A Bubble-Era Loan Product, Has Reemerged in California

California mortgage broker Logan Mohtashami says the most popular product he arranged last year was a kind of mortgage that banks stopped making when the housing market blew up.

Kinecta Federal Credit Union, one of the largest credit unions in California, with assets of $3.4 billion, last year was churning out mortgages topping the Fannie Mae and Freddie Mac loan limit ($625,500) and with attached second liens valued up to $300,000. The cumulative loan-to-value ratio in some cases exceeded 89.9%, according to Mohtashami, a senior loan manager at AMC Lending Group in Irvine, Calif.

“To be honest there is a lot risk with a second-lien holder,” he said. “This is why you don’t see second liens being made by banks on top of a first mortgage anymore.”

Piggyback loans were made in droves in the run-up to the financial crisis. Lenders provided borrowers with a second mortgage that “piggybacked” on top of a first. Together, the two mortgages relieved the borrower from a required 20% cash down payment. The second loan, taken out simultaneously, reduced the need to pay for private mortgage insurance.

To read the rest of the story about the bubble product by Matt Scully Click here.


Posted in Non Prime Loans.