Mortgage Payment Program

So, what’s behind the mortgage crisis? Who is to blame? The current mortgage crisis was caused by a series of things that all went wrong and in a chain reaction continued to cause problems throughout the entire industry. It is hard to find a single area of blame – instead errors were made by most of the players in the mortgage transaction. Here is just one example of many where things went wrong.

One of the biggest culprits to the current crisis was the use of reduced document loan programs – specifically the Stated Income, Stated Asset (SISA) products. The underwriting requirements for these products allow borrowers to state their income and asset but did not require the lender to confirm them with pay stubs and tax returns. This left open the possibility for loans to get approved for people who would not otherwise qualify for them. In many cases it was crafty Loan Officers who gamed the system by taking the application and filling in the income and assets required to get the loan approved. Sometimes borrowers were complicit in allowing this to happen so they could get the loan and in other cases the borrowers were unaware because they didn’t carefully review the huge stack of documents they were signing.

But these SISA loan products existed because there was a market place for them. Mortgage Insurance companies would insure them, the ratings agency’s would rate them high enough to be marketable, and Wall Street was buying and selling them. How could they possibly understand the true risk without having all the information necessary to assess it? Hindsight being 20/20 tells us they really couldn’t. But when everyone in the process was making money along the way, it is hard to shut something down that “seems” to be profitable. And in many cases they were making money again and again with many borrowers continuing to refinance to pull out cash and keep teaser rates as home values continued to climb. That is until values started to drop and they could not refinance any more. Today we see a lot of the SISA loans originated in the last three years going into foreclosure and a return to stringent documentation requirements on loans.

Tags: Add new tag, foreclosures, mortgage crisis

This entry was posted on Tuesday, April 22nd, 2008 at 11:43 am and is filed under Dollars, Industry, Mortgage. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.