No More "No Doc" Loans? Think Again

Reverse Mortgages Gain in Popularity

So, after all the fiascoes with subprime mortgages and lax underwriting standards (if you can call them that), "no doc" loans are a thing of the past, right?

For the most part.

However, there's still a niche of the market where lenders are approving borrowers with virtually no paperwork: reverse mortgages.

The catch, of course, is that with a reverse mortgage, the bank is making monthly payments to the borrower, not the other way around.

Reverse mortgages are particularly suitable for older, long-time homeowners who have modest income, but a ton of equity in their existing home.

Lenders are more than happy to let such "borrowers" tap that equity to make a reverse mortgage on the purchase of a "downsized" property.

Even more than with traditional mortgages, fees and terms on a reverse mortgage are key.

In other words, do your homework!

Easy Money No More

Crash Victim: The Mortgage "Honor System"

I thought I knew a lot about go-go mortgages. I had already written several articles about the explosive growth of liar’s loans, no-money-down loans, interest-only loans and other even more exotic mortgages. I had interviewed people with very modest incomes who had taken out big loans. Yet for all that, I was stunned at how much money people were willing to throw at me.

--Edmund L. Andrews, "My Personal Credit Crisis"; The New York Times (5/14/09)

When Times financial reporter Andrews says personal, he means personal: the details are things you wouldn't even expect close friend to divulge.

Leaving aside the stress, aggravation, etc. that has engulfed Andrews and his family, he reports a phenomenon I saw and heard about in spades a couple years ago -- namely, anyone with high credit scores could borrow virtually as much as they wanted.

Which is why I routinely counseled my clients to distinguish between how much mortgage they could qualify for, and how much they felt comfortable borrowing.

Today, of course, that advice is no longer necessary: banks once again are telling customers how much they can borrow, instead of vice versa.

P.S.: Foreclosure Feeding Frenzies

(More) Market Manipulation?

In my last post, "Banks Price Low to Elicit Multiple Offers," I discussed the increasingly popular tactic of foreclosure Sellers pricing low to precipitate bidding wars.

What I left out was the identity of the banks who appear to be behind many of them: notorious, sub-prime lenders such as Countrywide and Indymac.

Just to refresh your memory, these are the same folks at the epicenter of the real estate market melt-down in places like Southern California and Florida.

While credit was free-flowing, they handed out such exotic fare as option-ARM's (the borrower decides how much to pay, with any interest shortfall added to the principal); mortgages with initial teaser rates on loans that later "explode"; and various other, negative amortizing products.

When people refer to "Liar Loans" (no documentation of any kind required), these are the lenders who handed them out. Big surprise: such lenders made their money originating such loans and re-selling them.

So nice to see how far we've come . . . not.