A weekend topic starting with Kenneth R. Harney. "According to the Urban Institute Housing Finance Policy Center's latest quarterly credit availability report, mortgage lenders are reaching out to borrowers who might have been marginal — or rejectees — in the past. The institute's study suggests that Fannie Mae and Freddie Mac, the dominant players in the market, both have been taking on more risk 'steadily since the financial crisis.'"

"John Meussner, executive loan officer with Mason-McDuffie Mortgage Corp. in San Ramon, California, sees hints of trouble ahead. 'I have definitely noticed a fast uptick in 'creative' (loan) products coming out,' he told me. 'Recently we saw one investor roll out a product offering up to $2 million in financing for FICO scores down to 600.'"

"The loan allows borrowers to have made a late payment on a mortgage within the past 12 months and have multiple credit incidents (such as a bankruptcy or foreclosure). The loan also requires the borrower to have just three months of reserves for loan amounts to $1 million. 'This is something we haven't seen since before the crash,' Meussner said."

"He said some lenders are dumbing down on FICO scores, as well, soliciting applications with scores in the mid-500s in combination with relatively skimpy down payments and 'varying degrees of risk layering.'"

"Within the past 18 months, Meussner said he has seen a sizable jump in loan offerings that contain layers of risk piled on top of one another, plus 'increasingly 'creative' documentation standards.'"

"He emailed me one example of how documentation rules — the bedrock of sound underwriting practices in the post-crash era — can be compromised. In an online lenders' chatroom, a sales representative of a wholesale mortgage company said his firm would approve a loan to borrowers who can't or won't document their earnings — essentially a 'stated income' loan."

"'Typically,' Meussner said, 'this is how the trouble begins.'"

The Washington Post. "Adjustable-rate mortgages, known as ARMs, are back, despite having earned a bad reputation at the height of the housing crisis. In January 2019, 8.6 percent of new mortgage loans had an adjustable rate, compared with 5.5 percent in January 2018, according to Ellie Mae, a software company that processes 35 percent of mortgages in the United States."

"Post-crisis borrowers saw them as risky because of their changing interest rates and blamed the glut of foreclosures on the inability of homeowners to handle higher payments when the loans reset."

"'The rates on ARMs can be significantly lower than on a fixed-rate loan, so I hope that buyers and homeowners who are refinancing consult a mortgage professional who can talk them through all their options,' says Ann Thompson, a retail sales executive for Bank of America in San Francisco. 'Lots of people don't stay in their home for that long, so an ARM can make sense. They just have to understand what it could look like if they do stay after the loan adjusts.'"

The Wall Street Journal. "Ginnie Mae is taking steps to curb repeated mortgage refinancings that it says are hurting both borrowers and investors. The government-backed firm, which promotes homeownership by guaranteeing government mortgage bonds, is considering barring some loans backed by the Department of Veterans Affairs from inclusion in its flagship bonds."

"Its proposal, released on Friday, is aimed at stopping so-called 'churning,' a practice in which lenders push borrowers to refinance their home loans over and over in a bid to boost fees to the lenders. Ginnie Mae has made churning a priority in recent years. It started taking action against individual lenders last year when their activity suggested they were pushing refis on borrowers, even when the borrowers wouldn’t benefit from it."

"Its portfolio of outstanding bonds has ballooned in recent years and now makes up nearly a third of all agency-backed mortgage debt. Now, Ginnie Mae is focusing on mortgages where a borrower pulls cash out of their home during a refinancing, resulting in a loan that is more than 90% of the value of the property. The firm is seeking input from investors and others before completing the policy."

"Ginnie has found that despite past efforts to curb churning, it remains most pronounced among VA cash-out refis where the loan to value is over 90%, according to the proposal. VA mortgage refinancings allow service members to pull more cash out than typical loans. Such loans can be as much as 100% of the value of the property, when including closing costs, and used to be higher until the Department of Veterans Affairs capped it in February."

"In conventional mortgages, cash-out refinances are typically capped at 80% of the property value, and for Federal Housing Administration loans, cash-outs are capped at 85%."

And from NPR. "The latest S&P/Case-Shiller Index numbers give us a peek at the direction of home values. The index tracks national home prices. It's an important indicator, but it's only really finance nerds who talk about it, which is weird because Americans hold about $26 trillion of their wealth in their houses. That's about a quarter of their entire net worth."

"Robert Shiller, a Nobel Prize-winning behavioral economist, who co-created this index with his colleague, has long been skeptical of whether buying a house is really a surefire investment. His index shows that home prices haven't really grown much over the long run. Should you use your life savings to buy a home? It's debatable."

"In his classic book Irrational Exuberance, Shiller looked at the history of home prices going back as far as 1890. He found that they've gone up and down, but over the long haul, they've actually grown very little. Between 1890 and 2019, national housing prices grew by less than 0.6 percent per year (after accounting for inflation). That's pitiful!"

"A few months ago, Shiller warned the world again about a potential housing bubble. As the graph shows, since 2012, we've been seeing the third biggest housing boom in modern U.S. history. 'I think we should be concerned,' Shiller says. 'Home prices have been going up since 2012 at a good, strong clip.' He says it could take awhile, but booms like this come to an end. 'With the housing market showing signs of slowing down, the turning point could be at hand already for us.'"