Printer Friendly

The lowdown on low docs: limited documentation lending can be dicey. But some very big lenders are betting that the risks are controllable.


Back in 1986, officials at ComFed Mortgage Company watched as two thrift lenders, Dime Savings Bank and H.F. Ahmanson & Co., introduced a program that by the summer of 1987 moved them into the top 10 among Massachusetts lenders.

The New England housing market was riding the crest of a multi-year appreciation binge. At the time, a new low-documentation product looked good to ComFed management.

The newfangled product had the odd feature of negative amortization and it reset monthly to a cost-of-funds index (COFI) - the 11th District, FHLBB index for Ahmanson and the national COFI index for Dime.

"ComFed started out with what turned out to be a mistake. A 'me-too' program after the first folks introduced into our market very-limited documentation loans," explains ComFed Mortgage Company President Jack Zoeller.

A year later, the company uncovered its first hint of trouble. A condominium developer using the program to help move units at above-market prices was the target of a complaint to ComFed from a rival developer.

Zoeller assumed his current position that summer of 1988, and led an internal investigation of the complaint.

"We took at look at the complaint and discovered there was something to it. We then went through a period where the first reduced the loan-to-values for which the no-asset-, no-income-verification program would work and monitored the delinquency rates early on," Zoeller says.

ComFed discovered that even at LTVs as low as 70 percent, delinquencies were running too high and first payment defaults were turning up. "If we waited longer, the delinquency rates would be materially higher," he says.

ComFed, having launched an in-house investigation of the delinquencies, began getting confirming feedback from its secondary marketing underwriters. While the company knew it had problems with some loans, it did not know the extent of those problems at that time.

By late 1988, it was clear there was a substantial increase in delinquencies on the whole low-doc program, but in particular in the loans originated with no income and no asset verifications.

"If you want to look at it in retrospect, why does somebody borrow under a neg am product with a very high note rate, although a low pay rate, unless they intend to flip the real estate over in a relatively short period of time?" Zoeller asks.

After discovering that lowering the LTVs for the no-income, no-asset-verification program wasn't enough, ComFed began verifying assets, but kept the no-income-verification portion of the program.

In addition, ComFed overhauled its inside appraisal policies and staff, while paring more than half the names from its list of roughly 500 outside approved appraisers.

"Then, we concluded that even that was not resulting in a quality product and we were expending massive amounts of time and heartburn trying to underwrite loans doing reasonableness tests," Zoeller says.

Despite these efforts, the low-doc product coming in even at the beginning of 1989 was still not acceptable, he explained.

By then, the company had originated more than $200 million in low-documentation loans, about two-thirds of which were used to back $126 million in junior/senior pass-throughs.

The loan composition of the pass-throughs basically mirrored ComFed's portfolio holdings, Zoeller said.

So when later in 1989 S&P's downgraded those junior/senior pass-throughs, the rating agency "didn't tell us anything we didn't know in advance about the product," he says.

"One of the things we discovered is that he who has the most aggressive loan-to-value for a no-verification program probably gets the lowest quality. If someone is out there at 80 percent with no income check and the pack is back at 75, whoever is out there at 80 is going to get a little lower average quality than the one at 75," Zoeller says.

What amazes him, he adds, are the programs offered by some of the larger banks.

"Somebody sitting up there at 90 percent loan-to-value and not checking, I'm fully astounded at that. Especially when they're charging a higher coupon. Why would somebody want to pay a higher interest rate and get into this no-income verification program unless there was something they didn't want verified?" he asks.

Although the obvious answer to that question is that consumers want fast processing and a quick closing, Zoeller isn't buying that explanation.

"That isn't necessarily the primary reason for choosing that product," Zoeller argues. "There's adverse selection on the part of the prospective borrower and perhaps on the part of other people involved in the transaction."

And the lender who doesn't want to be adversely selected needs to look at the long term and not block it out in favor of short-term market share gains.

"While you might leave a little bit on the table in good times, like 1986 and 1987, by leaving some loans behind that another volume-oriented lender might do through down markets, what you'll also be leaving behind are all the headaches and delinquencies and foreclosures and ultimately, losses, that come with too high a volume orientation."

That's one version of the low-doc story. But surely there must be a safe way of doing this exceedingly popular form of mortgage lending?

Well, surely there is if Fannie Mae and Freddie Mac have sanctioned versions of alternative documentation lending and are buying such loans. What do these standard setters regard as the basic minimums needed to preserve some reasonable safety net in the growing marketplace for low-doc lending?

Before we examine the covenants for safe lower-documentation lending prescribed by Fannie Mae and Freddie Mac, there is one singularly important guiding principle that emerges from the ComFed experience. That is that someone in the marketplace can always be counted on to exceed the limits of underwriting reasonableness for a product that has basic appeal and an added, but controllable element of risk.

But, for the product whose credit quality is dependent on carefully balanced tradeoffs between less paper and larger down payments - any tinkering with the product by those dedicated to grabbing marketshare upsets the whole marketplace. Because lenders who want to still play in the low-doc ballpark are forced to choose between following the truly aggressive tinkerers who have pushed the product to its limits and playing it safe and watching volume dry up.

But just what are the low-doc product's creditworthiness limits and isn't that a moving target because its hinged so strongly to real estate asset value? This is where the low-doc story gets fuzzy. In this article, we polled many different lenders to ask them to help clear up some of the mysteries behind the low-doc/no-doc lending experience. These lender's observations will shed some light on one of the hottest products around and likely to be around for some time.

Although widespread, limited documentation lending remains a largely unknown frontier. For instance, there is no one reliable measure for gauging the size of the market for non-fully documented loans.

Ask the top secondary market players - Fannie Mae and Freddie Mac - to estimate the size of the market and they'll say they don't know, for sure.

