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Take Advantage of the Subprime Crisis: Portfolio Lenders

How should you reevaluate your long-term investment plan in light of the subprime mortgage crisis? // What I want us to focus on, as 21st century ...

A farewell to ARMs? Americans still shun adjustable-rate mortgages 10 years after the crisis

As the financial crisis gathered steam, Americans fled adjustable-rate mortgages. The share of all mortgage applications with floating rates sank below 1% in late 2008. A decade later, their share still remains low: 6% in early June, according to the Mortgage Bankers Association, versus an average of about 20% in the ten years before 2008.

That makes sense. With fixed-rate mortgages stuck near all-time lows, there’s been little reason for any borrower to take on interest-rate risk with an adjustable-rate loan. (The chart above plots the adjustable-rate share of all mortgages in blue, and shows the 30-year-fixed-rate mortgage rate in red.)

But now, with rates back on the rise, will Americans turn back to ARMs?

Experts think not. Sam Khater, chief economist for Freddie Mac, points out that for ARMs to become more attractive, there needs to be a bigger spread between long-term interest rates, which help set fixed-rate mortgage rates, and short-term ones. ARMs are currently pegged to a benchmark called LIBOR, which tracks the rates banks charge to lend to each other.

How private-label investors are beating the GSEs at their own game

The mortgages, known as "conforming jumbos," exceed the standard $453,100 GSE conforming loan limit , but are still eligible for purchase because they're originated in high-cost areas where Fannie and Freddie's limits are higher.

So while the GSEs will buy conforming jumbo mortgages, private-label investors can often offer better pricing because of the loan-level price adjustments Fannie and Freddie must charge to account for their higher risk profile.

This is especially true when a lender has more conforming jumbos to sell than the 10% cap that the Securities Industry and Financial Markets Association puts on GSE to-be-announced loan pools, Moody's added.

For those loans, "you can definitely see private-label execution for the very high-quality loan being better than the GSEs," Millon said.

Lenders such as HomeBridge Financial Services, loanDepot and Flagstar Bank are preparing to or have already done deals consisting of agency-eligible high-balance loans in the private-label market. In 2016, JPMorgan Chase did two securitizations of traditional conforming loans.

Purchased with owner occupied mortgage - can it be rented in the future?

If a buyer buys a property, puts 10% down, gains the advantages of an owner occupied mortgage as opposed to an investor mortgage, lives in it for 6 months, 1 year, or 2 years then buys a nicer home.

The time frame is uncertain, but, no, there shouldn't be allegations of mortgage fraud. Two years is fine. I've heard debates over whether 6 months is too short; I've heard lawyers say to live in a property for at least a year.