Piggy Back Lending: Off the Charts

Piggy-back loans (second lien) were one of the emblems of the go-go days of subprime lending.  Lenders took the risk, perhaps because buyers of mortgage-backed securities had the appetite, to make loans that were vulnerable to default. The results were ruinous.  No one planned for 11 percent unemployment.  No one planned for a time when home values would drop by more than 40 percent in one year.

“Piggy-backs” (also called “80-10-10s”) played a big role in the end of a number of lenders: Washington Mutual, ownit.com,and E-Trade are among some of the institutions felled by these loans.

It should have been a warning to regulators that people were choosing to substitute a payment to a private mortgage insurer with new debt on a second mortgage. Here is a link to a “mortgage advisor” who suggest that (more…)