{"id":852,"date":"2007-01-04T14:32:00","date_gmt":"2007-01-04T21:32:00","guid":{"rendered":"http:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/?p=852"},"modified":"2007-01-24T14:43:13","modified_gmt":"2007-01-24T21:43:13","slug":"what-isaac-newton-knew-about-mortgage-lending","status":"publish","type":"post","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/852\/what-isaac-newton-knew-about-mortgage-lending\/","title":{"rendered":"What Isaac Newton Knew About Mortgage Lending"},"content":{"rendered":"<p><img decoding=\"async\" src=\"http:\/\/21stcmb.typepad.com\/photos\/uncategorized\/isaac_newton.jpg\" align=\"right\" \/>I recently wrote about sub-prime loans for the first time in a long while because the sector should start taking more headlines in the papers.<\/p>\n<p>I&#8217;d hate for you to be unready for it, of course. Sub-prime loans are a big part of mortgage lending.<\/p>\n<p>&#8220;Sub-prime&#8221; is a broad-sweeping term for the large percentage of loans that won&#8217;t get bought by the quasi-government agencies Fannie Mae and Freddie Mac. The opposite of &#8220;sub-prime&#8221; is &#8220;conforming&#8221;, as in: these loans <em>conform<\/em> to the guidelines set forth by Fannie Mae and Freddie Mac to be eligible for purchase.<\/p>\n<p>Typically, the credit profile of a sub-prime borrower includes one or more of the following characteristics:<\/p>\n<ul>\n<li>Low credit scores<\/li>\n<li>History of derogatory credit (i.e. bankruptcy, foreclosure)<\/li>\n<li>Currently delinquent on their home loan<\/li>\n<li>Lack of credit history or credit depth<\/li>\n<li>Low asset levels<\/li>\n<li>Low income levels or non-verifiable income levels<\/li>\n<li>High loan-to-value combined with low income versus debt<\/li>\n<li>Contains &#8220;random&#8221; circumstance that introduces risk<\/li>\n<\/ul>\n<p>Just because a person exhibits one or more of these traits, however, doesn&#8217;t mean that he is automatically a sub-prime borrower. This set of guidelines is very general.<\/p>\n<p>Even though &#8220;sub-prime&#8221; has negative connotation to it, sub-prime loans serve a very important purpose. Sub-prime loans provide home financing to people who otherwise would not be approved for a loan at all. Remember: they don&#8217;t conform to the government guidelines! <\/p>\n<p>Recently, sub-prime lenders have fallen into a world of hurt because the default risk that is inherent in every sub-prime loan is being realized with alarming frequency. Lest you think these defaults are surprising the markets, this is a problem two years in the making and industry insiders know it.<\/p>\n<p>See, the one <em>very<\/em> important difference between conforming and sub-prime loans is that conforming loans are eventually bundled and sold on Wall Street as <em>long-term <\/em>bonds called mortgage-backed securities. Sub-prime loans, by contrast, are <em>short-term<\/em>. Conforming loans are overwhelmingly of the 30-year fixed variety, but sub-prime mortgages are of the <em>2-year ARM <\/em>variety.<\/p>\n<p>To understand why this matters, it&#8217;s important to review how adjustable rate mortgages work. <\/p>\n<p>With all ARMs, the lender agrees to collect interest at a <em>fixed<\/em> rate for some period of time. When that period <a href=\"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/852\/what-isaac-newton-knew-about-mortgage-lending\/#more-852\" class=\"more-link\">Read more<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"<p>I recently wrote about sub-prime loans for the first time in a long while because the sector should start taking more headlines in the papers. I&#8217;d hate for you to be unready for it, of course. Sub-prime loans are a big part of mortgage lending. &#8220;Sub-prime&#8221; is a broad-sweeping term for the large percentage of [&hellip;]<\/p>\n","protected":false},"author":14,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_crdt_document":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":""},"categories":[7,8,5],"tags":[],"class_list":{"0":"post-852","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"hentry","6":"category-enduring-interest","7":"category-investment","8":"category-real-estate","10":"no-featured-image"},"jetpack_featured_media_url":"","jetpack_sharing_enabled":true,"jetpack-related-posts":[{"id":16161,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/16161\/priceless-our-home-ownership-strategy-will-not-cost-the-taxpayers-one-extra-cent\/","url_meta":{"origin":852,"position":0},"title":"Priceless: &#8220;Our home ownership strategy will not cost the taxpayers one extra cent.