Subprime Mortgage Bonds Back In Fashion

The home loans responsible for blowing up the housing market are regaining popularity.

Prices are climbing for some bonds backed by subprime mortgage loans given to higher risk borrowers, with one index rising 14 percent, according to the Wall Street Journal.

These home loans, given to anyone essentially with a pulse during the housing boom, saw massive defaults and helped cause the foreclosure crisis. Subprime bond investors suffered enormous losses in the crash--financial institutions collapsed because of subprime exposure.

Investors' belief that the housing market has finally hit bottom could be fueling their return to these riskier mortgages. Despite the mess that took place in 2008, investors are eager to try again. Investors who made hundreds of millions betting against subprime mortgage loans in 2007 jumping into the market for risky mortgage securities, say that today's subprime mortgage bonds are priced to withstand an economic slowdown, according to Bloomberg.

If demands for these kinds of bonds rise, banks may loosen up and do more lending to higher-risk borrowers. Already, some mortgage lenders may be starting to loosen standards, according to Time.

In addition, as the economy has started to recover, Americans are becoming less gun shy about taking on more debt. After de-leveraging in the years immediately following the recession, credit card use climbed last year, even as Americans contended with falling incomes, according to statistics from First Data.

But if history is any indication, a boost in investor appetite for these types of bonds may spell disaster. Indeed, the fallout from subprime is ongoing. The Securities and Exchange Commission sued six former Fannie Mae and Freddie Mac executives at the end of last year, alleging they misled the public about the mortgage giants' exposure to subprime mortgages during the crisis. In addition, the SEC may be preparing a lawsuit against some of the country's biggest banks over their subprime mortgage loan practices.

Still, the parties responsible for pushing the loans on borrowers and inflating their value to investors have largely avoided the government's wrath.

Comments

[Siebenstein]

08:34 PM on 02/27/2012

As long as we always elect the same type of human being into office that Americans tend to pick since LBJ, nothing will change in terms of oppressive methods and putting Americans into misery. Plutocrats just give a vuck about you and about regulating society so that it can function properly. They give a vuck. When will people get that?

[waggonburner007]

09:22 AM on 02/20/2012

History has a way of repeating itself.

[Siebenstein]

08:34 PM on 02/27/2012

with help of voters every 4 years.

[MayorsRevenge]

12:30 PM on 02/19/2012

If you owe debt, you are willingly part of the 'bottom'. It's that simple. And above you are MILLIONS of rich people enjoying the fruits of YOUR LABOR.

Save your money and live debt free. It can be done and you will be happy knowing no one got your energy/labor output/a$$.

[aforbes808]

11:45 AM on 02/19/2012

What is wrong with Wall St.? Mass psychosis? Why do we refuse to learn from history? Stupidity.

[AZreb]

08:09 AM on 02/19/2012

A friend in southwest UT told me that new houses are being built, while hundreds - probably thousands - sit empty in the county where he lives. Some of those empty houses are only 2-3 years old and have never been lived in due to the crash of the housing market.

This "settlement" with the banks is a ruse, too. Loans from Fanny and Freddy and VA are not in the mix for help for the homeowners. Now we see that governors can use some of the settlement money for their state budgets.

Looks like we will go down this path again. Aren't we supposed to learn from experience?

[tlcpro]

09:25 AM on 02/26/2012

We should learn from the past, unfortunately, that has never been part of the human condition. History tends to repeat itself.

[afgail]

11:35 PM on 02/18/2012

This time the crash will not be pinned on GWBush. Obama and Barney Frank will take blame for not fixing the problem of bundled subprime mortgages and selling them as investments. And just maybe the Wall Street crooks who escaped justice will finally go to jail.

[Ben Roth]

04:57 PM on 02/18/2012

Subprime mortgages are a scam, they encourage bad behaviors in both the lenders/investors and the buyers. The encourage people to buy more house than they can afford and dupe investors into believing they are low risk investments. Our economy doesn't need another housing bubble. "Investors" want to cash in on the economy which is showing positive signs of recovery by getting new construction moving and adding jobs, but via their dubious business ethics they will just set the recovery back on its heels. Stop this now!

[Wally Parnel]

08:38 PM on 02/18/2012

I will be interested in seeing who these exact people and companies are. Seems like a great place for the OWS movement to go after, along with all citizens, to stop this Organized Crime Spree.

[mordoplz]

03:26 AM on 02/19/2012

Subprime mortgage backed bonds prices were so depressed their prices implied expected default rate many multiples beyond what anyone thinks is remotely plausible. Hence there is immense value there. I've done the math myself. None of these investors in subprime mortgage bonds now believe these securities will ever be worth face value, but the upside is still enormous. Subprime MBS are a screaming buy if you have the requisite knowledge and expertise if valuing these securities.

[jel3800]

03:04 PM on 02/18/2012

As long as Freddy and Fanny are there to buy the crap mortgages that government wants to be made this will go on. They have constantly complainedf that the banks are not lending - and banks wont make bad loans if they are using their own money - so now they are now pushing them to make high risk loans then resell and hide them as they did in the past.

[wac56200]

01:34 PM on 02/18/2012

They said the next one will be worse, but the people investing, don't care about anybody but themselves and don't care if people lose it all, as long as they have theirs.

[lambdin1]

10:12 AM on 02/18/2012

No, they never left! As long as greed exist so will these. Only if long jail terms are metted out, not slaps on the wrist, will this end!

[MekhongKurt]

03:27 AM on 02/18/2012

Absolutely unbelievable.

