By William Hudson
Wells Fargo and Bank of America have announced that they will be offering 3% down loans that are proven to be as high risk as no-money-down mortgages. These loans will be offered to people with poor credit. If 3% is too much to put down, the banks are offering insane “incentives” to entice borrowers to reignite a stalling real estate market.
Wells Fargo claims that borrowers can qualify for an even lower interest rate if they agree to go to a ridiculous and ineffective “government-sponsored” class on finance (think “Mortgages for Dummies”). Wells Fargo offers a 3.75% interest rate if you put the 3% down or 40% down on the loan- it hardly matters to them since they are selling the paper. Attending the finance class reduces your rate by a mere .08% of the interest rate. The class is a perfect example of a government incentive that costs more to implement than the revenue it will save or generate.
Thus, borrowers with strong credit scores, who put down significant down payments, are actually penalized by paying a higher interest rate- even if it is only a mere .08%. The borrowers with low credit scores can also provide documentation of credit worthiness by providing evidence from “nontraditional” sources- whatever that means.
Bank of America has an even more bizarre twist. The subprime loan program at BOA requires that homeowners prove that their income is below average in order to qualify for a loan! The bank is offering mortgages at 3% down (because housing costs have soared) to borrowers with poor credit who must prove their income is below average. The program requires NO private mortgage insurance.
Banks have apparently become so desperate, that they are now competing for high-risk borrowers who will likely over-leverage themselves, so the banks can swoop in when the bubble bursts and steal the homes of the poor and vulnerable. Obviously, the Too Big to Fail’s last business model was so financially lucrative, and the market of subprime borrowers has grown so dramatically over the past eight years- that it is time to take advantage of the economic conditions they contributed to.
While the general public was buying into the bubble, lured in by low interest rates, the wealthy sat back and watched the sheep lead themselves to slaughter. The wealthy and their advisors knew what consumers would do, they knew they would over-leverage themselves, and they knew the housing market would fail- it was only a matter of time. Here we are eight years later, and the majority of Americans who are buying homes are once again lured in by artificially low interest rates and predatory lending programs, while ignoring that they are paying more than they can likely afford and more than the home would be worth if it wasn’t for loose lending programs.
The banks have no incentive to stop their current predatory lending patterns. They know that no government entity is going to put an end to their modus operandi, they know they can create a system so complex that plausible deniability will protect them, and they know by the time they move the funds off shore and invest their profits in land, minerals and commodities that they will be home free. But most of all- they know that the American public will do nothing because the public has been stripped of their wealth, possess few assets (no land, no gold, no silver, no investments) and the majority lack the resources to combat the fraudulent scheme of the big banks.
At any point in history, people would have been sharpening up their pitch forks and lighting their torches. We have only ourselves to blame because until Americans rise up- the status quo goes unchanged. Where is the tipping point? Obviously we are not there yet.