During the Go-Go years of mortgages (and other financial transactions) there were almost as many variations of mortgages
as there were prospective borrowers. Included in these mortgage loans were stated income loans, sub-prime loans, 100% loans, no doc loans including no doc jumbo loans, government guaranteed FHA loans with no credit score requirements, 80/20 mortgages, 80/10/10 mortgages, FHA loans allowing a third party seller-funded down payment loans so the borrower received a 100% loan, stated W-2 loans, and even stated income investment property loans. These loans were not all sub-prime loans. Many were called "Alt-A" mortgage loans where the borrower had great credit but weren't required to provide much documentation.
So just what happened? There are many explanations of the crash of the financial system and particularly the sub-prime mortgage business. A lot of them are more scholarly than I could do justice here but I will attempt to provide a layman's explanation of the crash.
I believe that one simple word can describe the crash. This word is greed, particularly by Wall Street and the banks. And yes, even us consumers pushed the envelope by acquiring loans that we should never have made and we are reminded about it almost daily by know it all media. I'm sure they never made a mistake like a certain network that worshiped the ground the ex-Federal Reserve Chairman walked on. Many experts now think his determination to not let this country go into a
natural down cycle (I call it a rest period) was a huge driver of the housing bubble. And let's not forget Congress's push to have every household in America own a home, whether they could afford it or not.
So you see, there was plenty of blame to go around and all of these contributors believed house prices could only go up. Well guess what, every bubble eventually bursts and the initial prick that burst this real estate bubble was default on sub-prime mortgages. That's because most sub-prime home buyers were the closest to the edge financially. Following these loans in defaults were the Alt-A loans. As more and more borrowers defaulted, lenders began tightening their lending
requirements. Lending rules changed almost daily.
As a result, two things happened. First an growing number of distressed sale houses began to show up in the housing market. This grew the inventory of homes and because of the distressed nature of the sale, pulled down other home values.
The second was that as a result of the much tougher loan requirements, fewer and fewer home buyers could qualify to buy a
home. This meant less home buyers. So 101 economics will tell you, when you have a combination or lower demand and higher supply you end up with lower and lower home prices. Unfortunately, this may take a while longer (particularly in areas where prices went through the roof) to work through the system despite all the government and Wall Street political spin. However, I may just be wrong. We can only hope.
So the bottom line is all of the no doc jumbo loans and stated income jumbo loans were casualties of the much more stringent lending standards. The exception for this is a rare few private stated income loans, even no doc jumbo loans and of course private financing where the seller often will sell private mortgage to a mortgage buyer to get their cash.
I guess there will always be those brave individuals filling a void left in the market. It's the way of the business world.
Ron Stone is a financial specialists. He owns a note buying business as well as assists home buyers in finding private jumbo financing. learn more at his websites,
Sell My Note or
No Doc Jumbo Loans
