Subprime to the Rescue
By Greg Hunter’s USAWatchdog.com (Revised)
Subprime lending is back, and it is creating headlines like: “February auto sales rise to highest level in 4 years.” That comes from a story last week from Reuters. Reuters goes on to say, “U.S. auto sales rose nearly 16 percent in February and the annual sales rate leapt to its best level in four years . . . For a second month in a row, sales surpassed even the most optimistic expectations. Analysts ascribed the gains partly to rising consumer confidence and upbeat U.S. economic data.” (Click here for the complete Reuters story.) Subprime lending was one of the major causes of the 2008 economic meltdown. You would think the banks and the government would have learned a lesson, but they did not.
Subprime auto lending played a big part in those car sales figures. According to published reports, people with a credit score of just 500 can now get a car loan. As of last August, more than 40% of car loans were given to subprime borrowers. That number is growing according to Loans.org. It said two weeks ago, “Due to a new trend that many lenders have begun to participate in, more and more subprime borrowers were able to obtain vehicle financing. As a result, outstanding car loans rose by 3.8 percent, which is roughly $23 billion. That sharp uptick in outstanding vehicle financing brings the national total to $658 billion.” (Click here to read the complete Loans.org story.)
Nothing gets the economy going faster than loaning money to people with a high chance of not paying it back. Mind you, the economy is not improving because of increased exports, productivity gains, some sort of new technology or dynamic innovation. It appears to be improving (somewhat) because of the return of subprime lending. If that is not a sign of the impending doom of another future crash, I don’t know what is. If we could only put people back to work as fast as someone could qualify for a subprime car loan, we’d be able to fix America’s chronic unemployment problem—at least for a little while.
Not to be outdone by the auto industry, real estate is getting a boost from the government’s revamped “Home Affordable Refinance Program,” also known as “HARP 2.0.” This program is only available to homeowners who have mortgages with Fannie Mae or Freddie Mac, but that is effectively around half of the mortgage market. Perspective borrowers have to be current on their payments, and under the old HARP the mortgage had to be under 125% of the home’s current value. In other words, if you owe a $125,000 mortgage but the home is only worth $100,000, you can still borrow the full $125,000 and get a new loan with cheaper payments. Under the revised Harp 2.0 (according to HARPloans.com) the loan to value (LTV) cap has been eliminated making HARP 2.0 an even bigger taxpayer rip-off. HARPloans.com says, “The 125% LTV cap on fixed rate mortgages has been eliminated (there is still an LTV cap of 105% on adjustable rate mortgages).” (Click here for the HARP loans.com.)
Bankers love this new government financing program. It cuts payments for mortgages by a few hundred bucks (on average) but not principle. It retains the value of all those mortgage-backed securities packaged and sold by the banks, and this locks the homeowner into another underwater mortgage at taxpayer expense. What do you think will happen when interest rates on mortgages go back up to more normal levels? The underwater mortgages will be sunk even deeper, and taxpayers will be on the hook for billions in more losses. On top of that, HARP 2.0 creates new mortgage paperwork so foreclosing will be much easier next time around. Stupid consumers live on this question, “What are the payments?” It is the dumbest finance question you can ever ask.
One mortgage website called Harploans.com touts this new government boondoggle as some sort of consumer rescue. A recent Harploans.com posting said, “In addition to helping more than a million underwater homeowners refinance their mortgages, HARP 2.0 could cause an increase in mortgage originations of between $200-300 billion in 2012-2013.” Here’s the real kicker and the most outrageous part of this new program. Harploans.com goes on to say, “It is also notable that Fannie Mae has made some key changes to their underwriting guidelines pertaining to HARP 2.0 that could encourage more lenders to jump on board with the program. Fannie eliminated an underwriting requirement that forces the lender to determine if the borrower has a “reasonable ability to repay” the loan based upon debt-to-income ratio, income, and other factors. It appears that the lender is now able to qualify borrowers through a streamlined process that could only take into account credit score and the number of recent payments made. This could make it significantly easier to qualify borrowers for new loans. (Click here for the complete Harploans.com posting.)
