Friday, August 3, 2007

Mortgage Lending Return to Sanity

Golly, the WSJ says mortgage lenders are actually going to focus on loans to borrowers who can document income, put down 5% (!) and [gasp!] have a history of paying bills on time! Mirabile dictu!!!

Those are deemed "conservative" practices lololol!!!

If you contemplate the opposite of those characteristics, you get an idea of the industry's shoddy practices hitherto: lending to people who can't document income, have nothing to put down and don't pay bill ontime. It's a wonder the default rates aren't 100% on those loans. Lolol maybe they will reach that level.

Hmmm. Alt-A loan? I wonder why that is not just lumped into "subprime"? Who was fooling whom? A borrower claims income but can't document it? Huh? What about the tax return? This sounds a bit like lending on "Stakhanovite" factory production claims in the old communist Soviet Union.

"Da, General Director, we mined 100 tons of coal this morning and will do 200 tons this afternoon", when everyone knows that a man mining more than 25 tons of coals is impossible.

becomes ->

"Yes, Managing Director, this man has $100K of income and will make $200K next year, when everyone knows that he really clears $50K a year."

You can apply the Staknovite lying program to property values, too.

Reading further, one gets the impression the whole home mortgage lending industry was focused on churning loans for fees. Brokers lifting every rock to find some creepy loan to flip to MBS investors for a fee. Mortgage banks bundled these loans together to sell as MBS to the capital markets. What, me worry?

I must be old - I've seen all this happen before in commercial real estate in the late 1980s and in other loans in the early 1980s. :-(

Overtime all this business should flow to the big banks.

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