Insanity Definition on Full Display
Wells Fargo recently announced a new mortgage product they are calling "A game changer in the industry." According to the bank, this product is purported to facilitate the dream of homeownership to more people by ...wait for it... lowering the down payment and out-of-pocket costs associated with a more conventional mortgage products, while also offering more consumer friendly income and credit guidelines.
This new product that those at Wells Fargo have declared "revolutionary" is called yourFirst MortgageSM and one has to imagine it must have been developed by somebody with a severe case of amnesia and who has recently suffered from a bad concussion.
Wells Fargo Home Lending contends that the new program, "provides access to credit while maintaining responsible lending practices." However, according to their own press release, the loan program offers a down payment of as little as 3 percent for first-time homebuyers and low-to moderate-income credit history. And Income standards have been loosened to include others who will live in the home, such as family members or renters. Also, the required minimum credit score to qualify for this program was reduced down to just 620.
But for those who may be concerned Wells Fargo is lending like its 2005...have no fear; Well's has partnered with in their words "credit experts such as Fannie Mae" to develop a loan option that gives homebuyers the best offering in the market.
Their so-called credit expert, Fannie Mae, was the same Fannie Mae that was placed into conservatorship by the United States Federal Housing and Finance Agency on September 7, 2008. The then quasi-government agency ran aground when it failed to properly manage credit risk, leaving the company vulnerable to bankruptcy during the 2008 financial crisis.
One safeguard they did keep in place was proper documentation. But, if pesky w-2's and bank statements are standing between you and the home of your dreams--have no fear--there is a revolutionary new loan product for you too. New York City-based Quontic Bank just rolled out its product called "Lite Doc," it's a five-year, adjustable-rate mortgage that requires only two months of employment verification and bank statements.
The sad fact is lending standards are dropping quickly back to the same level that fueled the start of the Great Recession. And as you might imagine, all these newly un-qualified borrowers entering the housing market have boosted home prices.
According to the Census Bureau's new home sales report: The median sales price of new houses sold in April 2016 was $321,100; the average sales price was $379,800. And the average price in April 2016 was $379,800 and the median price was $321,100. Both of these are above the bubble high.
Furthermore, less than 2% of new homes were sold for less than $150K in April 2016. This is down from 30% in 2002, leading many to speculate that the under $150K starter-home is becoming extinct.
Also, the National Association of Realtors just announced that median existing home prices hit an all-time high in May. In fact, the ratio of median home prices to median income is 4.2, well above the historical range of 3.2, and is also rapidly approaching its all-time high of around 4.5.
The rise in home values will create equity that an owner can draw from and use for things such as vacations, hot tubs and RVs. This will entice more speculators into the market that will drive up the price of homes further. And the economy will grow on the back of home equity extractions and asset bubbles. This may all sound great if we had not tried this already less than eight years ago and it nearly brought down the entire global economy!
Some may wonder why after the 2008 financial crisis Wall Street and the banks didn't learn their lesson. The reason: The sad truth is the economy has become a giant Ponzi scheme that has become totally addicted to ever increasing credit issuance and asset bubbles, which need progressively falling interest rates and reduced lending standards to entice new participants into the baneful game.
Yes, we've seen this movie before and the ending is no surprise. The only surprise comes from those who believe this time will be different.