Talk about throwing good money after bad, I think “HARP 2.0” should be called “Subprime 2.0” or maybe “Subprime Lite.” No matter what you call it, this is nothing less than another banker bailout program handed out at taxpayer expense. What can you expect in an election year? It’s subprime to the rescue for autos, housing and the bankers; but they are trying to rescue a system that cannot be saved.
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About the Author
Greg Hunter
Greg is the producer and creator of USAWatchdog.com. The site’s slogan is “analyzing the news to give you a clear picture of what’s really going on.” The site will keep an eye on the government, your financial interests and cut through the media spin. USAWatchdog.com is neither Democrat nor Republican, Liberal or Conservative. Before creating and producing the site, Greg spent nearly 9 years as a network and investigative correspondent. He worked for ABC News and Good Morning America for nearly 6 years. Most recently, Greg worked for CNN for shows such as Paula Zahn Now, American Morning and various CNN business shows.
Good morning Greg.
Good article and I agree. A big problem is, this time in re-setting the “Business Cycle” (aka Ponzi scheme) consumer prices did not drop much, if at all, so the re-set will last no time before crashing big time. Smart people will not re-finance on their home before making sure someone holds a clear mortgage on their note. Like you say, much of HARP 2.0 is about lender’s establishing fresh new paperwork they can foreclose with. Oops! Time to drive in the dark past thousands of others like me so I can continue in the game. Enjoy your Monday All!
Jim H,
Thank you for your comment to start the week!!
Greg
GREG.
another fact in print.
What politican would even want to be in office for the next 4 years..id rather clean windows on sky rise buildings with a putty knife.
Agree. Being in office in times like this is the same as asking for a failed career. It’s much better to be in office during good times.
Isn’t the US government by any metric the mother of all subprime borrowers? Doubly ironic that it is also the mother of all subprime lenders.
Mark Leiby,
I love this line “Isn’t the US government by any metric the mother of all subprime borrowers?” YES, YES, a thousand times Yes!! Thank you.
Greg
Greg, couple the “new subprime” loans outlined in your article with the FED in a super-charged “easing” mode and its clear to me that the word desperation comes to mind. By sub-priming and printing in full swing once again the can is kicked down the road. This has to mean there is no real solution available for the FED & the government and that they know it. Without a rational solution the patient just needs to call a wills and probate attorney and get is affairs in order, its just a matter of time.
Thank you Art and Sling for the comments and analysis.
Greg
There is always a catch. All I can see is another bailout that precedes another bailout in the future. The elimination of, “reasonable ability to pay” is blantant, bad banking practice and to knowingly used a “Snapped Picture” of the credit score is ludicrous. Even if you count the few hundred dollars to be saved would only be spent on frivolous items. The ability to paydown debt is overridden by the addiction of consumerism. You can not change the spots on a Leopard. Looking forward to another generation of debt slaves for which those who stayed within their means will pay the price.
To those who fail to apply themselves to sound financial practices, you will find yourself in the streets, complaining of the injustices you endure, only to be knocked to your knees by a police baton. Then the real fun begins.
Greg: good post as usual. The “pumpers” of the economic recovery have an obvious agenda which, unfortunately for them, is doomed to fail. It will always come down to the amount of net discretionary income available to the consuming public. By any measure of real world statistics, this amount is decreasing. The costs of all basic needs such as fuel, utilities and food are rising while the median household income is falling. As for auto sales, a recent article on ZeroHedge showed that channel stuffing is escalating for suto manufacturers, especially GM, with dealer lot inventory at 10 year highs.
Greg,
The rule of law in our country is fleeting. First, the Supreme Court rules that a person’s property can be taken not for the public good, but for the private enrichment much as King George would do. Then you have no fraud charges brought in the Mortgage Fraud meltdown. NOT ONE banker is in jail. President Bush 41 put people in jail, about 1,000.
The taxpayers are even footing the bill for Freddie Mac and Fannie Mae executives that committed financial statement fraud for personal enrichment just like ENRON. Sarbanes-Oxley offer stiff penalties. Where is the enforcement? Why has AG Holder taken action? The US Government MADE the US Tax payer liable for trillions of dollars…no, that is not a mistake, TRILLIONS. Why are these former executive not in orange jumpsuits?
