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How Missed Signs Contributed to a Mortgage Meltdown – New York Times

I worked at a wholesale lender from 2004 to 2006.  The prevalence of no doc and low documentation loans always surprised me.  I remember telling a b-school colleague who worked for Bain back in 2005 how bad it was going to be when all the ARMs and teaser rates reset.

It’s called “payment shock” when a borrower’s payment all of a sudden doubles and it is a consideration in the loan underwriting process.  However when a borrower and broker is applying for a low doc/no doc/liar loan, the income is usually inflated, the reserves sitting in the bank have been borrowed and recently seasoned.  It was really a lot of gaming the underwriting guidelines.  The broker’s knew what they could get a way with, bad deals were made and now we are reaping the results as uncertainty hits global markets.


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