Skin In The Game?
What does this expression mean? It means that if you want to play the
game, you need to pony up some of your own money.
They've used this expression to ridicule home buyers that don't have
a down payment and maybe don't even have closing costs. They are
nothing but a bunch of Dead Beats. They surely don't deserve to buy a
house. Come back when you have the CASH.
Well, this is what they say. They also say this caused the Real Estate
Crash of '08.
GINNIE MAE
But let us look at some of the facts. One hundred percent mortgages
(you know, the ones these Dead Beats use) are guaranteed by the
Government National Mortgage Association (GINNIE MAE). Other
mortgages with down payments (both FHA and conventional) are
guaranteed by Fannie Mae and Freddie Mac.
During the Real Estate "Crisis" the Federal National Mortgage
Association (Fannie Mae) and Federal Home Loan Mortgage
Corporation (Freddie Mac) both had to be bailed out because many of
their loans were going bad.
But Ginnie Mae just kept sailing. No massive defaults on those 100%
loans. No bailout necessary.
This seems to fly in the face of what everybody was saying about these
people that "didn't deserve to get a mortgage."
Well, isn't that interesting?
If you don't believe me, Google Ginnie Mae. See who they are and what
they do. And check their track record. It will surprise you.
Now we all know that lending criteria has been tightened up. Mortgage
companies are having a hard time making loans. It's really pitiful. Oh,
how they are crying.
Re-Purchase
And just when you think it can't get any worse, it does.
Now the GSEs that guarantee the loans want the mortgage companies
to buy back their loans when they go bad. They are going over the loan
documentation with a fine-toothed comb. If they find the slightest
irregularity, they require the originating mortgage company to re-
purchase the loan. So sad.
Now remember all that talk about "No skin in the game"? Well, guess
who has no skin in the game?
That's right, the mortgage companies.
For the most part they fund loans against a line of credit (called a
warehouse line) and "sell" the loans to a packager of mortgage backed
securities (MBS). As soon as the loan is sold into the MBS, the
mortgage company's line of credit is restored and they can make
another loan.
Now, to be fair, some lenders do lend their own money.
They are called Portfolio Lenders. In the old days all loans were done
this way. But now only a small percentage of real estate mortgages are
portfolio loans, because once the Portfolio Lender has lent all his
money, he is out of business.
So, the only sustainable lending solution is to lend OPM (other
people's money).
Isn't that something? Most of these mortgage companies have NO SKIN
IN THE GAME.
And they are crying when they are required to put some skin in the
game, i.e. re-purchase a loan that they made that went wrong.
They are crying because they don't want to put ANY skin in the game.
How can they? They will go broke if they have to buy back their loans.
"No Skin In The Game" is how they shamed the poor people that just
wanted to buy a house. They blamed them for the Real Estate Crash.
But now we find out that it is them (the mortgage companies) that have
no skin in the game.
I'm sorry but I just don't feel sorry for them.
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