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Comment by tmp092 | Hacker News Reader

Read to the end.

She used the money to fully buy out her grandfather’s house in San Clemente, Calif. She jointly inherited it with other relatives and said she needed a loan to pay them for their shares of the property.

This is a highly unusual situation. She got a great deal on prime beach front Orange County property and could easily charge high rents to cover the mortgage and then some. The property will continue to grow in value. If she were really in a situation where she might default, her family would help her. This is not representative of any trend.

Hardly predatory. Hardly a "high risk" situation for either the bank or the borrower.

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>This is a highly unusual situation.

Agreed.

>She got a great deal on prime beach front Orange County property and could easily charge high rents to cover the mortgage and then some.

So is she a private homeowner or a business? Is it legal for her to rent? Given that the bank accepts letters from old ladies describing casual labor as proof of income, who knows.

I own investment property that is mortgaged and attracts high rents. The underwriting standards for that property were higher, and required 20% money down for a similar rate premium.

>The property will continue to grow in value.

That has little to do with qualification for the loan. Kind of makes my point -- it's in the banks interest to write a shitty loan to repo this house on default. (ie. predatory behavior)

>If she were really in a situation where she might default, her family would help her.

Are they cosigners?

"Wink and nod" underwriting in banking is a bad thing.

Banks (almost?) never want to repo and own a property. In most situations the bank 1. spends a bunch of opex to work out / sell off the property, and 2. has to remit any excess to the borrower.

There are predatory operators known colloquially as “loan to own” guys, but they are usually unregulated and operating in the business world where the collateral value is less observable.

For a bank, I believe Other Real Estate Owned (OREO, the balance sheet category where foreclosure properties are carried) is always considered a black mark and a burden, dragging down ROA/ROE.

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