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.
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