proof. Or not.
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It’s like “Check” versus “Cheque”, or “Troll” versus “Trawl”.
…Sometimes, I have to say something.
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people are regularly overpaying in PA/Mountain View/SF. I know Zillow is kind of a punchline when it comes to valuations, but when their estimates and actual sales prices closely converge (and both climb at astronomical rates) it’s indicative of a bubble created by easy credit.
it sounds like insanity, cause it is. but it is scarily real.
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I got a 100% mortgage on a flat in a poor part of England while on a typically-low postdoc salary based on (a) my employer being reliable, and (b) the actual value of the flat being level with the mortgage amount. It too was approved quickly, a matter of a couple of days. The question should not be why wealthy people should qualify for 100% mortgages, but rather why solidly-employed people at other economic levels can’t get a similar shot. If property is valued properly, the banks should have nothing to lose.
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So you’re a new hire in Silicon Valley with a $100k salary and you get a 100% mortgage on a $1m home. How can you even afford that? You’d be upside down even on a $500k home. I’m not sure what I’m missing here.
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