Yesterday, I walked into my local bank branch to get a reference letter needed for a travel visa (long story…) and I was immediately pounced on by tellers hungry for a commission.
“Do you have a HELOC??”
If you remember from Part I of this series, in December, I didn’t qualify for any sort of standard loan product since my irregular income meant that the mortgage could not be securitized. Well, it’s now six months later and quantitative easing has even further deranged the lending landscape—I now qualify for a 130% LTV HELOC.
Me- “What are the terms?”
Him- “Well, we can offer you a 10-year interest only HELOC with the first five years fixed at 2.9% and the next five years at Prime + 1.”
Him- “…and we’ll throw in free checking and no ATM fees.”
Me- “What sort of paperwork do I need? I just got a mortgage and it took forever.”
Him- “If you own your condo, then you’re already pre-approved.”
Me- “Will I have to get another valuation done for the underwriting?”
Him- “Not for a HELOC. We do a drive-by valuation.”
Me- “Sounds dangerous…haha”
Him- “Remember, as your condo appreciates, you can come back every few months and we’ll increase your HELOC amount.”
In less than an hour, I was pre-approved for money that I didn’t even want—or need. I’m not stupid—if you will lend me term money at significantly less than the rate of money supply growth, I’m going to take it and buy assets with it. I went in for some paperwork, and left with enough cash to put a down-payment on two additional condos. I went from a 55% LTV mortgage in February to having negative equity in my condo in June. If I’m doing this, I guarantee you that all sorts of lower quality credit risks are doing the same thing. There’s a reason that condo prices in Miami are going parabolic.
The Federal Reserve has horribly distorted the entire risk-pricing mechanism, just like they did in 2007 when my illegal gardener bought the home I was renting. It has been five years since the great credit collapse, and no one has learned a thing. People are borrowing too much and banks are in a hurry to lend to anyone with a pulse—they practically mobbed me—I have assets and a pulse. I don’t want to name the bank involved—I haven’t been fully approved yet–but the bank’s name rhymes with Shittybank and they got the mother of all bank bailouts just five years ago. At some point in the next few years, they’ll get another bailout—it’s inevitable—these guys haven’t learned the right lessons from 2009.