“Second, why would anyone with an ounce of common sense assume the heloc’ed loan value for some stupid FB who got themselves in trouble? I wouldn’t fund some else’s bad consumption decisions.”
Me neither! But there are flippers out there who can’t get loans today. With this arrangement, it looks like they can get most of the potential future gain in home price without taking on most of the potential future loss, just like they could in 2006. Sweet! There may also be people not reporting income to the IRS who are having a harder time getting stated income loans for their future home.
Lenders have an incentive to go along becuase they keep getting payments with no write-down, and because it doesn’t sound as though Mike Roberts and company are informing them fully of the changes. (A big selling point of this arrangement is that it doesn’t have to go through the lender’s approval process.) Think about it. Why are lenders selling REO homes at a loss today? Because they want to? Of course not. They would much prefer to keep getting payments as long as possible. A possible loss in 5 years almost always sounds better to a loan servicer than a certain loss today.
