E has been asking me to listen to the story on This American Life, The Giant Pool of Money
I should have listened to it earlier.
Alex Blumberg: The thing that got me interested in all this was something called a NINA loan. Back when the housing crisis was still a housing bubble. A guy on the phone told me that a NINA loan stands for No Income, No Asset, as in, someone will lend you a bunch of money without first checking if you have any income or any assets. And it was an official, loan product. Like, you could walk into a mortgage broker’s office and they would say, well, we can give you a 30 year fixed rate, or we could put you in a NINA. He said there were lots of loans like this, where the bank didn’t actually check your income, which I found confusing. It turns out even the people who got them found them confusing.
For example, a guy I met named Clarence Nathan. He worked 3 part time, not very steady jobs, and made a total of roughly 45 thousand dollars a year roughly. He got himself into trouble and needed money, so he took out a loan against his house. A big one.
Clarence Nathan: Call it 540 for round figures
Alex Blumberg: And you basically borrowed that from the bank and they didn’t check your income?
Clarence Nathan: Right. It’s a no-income verification loan. They don't do that. It's almost like you pass a guy in the street and say: lend me 540,000 dollars?
[snip]
Alex Blumberg: This imprudent partnership is new, and is at the heart the current housing crisis. For most of the history of banking, bankers wouldn’t have loaned Clarence their money either. They didn’t let people like Clarence near their money, in fact, people with part-time employment, and unpaid debts in their past. And then, suddenly, in the early 2000’s, everything changed, banking turned on its head and went out looking for partnerships with people like Clarence...loaning him half a million dollars without even checking to see if he had a job.
What happened?If you want to understand the mess - do yourself a favor and spend an hour with the podcast.
3 comments:
In case of needing a giant financial bubble: Break Glass-Steagall.
Oh that is amazing; I've listened to it a few times and have been meaning to go back again. I hope they're working on a follow-up.
Totally. Right up with their Habeas Schmabeas episode.
I'm just hoping the next chapter of this story has a happy ending.
Back when E and I went to a financial adviser (Ameriprise) we got pitched one of these variable rate loans - and I remember asking the guy "Why would I want a variable rate loan? I have a fixed rate now that's not too shabby."
The adviser was trying to tell me that I would get a better rate with an ARM in the short term and by the time the rate went up - I'd have sold the house.
Needless to say, we ditched the guy.
Small potatoes, obviously - but it was just so endemic in the culture that you couldn't ask for personal finance advice without getting sold a mortgage.
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