Poppy Mortgage, Deja Vu?

A followup on Tuesday's Can You Spare A Mortgage? post.  Poppy, is a zero down, 30-yr ARM (adjustable rate jumbo mortgage) which in now backed by illiquid stock options in tech start-ups...

It turns out that even the well-off need help in a housing market as crazy as the one in the San Francisco Bay area, and lenders are elbowing each other in a rush to provide it.
Nick Merz knows how tough it can be. He’s a 41-year-old product designer at Apple Inc. whose wife also works there, and says they couldn’t figure out if they could afford to own a place anywhere near the company’s offices in Cupertino, where the median value is $1.8 million.
One reason: Almost half of their compensation packages are in Apple shares. So their lender, Opes Advisors, assigned the couple a financial adviser who used a software program to factor in debts and future income, including the stock, and the costs of education over the years for two young children.
The result? No problem. They could buy in the range they were looking without jeopardizing their finances. “In a weird housing market, in a place where a lot of assets are not liquid, it helps to have their kind of modeling,” Merz says. “They’re catering to people scared by this scary real estate market.”
This is all based on debt fueled tech sector growth vis. Tech Bubble 2.0.  IMHO, this run up is not about the unicorns ($1B+) being worth ZERO, as much as a very large amount of $10-50M valued companies.  If tech sector investors get spooked and VC money slows down those companies only have so much of a cushion to ride it out.

 Remember folks, something we harped on, a lifetime ago in these pages, in the run up to 2008 RE and MBS crisis, these adjustable (the payments flux based on Libor) jumbo loans are being packaged for downstream sale vis. not originate to hold, but originate to sold.  

 POPPYLOAN: 100% LTV up to $2M, DCR/DTI, a 660 Fico and 33/43 get you in. A 5/5 adjustable rate mortgage which is amortized over 30 years.  This means the interest rate and monthly payment are fixed for the first 5 years of the loan and every 5 years thereafter. The loan has an opportunity to reprice at 5 year intervals but no more than 2% at each 5-year interval and no more than 6% over the life of the loan.

 It's great for the loan originators, realtors, escrow, and title. Especially whoever is the downstream MI (mortgage insurance co. usually a subsidiary owned by the originating lender holding company) with 2.75% upfront MI premium and 0.5% lifetime and FHA is 1.75% upfront and 0.85% for the life of the loan. Poppyloans says NO PMI to the borrower! Wonder who is picking up that PMI cost? Or worse yet, are they running naked?

 Instead of Poppy, maybe they should call it a Tulip or Poopy loan?  One thing for sure, in a repeat housing bubble burst, many of these Poppy loans will go POP, and the holders of the CDO or Papi's, will get Poopie or pooped on.

 Remember, all these people get paid up front and with the exception of the MI insurer, have ZERO interest downstream in the loan payment and servicing. Worse yet, these loans are also being included in CDO being sold to investors globally.  When will they learn? Short term group amnesia or "conscious ignorance" of what happened less than ten years ago?  Here is a refresher...

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