When I read this article, I kept hearing that song “Take It To The Limit One More Time”! They’ve changed the words “Sub-Prime” to “Non-Prime” and we re going to take it to the limit one more time…


Subprime mortgages make a comeback—with a new name and soaring demand
The subprime mortgage industry vanished after the Great Recession but is now being reinvented as the nonprime market.
Carrington Mortgage is now offering mortgages to borrowers with “less-than-perfect credit.”
Demand from both borrowers and investors is exceeding expectations.
Diana Olick | @DianaOlick
Published 10:45 AM ET Thu, 12 April 2018 Updated 1:54 PM ET Thu, 12 April 2018
CNBC.com
https://www.cnbc.com/2018/04/12/sub-prime-mortgages-morph-into-non-prime-loans-and-demand-soars.html
Subprime stages comeback as ‘non-prime’ loans Subprime stages comeback as ‘non-prime’ loans
1:41 PM ET Thu, 12 April 2018 | 01:28

They were blamed for the biggest financial disaster in a century. Subprime mortgages – home loans to borrowers with sketchy credit who put little to no skin in the game. Following the epic housing crash, they disappeared, due to strong, new regulation, and zero demand from investors who were badly burned. Barely a decade later, they’re coming back with a new name — nonprime — and, so far, some new standards.

California-based Carrington Mortgage Services, a midsized lender, just announced an expansion into the space, offering loans to borrowers, “with less-than-perfect credit.” Carrington will originate and service the loans, but it will also securitize them for sale to investors.

“We believe there is actually a market today in the secondary market for people who want to buy nonprime loans that have been properly underwritten,” said Rick Sharga, executive vice president of Carrington Mortgage Holdings. “We’re not going back to the bad old days of ninja lending, when people with no jobs, no income, and no assets were getting loans.”

A home improvement contractor works on a house in Cambridge, Massachusetts. Here’s how much homeowners could cash out in home equity
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All loans will not be the same


Sharga said Carrington will manually underwrite each loan, assessing the individual risks. But it will allow its borrowers to have FICO credit scores as low as 500. The current average for agency-backed mortgages is in the mid-700s. Borrowers can take out loans of up to $1.5 million on single-family homes, townhomes and condominiums. They can also do cash-out refinances, where borrowers tap extra equity in their homes, up to $500,000. Recent credit events, like a foreclosure, bankruptcy or a history of late payments are acceptable.

All loans, however, will not be the same for all borrowers. If a borrower is higher risk, a higher down payment will be required, and the interest rate will likely be higher.

“What we’re talking about is underwriting that goes back to common sense sort of practices. If you have risk, you offset risk somewhere else,” added Sharga, while touting, “We probably are going to have the widest range of products for people with challenging credit in the marketplace.”

Carrington is not alone in the space. Angel Oak began offering and securitizing nonprime mortgages two years ago and has done six nonprime securitizations so far. It recently finalized its biggest securitization yet — $329 million, comprising 905 mortgages with an average amount of about $363,000. Just more than 80 percent of the loans are nonprime.

A ‘who’s who of Wall Street’
Investors in Angel Oak’s nonprime securitizations are, “a who’s who of Wall Street,” according to company representatives, citing hedge funds and insurance companies. Angel Oak’s securitizations now total $1.3 billion in mortgage debt.

Angel Oak, along with Caliber Home Loans, have been the main players in the space, securitizing relatively few loans. That is clearly about to change in a big way, as demand is rising.

“We believe that more competition is positive for the marketplace because there is strong enough demand for the product to support multiple originators,” said Lauren Hedvat, managing director, capital markets at Angel Oak. “Additionally, the more competitors there are, the wider the footprint becomes, which should open the door for more potential borrowers.”

Big banks are also getting in the game, both investing in the securities and funding the lenders, according to Sharga.

“It’s large financial institutions. A lot of people with private capital sitting on the sidelines, who are very interested in this market and believe that as long as the risks are managed well, and companies like ours are particularly good at managing credit risk, that it’s a good investment opportunity,” he said.

