Are Toxic Loans Coming Back?
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Our good friends at Realty Times report that some in the mortgage industry believe that no-doc loans and other forms of toxic finance “may soon be making a comeback” and that “some people can’t wait for the no-doc loans.”
Really?
I have no doubt that some people would be elated by the return of liar loans and other forms of nontraditional mortgages. However, there are more than a few who would object including mortgage insurance companies, mortgage investors and perhaps even financial regulators.
But what about those poor souls who cannot document their income?
Nonsense. You mean these non-documenters don’t file taxes? If they file taxes they must have some records and if they don’t file taxes then why would a lender underwrite a loan for them?
It’s said that no doc loans are great for self-employed borrowers but I don’t see why. I’ve been self-employed since the earth first cooled and never had a problem getting a mortgage. I just provide my tax returns and whatever other information that will make the application easy for the lender to underwrite.
The financial statements of the self-employed are just not that hard to figure out. You just add back real estate depreciation, count 75 percent of rental income, check the returns and make a few other adjustments. No big deal. Underwriters do it all the time.
If toxic loans are coming back just who will be originating such financing? Not the hundreds of lenders who the Mortgage Lender Implode-O-Meter reports have gone out of business. Not Washington Mutual, now a part of JP Morgan Chase. Not Countrywide, now a part of Bank of America.
No less important, would YOU make a loan to someone who would not or could not verify their income? Does that seem like a really shrewd idea? Do you think lenders, investors and regulators have not noticed that so-called affordability loan products are at the heart of the mortgage meltdown?
Right, toxic loans will be back — maybe at about the same time that stores start selling succulent lead-covered toys once again.
For the full story, see No-Doc Loans Returning?
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