A sub prime loan is any loan with a FICO score of under 620. So loans with FICO scores of 620 and a CLTV of 110% are called PRIME loans still. These loans have had terrible forclosure rates and the banks and banks need to be honest and stop saying these are low risk loans when they aren't. This isn't just a small portion of prime loans either. A VERY large portion of prime loans have FICO scores of under 650 and CLTV of over 100%.
Strange what they call prime mortgages. Most Prime morgages are garbage.
- Thread starter ICRS
- Start date
Foreclosure rates during the last quarter for fixed rate prime loans was 0.34%, and prime ARM was 1.82%. "Most prime mortgages are garbage"? Hardly.
Vic
Elite Member
- Jun 12, 2001
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I agree. Which is why, when originated, the loans were made based on the then current value of the property.
What's more, FHA doesn't lend to 100%, but (depending on market, etc) to a max of 97%-98%. Fannie would lend to 100%, but only with a 'piggyback' 2nd mortgage at a much higher rate, and with a 1.5%-2% fee charged on top of the 1st mortgage (which the broker/lender usually just packaged inside the interest rate). So the additional risk was factored in. It's not like these borrowers got the same deal as a customer with an 800 credit score and low LTV.
It gets better, as the OP is seemingly unaware of an underwriting concept known as 'risk layering.' What this means is that the Fannie might do a loan for a borrower with a 620 FICO, but not at high LTV. And vice versa. An exception can be made if the borrower is lacking a bit/borderline in one risk criteria, but not if they are lacking in multiple risk criteria.
IOW the OP is being intellectual dishonest. Yes, there are a lot of loans below 650 FICO. And there are a lot of loans at high CLTV. But there are not a lot of loans that are both.
I am not lying. I work in the mortgage industry. We are a prime lender ONLY and 40% of our portfolio is loans with a CLTV of over 100% at origination. I have seen the numbers from other lenders in California, they are all the same.
FHA has NO maximum CLTV. We have FHA loans with over 110% CLTV.
FHA has a maximum 97% LTV but not CLTV.
XMan
Lifer
- Oct 9, 1999
- 12,513
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I'm still trying to figure out why my wife and I had such a hard time getting a mortgage. We both had FICOs over 700, our loan was 90% LTV, and we had basically no debt and a combined annual income equal to the purchase price of the home. Best we could get was a 5/1 ARM at 7 (this was last summer). Reading all these horror stories in the news it sounds like basically everybody else was getting great mortgages for basically nothing.
I did disregard quite a few places with "junk fees" in the loan offers, though.
I did disregard quite a few places with "junk fees" in the loan offers, though.
Because you could afford a larger down payment. My mother just purchased a second home (bank owned). Her FICO is 826 with LTV of 78%. Her annual income is 1/6th the loan amount. She owes nothing on her primary home and used none of it as collateral, the down payment coming entirely from savings.
Best she could get was 7.25% on 30-year fixed, but the seller offered $7000 towards her closing costs, which she used to buy points, giving her 5.25% on 30-year fixed.
The bank said that her FICO, income-to-debt, and past loan pay-off history were already in their "best possible" tier and that even if her income was three times as much, it wouldn't get her a better loan. The only thing she could do to get a better loan (prior to buying points) was to come up with a lot more down, on the order of 50%.
I can hardly believe they give any kind of loan to anyone with a FICO score of 620. Hell, I'm essentially bankrupt and have a FICO of 630.
Vic
Elite Member
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630 is nothing. I've worked mortgage for 15 years and the lowest credit score I've ever pulled was around 375.
And yeah yeah, FHA has no CLTV limit. The issue is that whatever loan behind that AND above 100% CLTV is not prime. And that the FHA loan is still in 1st position. The 2nd mtg holder is screwed in the event of default, while the FHA 1st mtg holder can pretend the 2nd doesn't exist.
Is this confusing or something?
And yeah yeah, FHA has no CLTV limit. The issue is that whatever loan behind that AND above 100% CLTV is not prime. And that the FHA loan is still in 1st position. The 2nd mtg holder is screwed in the event of default, while the FHA 1st mtg holder can pretend the 2nd doesn't exist.
Is this confusing or something?
CLTV has nothing to do with it being a sub prime mortgage. Wikipedia says a subprime mortgage is defined as one whose borrower FICO score is bellow 630. 630 isn't nothing. I have the numbers to prove loans with FICO scores in the low 600 have very high serverly delinquent and forclosure rates, currently over 10% actually. Most 2nd mortgages are issued by the 1st mortgage bank.
Vic
Elite Member
- Jun 12, 2001
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Who cares what wiki says?
The point is that if the borrower defaults, and CLTV > 100, then the 2nd mtg holder is screwed, while the 1st mtg holder's right remain completely unaffected. This is why FHA doesn't have a CLTV limit... they don't do 2nd mtgs.
And your last sentence there proves your ignorance on the issue, as the bank that issued the mortgage is not of issue versus who has bought up and/or securitized the paper.
When I said issued I was refering to the one who ultimatly funds the mortgage. FHA doens't remain unaffected as loans with 2nds have a much higher rate of default. FHA is at greater risk of loss on these loans.
You have zero idea what you are talking about.
"Most prime mortgages are garbage?" Go be ignorant somewhere else.
