Tuesday, March 27, 2012

Bring Back Alt-A Loans $SPX Lift

4/13: $WFC CFO said that housing has not yet bottomed. I agree and I have the solution:
BRING SUB-PRIME BACK! the part of sub-prime that was called ALT-A... the real Alt-A.
Shocking: I keep hearing 'housing bottom' and cramer buying FL props etc.
I disagree. Housing won't bottom until (brace yourself) we bring back the Alt-A loans!
Jim Cramer said the other day that the appraisal process is messing up the deal is a new phenomenon. Not true! Appraisals have always been a major source of hiccups. The difference is that during the housing boom you could always find a lender to do the deal regardless of challenges. Not anymore.
Also cnbc's Bob Pisani this morning actually uttered the words '18% cancellation is fantastic!' what? what kind of a housing market success is this where an 18% loss in sales is great? Bottom? Please.
Why do i think that bringing the Alt-A loans will help? consider this scenario:
If I am self employed with Fico over 800 (720+ is excellent)
If I also have 500k in cash
If I also have a decent valuation on my house
If also my business has suffered in the past two years; hence, I cannot show income (though still doing ok; haven't touched my savings etc)
I CANNOT GET A LOAN (to refi or upgrade houses) because the banks are bound by borrowing rules that would exclude me from approval if I cannot produce income on tax forms after two difficult years.
What's the solution?
Bring back the REAL Alt-A type loan: those are loans given to borrowers who have excellent credit (measurable and tangible) AND real verified assets (also measurable and tangible).
I personally know dozens of people in similar situations that would upgrade houses NOW if they could get a loan.
This is not the Sub-prime loan that got us in trouble. These are loans given to credit-worthy borrowers. Sub-prime were loans give to undeserving borrowers AND on over-valued houses!

I personally am in a 3.25% vairable loan that adjusts once per year so I have no incentive to refi now because my rate would more than double (self-employed etc).
Should I be able to refinance, maybe I would draw a cash-out and be inclined to spend it back into the economy therefore helping grease the wheels of recovery.
You see my point? Give money to people who have shown they can pay it back (again, not a subjective call - real fico scores with real assets) and housing would be much better off and so would the economy.