Dr. Vlado sees Mortgage Scandal brewing

Yesterday's Late night conference call with Dr. Vlado yielded some interesting facts for readers not written about in the journal or harped by the no-nothing's of the financial channels. According to findings on the web and else, here is the report;
1) Many new loans used to purchase real property have some form of fraud attached to them. Many loan officers move NOO (non-owner occupied properties) to owner occupied rates to possibly create more margin or commission for themselves. A co-worker experienced this with an out of state bank and property, when the Loan officer suggested "not to worry." NOO have a different rate because they do carry more inherent risk for a lender.
2) Non-recourse and forbearance laws are different in many states. With the new BK law being implemented, banks may have a new scenario when try to remediate themselves from a bad loan. Some indications also suggest that up to 80% of new loans for purchase may be 100% financing or more. Many 80/20 products leave lenders with peculiar issues when trying to short sale or move the non-performing asset from their main books.
3) The Non-conforming market may be experience up to a 14.5% ratio of 60 day lates (arrears=90) on portfolios. This can be hidden however from possible scrutiny when its move to a "ASSET Management Company." These hybrid entities are experts at loan workout scenario's. This makes sense to do when one realizes that there is an over collarterization occurring in the secondary market of up to 20%. 14.5% FITS within the confines of the 20% percent. Some homeowners are literally living a perpetual 60+ late cycle which still makes the portfolio seem like its performing to the institutional buyer. This new form of credit enhancement goes beyond the traditional MI tactics of charging 30 bips to a client. But is this safer in a mass default scenario.
4) Fannie/Freddie are now servicing and warehousing non A paper. But I suppose with a Fannie seal of approval, the YIELD YEARNING institutional money doesn't really care. If you closely look at the CMO traunches within some of these portfolios it seems that indirectly Fannie IS holding 100% LTV paper, even though they are only "BOOKING" the 80% of an 80/20.

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