“As a dog returns to its vomit, so fools repeat their folly.” – Prov. 26:11
It appears there is some repeat folly brewing.
Remember subprime mortgages? Well, they’re back.
According to an article published by SovereignMan, subprime volume at US banks doubled over the last 12 months and it is on pace to double again this year. Subprime loans rank among the fastest growing investments for banks in the US.
SovereignMan has dubbed these foolish bankers “financius dumbassus” to emphasize the folly of repeating a practice that nearly brought down the entire global economy.
Bottom line– financius dumbassus is once again back to its old ways… making risky loans to borrowers with pitiful credit. What could possibly go wrong? Leave it to financius dumbassus to try the same thing again and expect a different result. It’s textbook insanity.”
How an Economy Grows a…
Best Price: $1.98
Buy New $5.89
(as of 03:40 EDT – Details)
But this isn’t an identical repeat performance. The banking industry has changed the name. We no longer call these risky loans “subprime.” Now we call them “non-QM,” meaning “non-qualified mortgage.” But we are talking about essentially the same thing. Banks extend loans to borrowers who don’t qualify for conventional mortgages because they have bad credit ratings or don’t have enough money to make a down payment.
Indeed, we’ve seen this folly before, and as SovereignMan points out, nearly the entire financial system got into the game the last time around.
The mortgage brokers raked in huge fees for closing individual loans. The investment bankers made money packaging the loans into subprime bonds. And the ratings agencies (like S&P and Moody’s)…