I don't know which is the more stupid, the legislators who don't flat shut this sort of deal down -- or the fools who invest in them.

Despite the lessons that should have been learned, I imagine a great many high-risk would-be borrowers will seek loans like these as the almost genetic desire to own their own home regains strength, as I believe it will, ultimately full force, as if the housing crash a few years ago never occurred, or was "just an aberration" etc.

I've never owned my own home, and I sure am glad. At 60, I'm unlikely ever to own one -- and that's fine with me.

To be fair, I've also never had a family of my own, though I was married a few years long ago. I admit I may succumb if I had had a family back then, one with at least one child, I mean.

[68Namvet]

01:52 PM on 02/18/2012

Perhaps you're not paying attention. There is nothing "stupid" about what the legislators and investors are doing. Truth is, it is criminally brilliant. The legislators receive big cash donations for gutting regulations against these programs, invest in them knowing they will reap large benefits (along with other wealthy investors) and provide assurances that no matter the true outcome, they will get theirs.

Seriously, the Wall Street/bankers got bailed out to the tune of over $1 trillion, got no interest loans from the FED for another $7 trillion, bought treasury securities (that us tax payers are paying the interest on), became "profitable" (on our dime) and gave themselves over $160 billion a year in bonuses.

The stupid ones are us - who allow this activity to continue and fail to prosecute and jail those legislators, banks and investment firms involved.

[marinatha]

09:35 PM on 02/18/2012

yes we need to occucy this and the supreme cork

[leonardo5]

01:34 AM on 02/18/2012

The bundling of mortgages into securities should be removed from the market. The first time I realized that mine had been sold off from the original investor and into at least two more servicing organizations I was incensed. For a few months I received demands for payment from all of them. There was a requirement in the application that it would not be moved without notification and approval by me. They did what they chose anyway. My parents had theirs sold off with less than a year of payments on a loan of 25 years with no missed or late payments. The new company tried to foreclose, but it was paid off immediately. That was many years ago, so it has been going on a long time. Romney said to let GM go bankrupt and let all the forclosures bottom out. Bain Capital could buy GM out, bundle the clear home deeds and make out like the bandits they are.

[mordoplz]

03:21 AM on 02/19/2012

If you ban the bundling of mortgages the real estate market would implode. You would never be able to get a fixed rate mortgage again, EVER. What allows the existence of fixed rate mortgages is Fannie Mae and Freddie Mac. Securitization is the oil that greases the wheel of mortgage finance and eliminating it would cause mortgage financing to grind to a halt.

And frankly, you will NEVER have a say as to whether your mortgage is sold on or not. Lenders would never have any provision allowing you to veto a decision to sell THEIR asset, i.e., your mortgage.

[Peanut Santiago]

01:30 AM on 02/18/2012

Lather, rinse, and repeat.

And we ordinary American people are too busy fighting among ourselves (due to the Repug and Dem propaganda) to even try to stop it.

We are in a vicious class war.....and the lower classes are losing.

****At least until the misery and suffering AND anger get bad enough that the lower classes finally rebel.
THAT is NOT going to be pretty.
An "American spring" becomes more likely with every new day and new oligarch and politician betrayal.

[xgomazx]

11:25 AM on 02/18/2012

"And we ordinary American people are too busy fighting among ourselves (due to the Repug and Dem propaganda­) to even try to stop it."

And that is exactly what the party elite of both sides want so they can grab and wrest more and more power and control over us as each side nibbles away at our rights and liberties almost unnoticed. And when we do. they try and often succeed in convincing us its for our own good.
I've often wonder how often the line "If you have done nothing wrong you have noting to worry about" Or it is for the betterment of the people has been uttered in history .
It probably looks something like this
The Catholic church 1478-1834
Joseph Goebbels 1935-1945
Joseph Stalin 1936- 1953
Joe McCarthy 1947- 1954

It continues. they have just found a more subtle way of doing it.
How do you recognise it? Any time a politition introduces a law that is "for everyones good"
They are looking to either take away your liberties. Or steal something from someone.

[wac56200]

01:37 PM on 02/18/2012

Looking to take away, well they have been setting this up for years. One World government. Wait, it is just beyond the horizon, you will see.

[marinatha]

09:37 PM on 02/18/2012

And an American Spring would filled all those fema jails with $ to benefit the private prison companys that would proubly be hired to tend to us American Citizen.Lovely webs that are being laid...

[dibeem]

11:48 PM on 02/17/2012

i certainly hope all those idiots in washington made in quite clear the last time that there will no bailout this time.im sure the american people are tired of bailing out a bunch of rich guys while the rest of us crash and burn

[Peanut Santiago]

01:30 AM on 02/18/2012

I bet they did.

Yea, riiiiiiight!

{sarcasm}

[silentknight65]

11:11 PM on 02/17/2012

Keep voting Republicans into office and this is what you're going to get.

[David Werling]

11:26 PM on 02/17/2012

Huh? What does that have to do with investment bankers buying bonds backed by subprime mortgage loans? Please demonstrate the connection.

[silentknight65]

12:16 AM on 02/18/2012

Ummmmm, who do you think was at the helm when the ship hit the iceberg? It was late summer 2008. That would be, ummmm, ummmmm, oh yeah.....BUSH & CHENEY. Then they bailed out Wall St. in September. STILL Bush & Cheney, yeppper......

[rdk70816]

11:41 PM on 02/17/2012

I thought that Obama guy was some sort of Democrat. Was I wrong? Is he one of those commies?

[Peanut Santiago]

01:20 AM on 02/18/2012

??????????