As the economy improves, and rents continue to rise, more Americans are trying to become homeowners, but the scars of the Great Recession still stand in the way. One-fifth of consumers today still have very low credit scores, often disqualifying them from obtaining a mortgage in today’s tight lending market.

Relaxed lending standards
Last summer, Fannie Mae announced it would relax its lending standards for prime loans, allowing borrowers with higher debt and lower credit scores to obtain loans without additional risk overlays, such as large down payments and a year’s worth of cash reserves.

Fannie Mae raised its debt-to-income (DTI) limit from 45 percent to 50 percent. DTI is the amount of total debt a borrower can have compared to his or her income. As a result, demand from buyers with higher debt exceeded all expectations. The share of high DTI loans jumped from 6 percent in January 2017 to nearly 20 percent by the end of February 2018, according to a study by the Urban Institute.

“From January to July 2017, Fannie purchased 80,467 loans with DTI ratios between 45 and 50 percent. But from August 2017 to February 2018, Fannie purchased 181,911 loans in the same DTI bucket. This increase of more than 100,000 loans in just seven months exceeded our estimate (85,000 additional Fannie loans annually) and Fannie’s expectations.” – Urban Institute

The mortgage industry expectation was that Fannie Mae would mitigate the additional risk with other factors, like a higher necessary credit score, but that was not added. The mortgage insurers balked, since they would be on the hook for the risk, so last month Fannie Mae “recalibrated” its risk assessment criteria again.

“We got a bigger response than we thought we were going to, so we dialed back to make sure we were in the right spot where our governance kicks in to make sure we’re not taking excessive risk,” said Doug Duncan, Fannie Mae’s chief economist.

Millennials carry more debt
The outsized demand from borrowers with more debt as well as demand for nonprime mortgages in the private sector show just how many borrowers today would like to become homeowners but are frozen out of the mortgage market.

Millennials, the largest homebuying cohort today, have much higher levels of student debt than previous generations. Members of older generations who went through foreclosures during the housing crisis or other hits to their credit are still struggling with lower FICO scores.

In addition, credit tightened up dramatically. In fact, between 2009 and 2015, tighter credit accounted for just more than 6 million “missing” loans, according to research by Laurie Goodman at the Urban Institute. These are mortgages that would have been granted under more normal historical underwriting standards.

The rebirth of the nonprime market is focused on these missing mortgages. The hope is that the industry will also focus on better standards of underwriting and not take risk to the levels it once did, levels that resulted in disaster.

Tyson Causes The Death of Their Small Farmers


Scott Edwards
Co-Director, Food & Water Justice Project

Rude Awakening in America’s Farmland
Posted: 11/13/2012 12:21 pm EST Updated: 01/13/2013 5:12 am EST

I’m an environmentalist. So when I think about our industrialized system of agriculture and the proliferation of mega-factory farms across the country, where giant companies like Perdue, Tyson, Smithfield and a handful of others dominate our increasingly fragile landscapes, my first thoughts go to the impacts on watersheds and airways. I tend to dwell on the unsustainability of hundreds of thousands of tons of chicken manure piled high in places like the Eastern Shore of Maryland, where the Chesapeake Bay is dying, or the millions of gallons of fetid hog waste lying in lagoons all across the eastern part of North Carolina, overflowing into the Neuse River every time it rains. But the other night I was told a story about an equally dark side of our industrialized ag system, one where the ruin of our natural resources is matched every bit by the destruction of rural families and futures, where every day struggling farmers suffer rude awakenings from the American dream.

Back in 1987, Karen and Mitchell Crutchfield were living a quiet life in a three bedroom brick home near where the Arkansas River winds through the state of Arkansas. Their home was situated on 17 acres of farmland that was passed down to Karen by her grandfather. Mitchell had spent 16 years working as a towboat engineer on the Mississippi River.

Back then, the Crutchfields decided to take a shot with a business of their own. They weren’t looking for shortcuts to get rich quick, or ways to profit off the hard work of others. Karen and Mitchell weren’t hoping for fancy cars and big McMansions; theirs was a modest dream. They were going to be chicken farmers, knowing that it meant that they would have to struggle every day to pay their bills, but they could look forward to a simple and peaceful retirement some decades down the road.

