Bundling Loans For "No Income, No Assets"

I am enjoying the assignments from Business Law, despite the fact that it's past mid-term and my book has still not arrived.

I have done what I can, by doing all the extra credit assignments and ethical case studies while I wait for it to show up.

The last ethical question I answered was fun in that I thought about things I don't usually consider but might be close to dealing with in the future.  My first reaction was answering with a solid "no" but it's far more complicated than that and there exceptions to the rule.

The question was if you are CFO (chief financial officer) of a Savings & Loans bank and the market has shifted to the point that the only way to be competitive is to offer loans to "no income, no assets" customers, would you do it?  The other facet is that first you were creating loans through your own bank but because others are bundling these loans and reselling them to Wall Street, where Wall Street gives the bank an instant commission, you get other brokers to create loans, you offer them to "no income, no assets" clients, and then get your bonus pay through Wall Street when you sell it them to invest.

I am an "ibond" person, not an "eebond" type.

Ibonds are sold with fixed interest and they are conservative.  Eebonds fluctuate with the market.

When I tried to buy a bond for my son for his birthday, it was ibond, and no one can tell me differently about it.  I already knew, I am paying for the ibond, NOT the eebond.  The ibond is more stable, even if it costs more at the start.  I was not only going to purchase an ibond for my son but an ibond separately for my business.

If I invest in my own company, I think like China.  China is giving money to the U.S. that they made off of the U.S. by purchasing U.S. bonds.

When I bought my first house, I was first being persuaded to take an "annuity".  I said no thanks, because why would I let a bank take my money and invest it, when I can take the full lump sum of cash, and invest it to work for ME, and make more money?  So I bought a house.

When I was offered a staggered loan or a 30 year conservative fixed rate loan, I locked in with the 30 year loan.  Why?  because I like stability and even though I ended up selling my house, you cannot always foresee what the market or future will hold.

I look for high yields in stable securities.  I like to keep a solid base and then work myself to turn a little bit of money or property, into more.  How?  by using the resources available, adding features that have good returns, and coming up with ideas for business.

That is not to say I could never take a calculated risk if other things are stable. 

So when I first came to this idea of offering a loan to a "no income, no asset" person, it was no.  I think it's a two-part question because the other end of risk, aside from the buyer, is the party that invests the money, Wall Street.  If you don't know who you're working with there, or how they invest and what kind of securities they use, you get lost.

The impetus is to say the question is "are you going to sell bad loans just to make a quick buck by commission?" but that's not the whole story.  While others might use this as their motivating factor, and not pay careful attention to the market and to their buyers,  someone who pays close attention to the details and does their research can make it work for select situations, and have it turn out to be win-win for all, including the government.

The first scenario is that if you just give loans to everyone like this, and don't care who or what their plans are, and you sell to any Joe on Wall Street, you're creating risk with use of the money, while taking quick cash and setting up the home buyer for failure, which then leads to weakened market and economy.  People lose their houses, the market crashes, and then all these houses get rounded up and resold to the rich.  The displaced end up on welfare and even if not this, in economic turmoil and instability.  So who cares if they were on welfare (no income, no assets) or had a sudden financial loss, and then end up back on welfare?  It matters because it creates vulnerability in the country, profits the rich and further ruins the credit of those trying to get on their feet.

If someone is no income, no assets, how do they pay it back?

So then I ask, how do we pay back educational loans?  You have years to work or come up with a plan to pay back you loan that you took to invest in your education.  Then you have 6 months to start making payments.

Most mortgage payments are every month (mine were and I was never late on any of them).

While I wouldn't give a loan to anyone who is no income, no assets, I would do it in specific situations.  There are some situations where someone is industrious enough to have a plan of how they will instantly create income and assets through home ownership.  Someone might have a license to start a daycare and have clients ready but need a space and a home.  Having their own house allows them to start a home-based business that will give them income to repay their loan.  Someone might have a history of investing in real estate and have renters waiting for rooms.  That person can create instant income to pay back their loan by renting rooms in the house they buy.  If they don't have a house, they don't have rooms to rent and no income (if that's what they are wanting to do for income).  Same thing with land.  Agricultural loans came to mind because they are structured differently with this exact same idea and premise--that the ownership of this property is going to produce income.  Someone with experience on a farm could say they have no income and no assets but know how to farm.  They just need land.  So they get an FFA loan or Direct farm loan, and the U.S. gives them training or counseling to increase odds of success for all parties, gives them land, and in some cases, does not even require a cash down payment first (I don't think).  Instead, they agree to take the proceeds from the first year cash crop.  Owning this land provides them with instant employment and income.

It is good for the economy because otherwise, renters with no income, no assets, are on welfare and not profiting the country and are stuck.  It also keeps the playing field level, or moreso, because instead of paying another landlord rent, and using welfare monies to do it, they are landlords themselves and will care for the property (pride of home ownership).  This means less monotonous developments and more individual character properties as well.

This is why there are some cases where, if someone has a plan, or experience, or is able to learn something new, they can start up with absolutely zero and still be successful.  The other end is Wall Street.  If you're reselling a loan to Wall Street, is the rate still fixed for the home owner?  If so, it's not going to have an impact on that buyer.  If it's sold by the bank, and they are holding the weight for the customer, then whatever Wall Street does to invest the money, is up to them.  I am not sure about this part bc the question didn't say Wall Street was managing the loan or taking it out of fixed rate to variable, dependent upon how they do.

My brother works in mortgage and so do my parents, but I have never been asked the question before or looked into it because I've well, sort of been forced out of everything due to obstruction of justice.

However, I think that while some might rush into things with an improper motive, not caring about the outcome, someone who considers all options and investigates thoroughly, who does their research, weighs the risks and benefits, and has vision and is working with entrepreneurial people, can make it work out to the best interests of all. 

I would not be giving home loans to others with my non-profit.  It would be grants to Pro Se citizens who have a plan.  If they lose sometimes, so do licensed lawyers.

My first idea of how to invest monies was to lay a foundation of ibond.  That is a 30 year stable, fixed-rate security.  I don't know how many non-profits start up with the same thing.