Then you have the Obama administration putting aside 200 plus years of bankruptcy law and putting the bondholders at the back of the line in the GM nationalization.
Then Congress passes NDAA, which is illegal. You know me to be a “hawk” but when they murdered a US citizen, Anwar al-Awlaki, without a trial in a foreign country, I scream. They could have tried him in absentia, given him a death sentence, then killed him and I would have been ok.
Then you have MF Global and the politically connected once more slip past justice. You steal 1.2 billion (1.6 billion by some accounts) from your customers and because you are a fundraiser for the President you have a get out of jail free card.
All of the above are examples assaults on individual property rights, a cornerstone of our constitution.
Bill O’Reilly saying that the oil companies should be forced by the government to lower the price of gas. He claims it is the citizens’ oil! What O’Reilly is asking for is nationalization of the oil companies. If they contract with the government, risk the money, pay a royalty, then 200 plus years of contract law says it is theirs. They sell it for what the market will bear. O’Reilly, it is called capitalism. Go by a Chevy Volt if you have a problem with gas prices…oh, wait there is such a huge backlog of demand for this boondoggle that GM is laying off 1,300 workers. I cannot afford a $46,000 car that goes 26 – 30 miles on a charge before the gas engine kicks in.
The Obama Administration touts increase oil production now but all of the increase comes from projects approved under President Bush. Secretary of Energy Steven Chu slipped yesterday saying that they are not trying to stop the rise of gas prices. Believe him. Chu said before he was put in office that he would make gas here the same price as in Europe. President Obama said the he would double electricity rates. If you cannot see what they are working to do to us, you are drinking the Kool-Aid. The Keystone Oil pipeline does not meet the Administration’s gas price increase so it was canned. In know the public likes sound bites over substance but just remember: Actions speak louder than words. If you remember this and look at the current administration, you will see what they are really trying to do. The Obama administration is taxing the American people by raising the price of gas.
As one of the top in my class in forensic account, which includes document analysis, I find Sheriff Joe’s report troubling. I am pulling the information and doing an analysis. It screams cover up that the Immigration records for that week is missing. I would need to know if the other 51 weeks are there. If they are, then it screams cover-up. Why would one (1) week out of 52 be missing? In addition, it just happens to be the week that President Obama is born. Damn, convenient if true. I am not a conspiracy nut. However, if the video you linked to is even remotely correct, it does lend credibility to a conspiracy. Why is this in my diatribe on the Rule of Law? You have to be a natural born US Citizen to be President.
Dan Rather’s downfall is brought about by document analysis. In 1961, they used typewriters so there are other things that can be checked beside the “layers,” which there should not be in a scan of an original document. Computer software like MS-Word does not space the same way and there are basic computer fonts that were not in existence until the last twenty years. Document forgers use computer based tools and that leaves fingerprints that should not be present.
When the rule of law is ignored, it is the beginning of the end. “We the people” are in danger of becoming subjects instead of citizens. We are losing our liberty a little at a time. Be afraid; be very, very afraid AND take action.
George Too,
Thank You for adding to the content of this site.
Greg
Thank you for another informative article, Greg. We (Americans) never learn, do we?? Some day the music really will stop playing……..
Thank you Richard and Perry!!
Greg
“…What do you think will happen when interest rates on mortgages go back up to more normal levels? The underwater mortgages will be sunk even deeper, and taxpayers will be on the hook for billions in more losses.”
This doesnt make sense at all. If the borrower had refinanced using HARP program and received a new, lower fixed rate than before (and thus a lower mortgage payment), it would not matter what future interest rate changes did or didnt do. The borrower got their fixed rate refinance that lowered their payments, period. Your point is not logical. The logic is simple, if FNMA (and thus US taxpayers) already holds the MBS, then refiling new paperwork (ie: streamlined refinance) to give the borrower a lower payment (on the same loan amount) only makes sense. It should, conceivably, improve the probability of someone being able to repay the loan. The “guarantee” by the taxpayers doesnt increase or decrease.
the rest of your article has merit–but the flawed logic in that part made the rest appear suspect for sure.