As someone who funds 40+ files a month, I can honestly say your whole OP is about as comical as it gets.
"Most prime mortgages are garbage?" Go be ignorant somewhere else.
As someone who funds 40+ files a month, I can honestly say your whole OP is about as comical as it gets.
Ocguy,
I work in the mortgage finanance industry, and have seen the numbers first hand. Also most was just an exageration. I would say around 20% are garbage, atleast in California.
FYI not all mortgages are secuitized into a bond. Hundreds of thousands of prime mortgages are issued every year and not securitized into a MBS. Forexample loans financed by Mortgage Revenue Bonds are generally not securitized.
Vic while FHA isn't going to loose any more money, the person whose paper the second is in, now has a higher risk of default on his note. While FHA includes the second in their risk factor they only due so to make sure they have enough capital to meet the risk.
I work in the mortgage finanance industry, and have seen the numbers first hand. Also most was just an exageration. I would say around 20% are garbage, atleast in California.
FYI not all mortgages are secuitized into a bond. Hundreds of thousands of prime mortgages are issued every year and not securitized into a MBS. Forexample loans financed by Mortgage Revenue Bonds are generally not securitized.
Vic while FHA isn't going to loose any more money, the person whose paper the second is in, now has a higher risk of default on his note. While FHA includes the second in their risk factor they only due so to make sure they have enough capital to meet the risk.
If you have seen the mortgage numbers, than you know the default percentages. And 20% is probably about 10X the real number.
During the boom, all I dealt with is sub-prime. Both on the broker side, and as a wholesale Account Executive. Now that sub-prime is done, I deal with strictly prime. And believe me, there wont be more than 1% default rate on the files I fund.
Prime borrowers havent gotten worse at paying bills out of the blue. Its the Chinese money that came in and allowed for people with bad credit to finance a home that caused this.
I have seen the reports from the MBA (Mortgage Bankers Association). Out of the mortgages we have funded around 20% have a CLTV score of over 100% and also have a FICO score of under 650. Our portfolio is very representative of the typical loans being done by other prime lenders in California. Based on the default of these loans, I would call them garbage. You might not think we are prime but Moodys and S&P sure say we have only prime mortgages in our notes we issue.
Post the default numbers of all mortages nation wide. Break it down by sub-prime and prime. There is your answer.
Thump553
Lifer
- Jun 2, 2000
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Personally I view any first mortgage that is not conventional (LTV, or loan to value of 80% or greater) as substandard. Especially in a market with declining real estate values, which is still almost universal across the US.
CLTV and having second mortgages to assist the buyers to purchase the property makes me extremely uneasy. I know what the FHA standards are, but I also know what I see in the real world-if the owners are underwater with the second mortgage they are much mor likely to go under altogether.
If mortgage lenders are still peddling crap like this as so-called prime, then we have not learned anything from the latest fiasco and our regulations are still hopelessly lax. We might as well be prepared to double or triple down on our bailout program. Quite frankly, I wonder if an absolute ban on mortgage backed securities might be the answer. It's extremely drastic, but it certainly appears to me that there is no way we can restore confidence to the market when the same characters play the same risky games over and over again.
CLTV and having second mortgages to assist the buyers to purchase the property makes me extremely uneasy. I know what the FHA standards are, but I also know what I see in the real world-if the owners are underwater with the second mortgage they are much mor likely to go under altogether.
If mortgage lenders are still peddling crap like this as so-called prime, then we have not learned anything from the latest fiasco and our regulations are still hopelessly lax. We might as well be prepared to double or triple down on our bailout program. Quite frankly, I wonder if an absolute ban on mortgage backed securities might be the answer. It's extremely drastic, but it certainly appears to me that there is no way we can restore confidence to the market when the same characters play the same risky games over and over again.
Ban Fannie and Freddie from dealing in sub-prime mortgages, and ban the 'co-mingling' of prime and sub-prime mortgages into any securities that go through any government chartered, funded, or backed institution. i.e. require mortgage backed securities be distinctly separated into 'prime' and 'sub-prime' products so that investors know what they are getting.
Thump553
Lifer
- Jun 2, 2000
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I don't think investors do know what they are getting when we label no equity and low equity loans as "prime." Better terms might be standard (although I argue that is too high), acceptable quality or the like, but certainly not prime.
Part of the current problems with Freddie and Fannie was that as late as last year Congress was leaning on them to buy this crap to bail out the market. It remains unknown in my mind whether the government will continue to utilize them as such now that they are in conservatorship. It's a good way of passing the risk of loss onto the remaining stockholders and off the taxpayers. They are ready made vehicles for the Treasury to exploit. People are buying FNM and FRE stock now thinking the bailout is good for those companies-the stock has gone from roughly 0.50 to near $2 in a little over a week. I think they are nuts.
Part of the current problems with Freddie and Fannie was that as late as last year Congress was leaning on them to buy this crap to bail out the market. It remains unknown in my mind whether the government will continue to utilize them as such now that they are in conservatorship. It's a good way of passing the risk of loss onto the remaining stockholders and off the taxpayers. They are ready made vehicles for the Treasury to exploit. People are buying FNM and FRE stock now thinking the bailout is good for those companies-the stock has gone from roughly 0.50 to near $2 in a little over a week. I think they are nuts.
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