The Obama administration is engaged in a broad push to make more home loans available to people with weaker credit, an effort that officials say will help power the economic recovery but that skeptics say could open the door to the risky lending that caused the housing crash in the first place.
READ FULL STORY: WP
April 9, 2013 at 9:08 am
So if the insurance business isn’t about making money on writing policies (predicated on sound actuarial work), and if an insurance company can even lose money on underwriting as many often do, and still make a profit by investing “the float”, then there may be an incentive to write policies, that reflect less than prudent risk management – that is to say losses on the underwriting side of the business would be made up on the investment side. As long as this is successful, shares in these companies can be sold to investors. The best investors are large funds like mutual funds because they buy in large junks of shares, are run by investment managers who are generally not very shrewd, and they hold long enough for insiders to sell. Large mutual funds are also the ideal investors because they have a steady stream of cash from IRA’s and 401k’s. IRA’s and 401k’s are steady sources of cash to mutual funds because most of those folks who were wise enough to envision saving, were also determined to buy and own a home (rather than rent one), thinking (perhaps wrongly), that it represented a sound investment. In this way, the loop from policy purchaser, to indirect title insurance company shareholder is complete. It’s almost like a double tax on the unsuspecting home purchaser, which is subtle and goes almost entirely undetected. That’s is why most homeowners have no clue who their title insurance company is, but can tell you in half a second who insures their car, their health care, or their home.
So what sort of investments are the investment managers at insurance companies making? Well, we know the insurance culture isn’t fond of extreme sports, and as it turns out they’re not very enterprising when it comes to their investments either – let’s just say they’re passive, they like fixed income, you know, a few muni’s, maybe some treasuries, but above all, they like commercial bonds for their fixed income (and perceived safety), especially those which are derived from Residential Mortgage Backed Securities, (RMBS’s). The feeders of these funds – the mortgage origination and securitization industry, is none other than their very own customers – think of it as one big happy love triangle, or if you happen to live in Utah and prefer their par lance “plural marriage”. The title insurance companies, the mortgage origination and securitization industry and policy purchasers are like sister wives. Of course the husbands in these relationships of Asymmetrical Power are the alchemists of the modern era, they are the engineers of derivatives, and they hide behind curtains in tall shiny buildings in an emerald city called Wall Street, turning their Copper into Gold. For more on this activity, it might be worth reading the article
April 10, 2013 at 8:34 am
The Nerve of the rats having comments
Are we still trying to blame the home owners, for there cynical plan that worked, come on American people open your eyes and wake up!
“The bubble was created by allowing bidding wars on real-estate, which i am sure they knew also!
if you put buyers in a buying frenzy as if it was an auction with no ceiling buyers will make astronomical offers higher and higher until they drive the market to almost to no return, you can see this happening at car auction, trying to outbid one another to sustain a purchase. They knew this would happen when you relax the requirements to qualify for home buying, “it’s like putting kids in a candy store and saying “don’t eat any of the candy boys and girls”.
As if the Banks didn’t know the bubble was going to burst in 2 years!
“Bank rep’s sells pitch”
“We can do the loan but your credit is not that great, “but what we can offer you is a teaser loan!
it is structured as, 2 years fixed rate between 3%-5% and after 2 years it will adjust to an adjustable rate starting at 6.5% and cap at 11%.
We understand the adjustable will be rather hard to maintain, but don’t worry about the adjustable rate because you can come back and refinance.
When the 2 years is up, come back to us, your property value will have appreciated because of the housing market is growing very fast, and you can lock in a 30 year fix with no money down.
So now all THE loan originators, who were producing this BAD PRODUCT, now have an negotiable instrument that they know is toxic, but don’t care, because the “NOTE” is negotiable, so they bundled thousands of loans, and sold them to next highest bidder not at the purchase price value, but the amortized value, (example) let’s say your purchase was $100,000 after amortized for 2 years and after an adjustable going out of control the end amount would be astronomical, if paid till the end of all payments, the amortized value would be between $600,00 and up. So if they sold the loan for $200,000 to investors $$$$$$$$$$$$ they win the lotto for all over a $100,000.
And who bought those loans wall street, they interned secularized them for the trades market and they didn’t buy them they were paid off in order to make them securities, can’t be a “NOTE” and SECURITY” at the same time. Against the law!
greedy wall street made your mortgage a security and sold them as securities and made a lot of money, “BILLIONS” and they had a 2 year window to get this done, before the “BUBBLE BUSTED” and all those toxic loans they created failed, because when home owners went back in that next 2 years there was no value, and the banks where on hold because the mortgage market had “CRASHED”.
“SO WHEN WALL STREET SOLD ALL THOSE LOANS WHO GOT ALL THAT MULA!
WAS NOT ONE HOME OWNER, “But they got Blamed”.
“Played on the home owners win fall!