I believe what Greg said was true. If the FNMA homeowners refinance for a lower rate but the loan amount remains the same, sure the homeowner saves a couple of hundred bucks a month. But when that same homeowner tries to sell the house and a prospective buyer comes in and the interest rates have doubled versus what the FNMA owner is paying, then the prospective buyer’s payment will be a multiple of the FNMA guy’s payment. So the FNMA guy will have to drop his price to sell the house, house the being “underwater”. The FNMA guy might be “less” underwater than he is now (cuz there’s no bottom right now, the payments are too much for math challenged non fine print reading current borrowers so they just default), but if the FNMA guy has to sell the house, even with a lower payment, he’s gonna take a loss, or the bank will. The only advantage to the new program I can see is it will keep more people in a house for longer and the possiblity is there that every one of the current troubled homeowners will hang onto their house and pay it off in 20-25 years and we’re in a kind of stasis till then when the prices will surely drop with higher int. rates in the future. At least that’s a possibility.
..of course, this whole charade is facilitated by a farcical Central Bank completely distorting all manner of free market principles, interest rates, and honest money. But that is another argument altogether.
I am closing on one of these loans tomarrow. We have been in the same home for 16 years and didn’t rush in and buy over our heads. I was approached by my bank (Chase) and offered a 0 cost refi to a lower rate, about 1% lower than my existing mortgage. The process was quite painless and took about 10 days to complete, from offer to close. It was all done via the internet and the close will take place at my home. I have never considered my home an investment vehicle and have never made extra payments in an attempt to pay down principle at an accelerated rate. That said , I always paid on time also. So , I ask: whats not to like about this offer? I get to skip both the March and April payments while the loan resets,my principal increases by only about $350 (due to interest accumulation during the reset period)and I don’t have to bring a penney to the table at close.
Like I said – what’s not to like about that? Damn right, I will take advantage of a government program that benefits me.Why not? I’ve paid enough into the system over the past 35 years.
Then I will take the money that I save from skipping the next two payments and buy more gold and silver.
They weren’t counting on you buying metals with your savings, they think all the refinance people will “just go shopping” as old Bush told us to do after 911.
Now on Bloomberg an analyst, Dean Maki, says we don’t need the previous level of job creation. He claims we need just 100K a month. 8.7 million jobs were lost. Claims 2/3 of job loss is due to retirement. OMG, what a load of crap. I did not retire. I am laid off or replaced by outsourcing depending on whether I believe the thing I was told or the second after it came out that we would receive more benefits if we lost our jobs due to outsourcing. Is Maki French for Malarkey?
The Obama administration economic policy: If you cannot fix the problem, you just change the numbers and repeat the lie often enough for the sheeple to take it as fact. The tragedy is that the Republicans, outside of drilling for more oil here do not have a better plan or better fiscal responsibility.
I will vote for Ron Paul given the chance AND I oppose a lot of what he stands for but I BELIEVE he is a man of his word and a man of principles. I do not like his foreign policy but it is time to concentrate on JOB 1…the American economy. We need blue collar manufacturing jobs. President Obama claims he will double exports. What do we make here? All the North Carolina textile and furniture jobs are outsourced.
I am sick and tired of all the garbage the MSM is putting out as fact without EVEN basic skepticism. What bothers me more is that I hear people regurgitate the propaganda as fact.
Thanks for putting up “REAL NEWS” and asking questions.
HARP 2.0 is just a program to cover up fraudulent securities and provide the missing promisory notes to allow the banks to foreclose
Greg,
as usual your forum is exact on point, Sinclair would do himself good
to publish your stuff daily, at least a quickie summary on point as
only you can dom tell him i said so, he will balk, but is a fair man
and will come around, because you are good for his readers
bob D
bob D,
You are very kind. Mr. Sinclair posts my work on a regular basis. He is a good man and I really appreciate him doing that. Thank you for your support.
