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Bloomberg
Deutsche Bank AG is finding that there just isn’t enough soured US mortgage debt anymore. The German bank needs the stuff, after agreeing to provide $4.1 billion of relief to borrowers as part of a larger legal settlement with the US. It’s already been planning to finance fund managers that would in turn buy underwater mortgages and ease their terms, but that may prove too expensive to cover all its needs. Now it’s also looking at indirectly funding new loans to subprime borrowers, according to a person with knowledge of the situation.
The bank could do that by lending to companies that offer government-backed mortgages to borrowers with weaker credit, the person said. The loans would include Federal Housing Administration mortgages, which allow borrowers to make a down payment equal to as little as 3.5 percent of the price of their house. These types of loans, which leave taxpayers with most of the default risk, have become one of the main ways for subprime borrowers to get mortgages since the housing crisis.
Providing this sort of funding could count as relief under Deutsche Bank’s mortgage bond settlement from January totaling $7.2 billion. That deal allows the bank to receive credit toward consumer relief obligations by making “financing agreements†to other firms that can modify and make mortgages.
INCREASING OWNERSHIP?
The bank’s financing of new mortgages would be in the form of credit lines known as warehouse loans. A lender would fund home loans using that line of credit, and after making enough, would bundle the mortgages into bonds that it sells to investors through the US Ginnie Mae program.
Troy Gravitt, a Deutsche Bank spokesman, declined to comment, as did Brian Sullivan, a spokesman for the Department of Housing and Urban Development, which oversees the Federal Housing Administration and Ginnie Mae programs.
“The people hurt most by Deutsche Bank and Wall Street are low-income people, so the interest is to reach into that community and help them with down payment assistance or loans that they couldn’t otherwise get,†explained Ira Rheingold, executive director of the National Association of Consumer Advocates.
It’s not clear if Deutsche Bank would be providing financing that would not otherwise be available, or if it is just doing business it would otherwise do to earn profit, he said. Still, “if it increases home ownership, that is probably a good thing,†Rheingold said.