&#8221;","author":"Greg Swann","date":"August 16, 2012","format":false,"excerpt":"The American Enterprise Institute on the premeditated assault on the prime mortgage:When it comes to a government centered society and its deleterious consequences, our Government Mortgage Complex is the undisputed poster child. There has been no greater economic failure than the collapse of the housing market due to decades of\u2026","rel":"","context":"In &quot;Group Therapy&quot;","block_context":{"text":"Group Therapy","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/group-therapy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4789,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4789\/deregulation-is-the-new-regulation\/","url_meta":{"origin":852,"position":1},"title":"Deregulation is the New Regulation","author":"Brian Brady","date":"October 2, 2008","format":false,"excerpt":"From the Wayback Vault in The New York Times Building: Fannie Mae, the nation's biggest underwriter of home mortgages, has been under increasing pressure from the Clinton Administration to expand mortgage loans among low and moderate income people and felt pressure from stock holders to maintain its phenomenal growth in\u2026","rel":"","context":"In &quot;Real Estate&quot;","block_context":{"text":"Real Estate","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/real-estate\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4256,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4256\/excerpts-from-the-press-release-about-the-death-of-fannie-and-freddie\/","url_meta":{"origin":852,"position":2},"title":"Excerpts from the Press Release about the Death of Fannie and Freddie&#8230;..","author":"Tom Vanderwell","date":"September 7, 2008","format":false,"excerpt":"Treasury Press Release I have clearly stated three critical objectives: providing stability to financial markets, supporting the availability of mortgage finance, and protecting taxpayers \u2013 both by minimizing the near term costs to the taxpayer and by setting policymakers on a course to resolve the systemic risk created by the\u2026","rel":"","context":"In &quot;Lending&quot;","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4418,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4418\/fannie-and-freddie-fall-to-foreclosure-but-still-lenders-lend\/","url_meta":{"origin":852,"position":3},"title":"Fannie and Freddie fall to foreclosure, but, still, lenders lend","author":"Greg Swann","date":"September 14, 2008","format":false,"excerpt":"This is my column for this week from the Arizona Republic (permanent link). \u00a0Fannie and Freddie fall to foreclosure, but, still, lenders lend I write this column at the beginning of the week, and it appears at the end of the week. My topics are usually timeless, but, if I\u2026","rel":"","context":"In &quot;Lending&quot;","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":4576,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/4576\/what-happened-fannie-mae-and-freddie-mac-exploded-and-many-bystanders-were-injured-in-the-blast-some-fatally\/","url_meta":{"origin":852,"position":4},"title":"What happened? &#8220;Fannie Mae and Freddie Mac exploded, and many bystanders were injured in the blast, some fatally&#8221;","author":"Greg Swann","date":"September 22, 2008","format":false,"excerpt":"Things fall apart: Kevin Hassett at Bloomberg.com is getting death threats over this news analysis:The financial crisis of the past year has provided a number of surprising twists and turns, and from Bear Stearns Cos. to American International Group Inc., ambiguity has been a big part of the story. Why\u2026","rel":"","context":"In &quot;Group Therapy&quot;","block_context":{"text":"Group Therapy","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/group-therapy\/"},"img":{"alt_text":"","src":"","width":0,"height":0},"classes":[]},{"id":10727,"url":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/10727\/anyone-think-that-fannie-and-freddie-are-out-of-the-woods\/","url_meta":{"origin":852,"position":5},"title":"Anyone think that Fannie and Freddie are &#8220;out of the woods?&#8221;","author":"Tom Vanderwell","date":"December 29, 2009","format":false,"excerpt":"Then check out this chart marking delinquencies at Fannie Mae.\u00a0\u00a0 Calculated Risk: Fannie Mae: Delinquencies Increase Sharply in OctoberFannie Mae reported today that the rate of serious delinquencies - at least 90 days behind - for conventional loans in its single-family guarantee business increased to 4.98% in October, up from\u2026","rel":"","context":"In &quot;Lending&quot;","block_context":{"text":"Lending","link":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/category\/lending\/"},"img":{"alt_text":"","src":"https:\/\/i0.wp.com\/straighttalkaboutmortgages.com\/wp-content\/uploads\/2009\/12\/FannieMaeDelinquencyOct.jpg?resize=350%2C200","width":350,"height":200},"classes":[]}],"_links":{"self":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/852","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/users\/14"}],"replies":[{"embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/comments?post=852"}],"version-history":[{"count":0,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/posts\/852\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/media?parent=852"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/categories?post=852"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.bloodhoundrealty.com\/BloodhoundBlog\/wp-json\/wp\/v2\/tags?post=852"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}