Greg
I have been a daily reader of Jim Sinclair since jsmineset.com first day online. Greg, you have now attained that status as well. I read you and Jim daily and you compliment each other with important data points regularly. Keep up the good work.
Regarding refinancing current mortgage holders, this is where we disagree. Normally I am in the choir singing along with you but we disagree here. Many people are upside down in their house through no fault of their own, just bad timing. If these millions of people give up and just stop paying, real estate prices continue to fall dramatically. I support a government plan to allow folks who are current on their mortgage payments to refinance at historically low interest rates. For all the Trillions of Dollars created out of thin air and wasted by our government, this is one program I think makes a lot of since. I hope you will ponder this!
Best Regards,
Phil
Phil,
I as a taxpaqyer do not want to be on the hook for Fannie and Freddie paying way too much for housing just to prop it up. Market forces should take control no matter what the outcome. Taking this type of action for the banks and housing is to continue the bailouts and likwise continue the destruction of the credit rating of the U.S. and the dollar. Good men can disagree.
Greg
I’m a regular reader of your articles and enjoy reading them. However this one article I’m struggling with. One example, you say “…mortgage must be under 125% of the home’s current value….” however on the Harploans website it states “…The 125% LTV cap on fixed rate mortgages has been eliminated (there is still an LTV cap of 105% on adjustable rate mortgages)….”. Another example is where you state “…What do you think will happen when interest rates on mortgages go back up to more normal levels? The underwater mortgages will be sunk even deeper…”. However, when I visited the Harploans website, the one item that caught my eye on the right side of the screen was advertising Fixed 30 year and Fixed 15 year loans. So, how exactly would someone be hurt later by rising interest rates if they refinanced via this Harp 2.0 program but went into a Fixed rate loan? What gives? This is the first time I’ve read one of your articles and was left with feelings of doubt as far as the accruacy is concerned
….willing to give you the benefit of the doubt…but just wondering.
CR,
I missed that in the piece and I have corrected and revised my post. This is why I always post links because I want people to know where I get my information. Sometimes I miss things and I thank you for pointing that out. As far as refinancing an underwater home, when interest rates go up (and they will) prices of real estate will and must go down. Remember the question “What are the payments?” As interest rates rise the payments will have to fall in order for the home to be affordable. In other words, you lock into a declining investment even though you locked into a low interest rate. People show be focused on the value of the asset they are buying not the interest rate or payments they are making. In short, you buy a house not a loan. I know there are many that say real estate is at a bottom, but that simply defies logic. Rates are at a bottom not real estate prices. They have a lot farther to fall. Thank you for your comment and support.
but why would a house price fall? there are a number of reasons…
too much supply and/or too little demand. too little demand could be caused by less people desiring the location, Less people being able to qualify for the home loan (due to higher rate & thus a higher PI payment, AND/OR more stringent loan guidelines requiring any or all of the following: higher credit scores/larger asset reserves/larger down payment/lower DTI ratios)…So, the cause for lower prices on a macroeconomic scale is, in my opinion not solely the result of higher rates– it more likely the fact that people cannot qualify– and or have no jobs. Prices all across the nation dropped a TON and rates have fallen steadily since 2007… So inflation is going to perpetuate this? No, the cost of the home will be pressured upward by rate increases and the LOAN QUALIFICATION guidelines will be the determining factor. We are a debt-based economy which is tailor-suited for the central economic planners to decide when to bring the reigns in. “Loose” lending policies overheated the markets and prices rose a TON even though rates were not significantly affected in the last 8-10 years. The FED is the problem. Cross collateralized housing debt instruments that had parlay bets woven into them was also a problem.
If a lender CHOSE to lend to someone without asking a bunch of questions (ie:liar loans), so be it..nothing wrong with that–but if the deal went sour, that lender should have been responsible– not some MBS pool of 1000’s of other SISA loans that had insurance companies betting for and against their future viability…when those insurance companies couldnt payup if defaults happened… Alas, the mortgage broker and liar borrowers were scapegoated for the schemes of the larger institutions (that developed the loan programs) and a terrible economy that was all masked by FED manipulated rates–until the last vestiges of a viable American economy were exported to lands far and wide.