The Crutchfields entered into a contract to raise chickens for Tyson Foods, an Arkansas chicken empire that is one of the largest industrial food producers in the world today, with profits in 2010 of $780 million. In the beginning, they mortgaged their debt-free home and land and took out big loans from the Farm Credit to build their first chicken houses. The Crutchfields were loyal to Tyson. They even purchased 3,000 shares of the company’s stock so they could enjoy some small benefit from the massive profits that Tyson earns off the hard work of their contract growers. And for two and a half decades Karen and Mitchell Crutchfield played by all the rules.

Every time Tyson told them to upgrade the chicken houses or install new equipment or add structures, the Crutchfields complied, even though it meant taking out more loans just to keep up. And at the end of each flock, when Tyson came to pick up the birds that the Crutchfields had so carefully raised according to the company’s evolving standards, they only received about half the money they earned. The other half? Tyson sent that directly to the Farm Credit to pay off the rolling debt the Crutchfields had incurred to keep up with Tyson’s demands.

The money left over wasn’t enough to get by on. So the Crutchfields did what almost every poultry contract grower in the country does — they took on other jobs to make ends meet. At some points, Karen was working three jobs while Mitchell cared for Tyson’s birds. And even though it wasn’t fair that Tyson was paying the Crutchfields less than 5 cents per pound of chicken raised in their houses while charging $1.25 or more per pound at the grocery store, and despite the fact that the Crutchfields had to sell off all their 3,000 shares of Tyson stocks over the years to survive, it was all okay because they were working towards the dream they started 25 years ago, when one day the Farm Credit loans would all be paid off and once again they’d be debt-free

The Crutchfields were going to reach their goal three short years from now, when they would be in their mid 60s. They were going to put off retirement until well past the age of 65 so they could spend their golden years with some small margin of comfort. But a year ago, their dream came crashing down. Not only did the Crutchfields get the rug pulled out from under them, they’re about to have their entire home and all their land yanked away.

Last year Tyson demanded yet another upgrade to the Crutchfields’ chicken houses. This time it was to install computerized ventilation equipment under Tyson’s “Premium House Mandate” program. The cost? According to the Crutchfields, somewhere around $250-300 thousand. Tyson told the Crutchfields that in exchange for the quarter of a million dollar upgrade, they would receive a raise of a penny per pound of chicken. A penny per pound for another $300,000 in debt — that’s a “raise” none of us could afford to accept.

Even so, in a desperate effort to hold onto at least a fragment of their dream while not putting themselves into a hole out of which they’d likely never be able to climb, the Crutchfields asked the Farm Credit for another loan to update only half of their six poultry houses. The Farm Credit refused, saying it was all or nothing. Daunted by the prospects of suddenly sinking another $300,000 deeper, the Crutches did what any responsible person would have done — they said no to more debt.

Last March, Tyson refused to renew the Crutchfields’ contract, abandoning them just a few years short of their finally being able to pay off their debts and after 25 years of loyal service. Tyson’s betrayal left them without any steady source of income to pay off the last three years of their Farm Credit loans. It seems that someone at Tyson didn’t read the “core values” listed on the company’s website, where they claim to “strive to be honorable” and “care about each other,” before they kicked the Crutchfields to the curb. And the curb is exactly where this farm family will end up because the Farm Credit is now foreclosing on their property. The foreclosure hearing is taking place in early December of this year, in time for the banks to take the Crutchfields’ home and land just as the Arkansas winter sets in.

Sadly, this tale should be the exception, but its not; it happens to small farmers on a regular basis all across the country, where big agribusinesses force their contract growers into massive debt while the companies reap huge profits. If you want to see who is destroying sustainable family farming in America, you don’t have to look any further than Tyson and Perdue and the other major meat producers. When you’re a poultry contract grower, there’s never any catching up. The dream you had when you started out stays just that — an elusive dream. The best that you can hope for is that it doesn’t turn into a horrible nightmare, as it has for the Crutchfields.