Originally Posted by california rick
Originally Posted by NW Ponderer
...loan officers, the loan seekers, the packagers, the investors, etc. - by creating bad paper and passing it around, they were essentially playing "hot potato" with them, hoping that when they defaulted they would not be the ones holding them.
That's how my Realtor describes loans being doled out in 2005 & 2006. When I pre-qual'd for the IndyMac Bank loan in June 2008, the loan officer admitted to me that he used handle loans without income verification - but now he couldn't do it.

So who was it that allowed loans without income verification - the CEOs of these companies? Somebody at each of these companies allowed this to happen - those folks should be the ones held responsible.

Techincally there is nothing illegal about these kind of loans, nor the PayOption loans nor the NegativeAmortization loans. The laws concerning mortgage indursty state that the terms of the loan must be fully disclosed to the borrower which in most cases they were.

Of course there are a few loans out there where people we're shoved into without fully disclosing the terms but isn't the borrower's duty to read what they are signing? I know that the note or Deed of Trust might look like a strange language to someone not familiar with it but if you don't know, then ask someone.

However, individuals wanted to move from the 250k house and get into the 450k home without having their income increase to support that. The lenders were more than willing to do their part to get them into them thinking that even if the borrowers wouldn't pay the monthly then they would take the house and not lose that much money. The more 'exotic' loans had loan to value caps around 80-90%.

However, there were lenders that specialized in ALT-A and subprime loans that gave loans to anyone and then sold those loans to investors through mortgage backed securities.

The majority of loans originated during those years, 2002-2006 are performing loans. The high deliquency rates and foreclosure are found in the subprime and the ALT-A loans (the stated income or no income no asset loans).

For example, when Indymac failed, the number of non-performing loans was at 8%. Because independent mortgage lenders are highly leveraged, even that kind of default rate will cause a failure.

Thankfully, since Countrywide was purchased by Bank of America and Indymac went down under (2 biggest independed mortgage lenders) there are not that many left that could have that much of an impact. The next one to watch is Washington Mutual... now that is a bank that is not too big to fail and their exposure to the west coast mortgage industry is very high.

A gem cannot be polished without friction, nor a man perfected without trials. ~Chinese Proverb

The early bird gets the worm, but the second mouse gets the cheese. ~Jon Hammond