Greg, Questions.
Situation: A homeowner that has had their income lowered due to one of the spouses losing a job, the employer has cut back on hours or the homeowner has had to take a different job at reduced income. They presently have a $125,000 mortgage on a house worth $100,000. They are current on payments, but just barely making ends meet and might end up stopping payments if an emergency occurs like a health issue. A refinance at a 3.5% rate instead of 6% drasticlly cuts payments and they can handle any future expenditure without problems.
Isn’t the bank already underwater on the loan? Isn’t the risk of refinancing at a lower rate better than the alternative of getting this home in foreclosure? Isn’t the bank left whole with the refinancing as well as the homeowner being able to retain opwnership until the housing market recovers?
I don’t know all the issues, but having people that can pay lower payments who have had financial difficulties due to governemnt regulations that have created a poor economy in homes that have underwater mortgages seems better than the government ending up with another bunch of foreclosed homes the taxpayers are going to pay for.
RonP,
Please stop thinking that all the problems are cause by too much regulation. While this is true in some respects, it is not true when it comes to the housing bubble that was created but loose money, liar loans and nearly ZERO regulation by the regulators. Why should I as a taxpayer pay waaaaaaaay more for homes than they are worth on the open market to save the bacon of bankers who loaned too much money and homeowners who borrowed too much money? This is just another bailout at the taxpayer expense. This kind of mentality is what is chipping way at the credit rating to the U.S. and debasing the dollar. We are all paying for this through inflation, just look a fuel and food prices. The economy will not improve in the long term unless we stop the bailouts and write down debt and assets to their true market value. Let’s really be capitalists and let people who make bad investments go into bankruptcy. Why in the hell do I have to pay for people who used their homes as an ATM and reckless bankers who provided the financing? Why is this my problem? HARP 2.0 is not how you fix the economy. It is how you make it much worse. Thank you for your comment and support.
Greg
Greg, I am on your side! I know that too many people have over extended themselves and that much of the problems created today are due to individuals that live on credit and do not think about tomorrow when it comes to debt.
I was just asking the question concerning what happens when a home loan that is backed by the government goes into foreclosure. Is the tax payer paying the upside down amount for the home when it is foreclosed and that same $100,000 house gets sold after foreclosure for $75,000. Who pays the $50,000 difference between what the borrower owed and the sale in foreclosure?
RonP,
Sorry if I came off harsh. I just upset by this new wave of sub-prime lending–I can’t stand it. Yes I think the taxpayer is on the hook through Fannie Mae and Freddie Mac. This is why month after month they need billions in more cash. Thank you for your comments and support of the site. I really appreciate your involvement here.
Greg
Correct IMO
And the tax payers will pay in the end, after the bubble.
Good money after bad
Beautiful.
Jay,
Thanks man!
Greg
This reminds me of Yogi Berra’s famous quip – “Deja Vu all over again.” And throw in the definition of insanity: “Doing the same thing over and over and expecting different results.” But of course, it is an election year, isn’t it. Great Post. Keep up the good work.
Hi Greg!
Yes it is all part of the plan to entrap as many as possible in a debt load that can not be managed under high inflationary conditions.
From the man on the street to nations across the globe it is all about debt which is bondage that will force them to debase their currencies enough to agree on regional currencies which will be the last step before a one world electronic currency that will require a mark before you can buy or sell.
Amazing how this was all talked about 1000’s of years ago and yet the world is now following the script to a tee.
For a better understanding please visit http://www.ubm1.org
In CHRIST! Rob
First it was housing, then student loans and now car loans!
Dealers who advertise buy here, pay here are installing GPS and monitoring devices on cars before the new “owner” drives one away.
They prey on the uneducated and dis-advantaged. Prices, interest and insurance rates most invariably exceed the norm.
Driver is reminded by an audible alarm of a pending or overdue payment – if ignored the car will be disabled and the GPS will then allow for easy repossession of the vehicle by the real owner.
From a Libertarian POV I have no argument with these dealers – unscrupulous as they are – fulfilling some market need.
