Contributors to the Junk Mortgage Market

In James Doran’s article in this morning’s National he makes reference to the "worse than junk" [mortgage] loans that were taken out by people who couldn't repay them. This portion of the article is worth expanding upon.

Some would have us believe that these loans existed because lenders' loan programs allowed for practically anyone with a heart beat to get a loan. This, however, is only part of the truth.

While the loan program guidelines were lenient, many of those in charge of enforcing the lending guidelines, or the loan originators) were negligent and reckless in their administration of them. The stated income loan for example, was insane from the standpoint of a secure investment but to many loan officers offering this loan to their would-be customers, it was a dream come true. It was often referred to as a "liar loan." Stated income - meaning you didn't have to provide any documentation to back up your statement of your own income.

In heated debates with loan officers I would often defend that just because the customer didn’t have to prove their income didn’t mean that they could lie about it. The general attitude was of the flavor, “Well, if they’re not going to ask for proof, what do you THINK they [the lenders] expect from us.” Which is sad since the statement implies that dishonesty from a loan officer is something that can be expected.

I’ll take this moment to state that I do not view all loan officers or mortgage originators as dishonest. Most of them that I’ve met in my nearly 20 years in this profession have been nothing but honest and professional.

That said, I don’t think that the origination of the loan products with the seemingly lax guidelines can be ignored as a contributing factor in the sub-prime problems of this decade.