What really concerns me is how or why some people are driven into the arms of these predators – surely the minimum school age (16?) should include some modicum of financial education?
I’ll forever remember being at a pawn shop some years ago while looking for tools. A couple with a babe in arms drove up in taxicab, wanting to sell a large and quite expensive boom-box. Proprietor declined their asking price, they then continued on to the next pawn shop, trip meter likely running the whole time.
Very sad – they confused wants and needs at their their own peril.
Paul,
They have all the education they need to find their way into the
arms of predators. Or do you imply that the education SYSTEM
has some other purpose on this planet of economic feudalism?
It takes 2. Don’t bail out the ignorant and don’t bail out the arrogant. That way the studious will learn from others mistakes.
Amen Master Luke!!
Greg
Many people who you call ignorant are not at all, just had bad timing reaching for the American dream. Not everyone was prepared for this as you and I, but have a little compassion on those who are struggling to do the right thing and keep their mortgage payments current even though they are thousands of dollars underwater. Do you really want another 10 million homes on the market?
Greg.
As a low level man iv always questioned why would a gold selling company sell gold,and silver knowing its going to incress in value.
im a simple man.. this makes no sence to me. I never buy from the major companys because of this Question in the back of my mind.I buy my silver from the alchol stores, and gold from a rep pawn shop where i get good deals. its not related to the issue at hand,i trust your judgement.
Jay,
You cannot go wrong in today’s environment holding physical gold and silver. Your judgment is sound. Thank you for supporting this site.
Greg
We truly are a “bailout nation” addicted to the illusion our funny money actually create something other than inflation and dollar devaluation which appears to be the only economic card the FED can play.
You are correct sir!!! Thank you for weighing in.
Greg
Greg, I was a lender and quality analyst for a major sub-prime bank for 9 years. February is always a great month in sub-prime. Why? Tax refunds. When sub-prime customers get 1000’s back from the government due to EIC and Child Tax credits, then they have money for down payment. Twelve years ago if a customer could “fog a mirror” with his breath then he got a loan. I am no longer in the “biz” as I was flushed out with everyone else in 2008.
But, the auto industry had half the annual sales during the last 4 years than they did in 2005-08. That means that trade-ins are at least 5 model-years old and odometers are probably north of 120,000 miles. The “Cash for Clunkers” program wiped out some good reliable used cars. The market is up because people are trading one beater for another.
Another inhibitor on auto sales has been sticker shock. Vehicles were sold in the hey-day between 2003-06 with “dealer cash” and “factory cash” that provided deep discounts to the customer. I remember deals where Ford F-150’s stickered at $24,000 and the amount financed, including tax, title and license, was a little over $13,000.
Two to three years later the customer came back to find his $325/mo payment would now cost him $550-600/mo on a full sticker price vehicle. The customer looked at his old truck with 85,000 miles and decided to fix it up and keep paying his smaller monthly payment.
Now that truck is barely running and the customer is desperate. The customer paid the loan over 60-72 months. He will buy a used truck and pay a premium if it has lower mileage and a relatively good condition. So, the customer has probably $1000 trade-in equity, a recent paid auto on his credit report and tax refund money in his pocket. He’s fundable at a high interest rate.
Some braver Wall Street houses are securitizing auto loans but their loss and aging triggers are much smaller and sooner. Bad loans will charge back to the Originator. Therefore, the Originators have to stipulate proof of income, verify employment and check credit. Also, everyone has to deal with Dodd-Frank compliance so the margin of error is small.
Loans are rising due to pent-up demand. Cars have replaced the house payment as the most important item in the budget. People have to get to work first. Dealers and funders need deals to stay in business. A lot of 2008 loans are running off this year so credit line capacity is open for originators if their capital didn’t melt away since 2008.
The real test will occur in June-July when the past due loans reach 90 days. First and second payment defaults go back to the dealer but funders start repossession on 90 day past dues. That metric will tell whether this increase is real or another blip that results in more misery for struggling people.
The landscape has changed. Prior to 2008 the auto industry was fat and happy. Everyone got their beak wet. Now, there are survivors and buzzards left. I’m with you that no employment revival is on the horizon. Someone needs to tell Nancy Pelosi that people can’t buy cars on unemployment benefits. The auto market won’t stimulate the economy.
Gary,
Thank you for your excellent professional analysis and for adding content to this post!!!
Greg
Citi recently gave me an offer that would reduce my present 5% mortgage to 4% and with no refi fees on my part. I brought the offer to my “mortgage gal” at my bank and she said I should do it. I can either reduce my payment by $136 per month, or continue paying what I’m paying now and reduce my mortgage payoff by 3 1/2 years. I did a refi about three years ago, and Fannie holds my paper — so I suspect that they have a valid note. CitiMortgage has been servicing my payments. What’s not to like?…..
DJohnson,
If you plan on keeping your house and you have substantial equity in the home you probably should refinance. My “Subprime to the Rescue” post was about sub-prime borrowers with zero money for a cars and upside-down on their mortgages. You do not sound like you have negative equity or are a subprime borrower. However, you are creating new paper work, so there will be no problem at all foreclosing on you start missing payments but it sounds like that will not be a problem for you. Good luck.
Greg
First off, I will probaly get flamed on my comments. Second, I have found a way to wage economic war on on the bankers and car companies. Third, found a way to beat inflation.
There is something to be said about buying QUALITY. Took me a long time to learn this lesson. In this day of planned obsolesence, you can not rely on just the name brand. Your must go further and to see if the product stands up to the test. And I have spent plenty to find out. Cutbacks in material grade/manufacture is rampant and what you think you are buying is not the same.
I brought a truck of foreign make in 1999 and I still have it and it runs like a top. It’s a woods truck and I beat the hell out of it. If you have ever “Run Dogs” you know how much punishment you will do to your vehicle. Over the years I watched those who Brought American break down. The exception were the ones which were modified to accept the wear and tear of the woods. Every two or three years they traded them in for a new truck. My truck (4WD) is paid off and I have had the usual repairs of brakes, shocks, new battery, fan belt and I do the servicing (lube and fluids) myself. But no truck payments. It does have a few dings but with a wash, coat of wax, armoral and a bottle of New Smell, it looks good. I paid 18 grand for the truck back then.
I beat the banker loans. I beat inflation. I beat planned obsolesence.
I can go on about generators, chainsaws, lanterns, tools and lawn equipment. Nothing beats quality and that is hard to find in products today. But we pay for the illusion anyway.
I know it’s off topic but it’s about money. Your money and most of us do not have a lot of it to go around. Also to point out if your buy quality you must maintain the quality and correctly service your purchase. More Money. Why buy a quality product and never check or change the oil. Leave it out in the weather and when it doesn’t start or it locks up, you blame the equipment.
Gone are the days of, Points, Plugs, Condenser, Set the Dwell and Spark Plug Gap. Timing Light, DBTDC.
Man, am I a Dinosaur.
peace
Excellent commentary Greg.
Just another case of perpetuating the phoney economy that is America now. It’s not sustainable but expect more of the same as national economic decisions/policies are driven primarily by political considerations (rather than sound economics).
There is an excellent piece in the Business Insider on 3 March where ex White House budget director, Mr. David Stockman, gives a very good overview of his take on the US economy. (Not the kind of material you find in the MSM is it?) You may have read it by now. It seems he would agree with much of what you publish frequently in your economic commentaries.
http://www.businessinsider.com/david-stockman-youd-be-a-fool-to-hold-anything-but-cash-now-2012-3?nr_email_referer=1&utm_source=Triggermail&utm_medium=email&utm_term=Money%20Game%20Select&utm_campaign=MoneyGame%20Select%20Mondays%202012-03-06#ixzz1oFPz7jW
Thank you Sean S.
Greg
I believe that most Republicans and some Democrats want another real housing bubble before 2020. Here is the deal, the first housing bubble was in import of liar loans from the UK, where they were called self certified loans.
The UK Square Mile has fostered 4 housing bubbles in 40 years in the UK. Wall Street sits at the feet of this financial cabal, which also churns up the price of Brent Crude. That is done out of the reach of US regulators.