Freddie Mac guesses the low-doc market is 40 to 50 percent of originations. Fannie won't even venture an estimation. "I wouldn't know where to start," says Robert Engelstad, senior vice president for mortgage and lender standards.

Estimates of the size of last year's low-doc market offered by other players range from 25 percent to 60 percent of originations, with most sources guessing the market share stands at around 30 percent to 40 percent.

Borrowers aren't alone in demanding more low-documentation mortgage programs. Correspondents and brokers want them, too.

A survey last fall of 200 correspondent lenders by the Washington, D.C.-area Mortgage Banking Research Group uncovered evidence of this strong demand for low-doc loans.

"Reduced documentation programs had a surprisingly important place in correspondent operations. Among new products demanded, 44 percent of [the] respondents wanted expanded reduced documentation plans (twice the number of mentions [for] expanded jumbo programs, the second most wanted enhancement," the survey revealed.

In particular, the correspondents wanted more low-documentation programs with loan-to-value ratios of 80 percent.

The alternatives

To get a feel for the size of any product market, you need to be able to describe the product. But, the appellation "limited documentation" describes a plethora of products.

If fully documented loans rest at the far-end of a product spectrum, then alternative documentation loans are their closest neighbor. Alternative documentation approaches, such as Fannie Mae's TimeSaver program employ substitute documents for the standard verifications: employment, income and deposits.

Alternative doc programs offer documentation by proxy - W-2 forms and pay stubs stand in for employment and income verifications, bank statements replace deposit and asset verifications.

Last winter, Freddie Mac and Fannie Mae expanded their alternative documentation programs to encompass all the loans they purchase up to a maximum loan-to-value ratio of 95 percent.

In doing so, the government-chartered corporations continued their push for alternative documentation to become the industry standard.

Standard & Poor's has, since 1987, sided with Fannie Mae's position on alternative documentation, and allowed lenders to use prescribed substitutes to verify deposits, employment and income without penalty.

Somewhat less conservative than alternative doc loans on the spectrum of loan products stands the low-documentation loan. Here the lender usually looks for telephone verification of employment and income and may or may not verify deposits and assets.

The greatest variety of limited documentation mortgage products reside here, near the middle of the scale roughly halfway between the most conservative, fully documented packages and the skimpy, let the collateral secure the loan documentation packages. The variations arise in the size of the down payment required, the number of appraisals, whether or not employment, income, and assets are checked and the depth of credit reporting the lender seeks.

The most liberal of the non-fully documented loans are those underwritten solely upon an appraisal and an in-file credit report. These are typically referred to as no-doc loans.

This type of lending may be on the decline as lenders who blazed the no-doc trail find that path now strewn with shareholder lawsuits and rating agency downgrades.

Fannie and Freddie: The standard


Fannie Mae's Robert Englestad provides this recipe for a successful low-documentation program: Combine one owner-occupied property with an excellent credit history, a down payment coming from the borrower's pocket and a solid appraisal. Limit the loan-to-value ratios to 75 percent.

After the loan is closed, check carefully to make sure the borrower hasn't cooked his books and don't substitute any ingredients, he warns.

The most important part of Engelstad's recipe for a successful low-documentation program is verifying the borrower's 25 percent down payment, he says.

"When you start talking about not verifying funds, or allowing gift letters or allowing subordinated financing, that profile goes out the window. And when you raise your LTV to 80 percent, the whole premise of the program comes down because you don't have the equity you need to get you through a serious delinquency," he says.

Consider an $80,000 low-documentation mortgage on a property appraised at $100,000, Engelstad says. The borrower defaults. It takes twelve months to foreclose and four months to resell the property for $95,000.

Shown in Chart 1, the total cost for taxes and insurance for 16 months, foreclosure, title work, appraisal, inspections, utilities, fix-ups, sale commission, closing costs and lost interest income is $24,700.

Because the sale nets $70,300, the $80,000, 80 percent LTV loan generates a loss of $9,700. Had that lender demanded a 75 percent LTV, and made a $75,000 loan, the loss would have been $4,700. On a $70,000, 70 percent LTV loan, the lender "gains" $300, Englestad explains.

"Low-doc loans of 70 and 75 percent work. When you get to 80 percent they don't work," he asserts. "A 20 percent equity is not enough to take a borrower who's 90 days or more delinquent and give them enough time to sell the property. By the time they sell it they've eaten up that 20 percent equity."

Following the guidelines in Fannie Mae's TimeSaver Plus limited documentation program should yield roughly the same relatively mild upsticks in delinquency rates Fannie Mae is reporting.

"We're measuring delinquencies from the 60-day category on and what we're seeing overall, is that when you compare all TimeSaver Plus loans to all non-TimeSaver Plus loans, the delinquency rates are very similar," Engelstad says.

During eight months of last year, the delinquency rate for Fannie Mae's TimeSaver Plus loans was 10 percent higher than its delinquency rate for non-TimeSaver Plus loans. During the remaining four months, the TimeSaver Plus loan delinquency rate was actually lower, Engelstad says.

"Don't be fooled by delinquency numbers. Look behind the numbers. Look at your individual loans. Find out how often borrowers may be overstating their income and by how much. And then look at the LTVs you're putting on your program and ask yourself if you can take that chance over the next several years," Engelstad warns.

Meanwhile, Freddie Mac has assembled a similar program, with a maximum LTV of 70 percent. Unlike Fannie Mae, Freddie Mac approaches the market so quietly that it doesn't even boast a name for its limited documentation program.

Not that much product comes through the front door of "official" limited documentation secondary market programs. The majority of the limited documentation loans purchased or securitized by Freddie Mac and Fannie Mae comes through their negotiated windows.

"Reading what I am about the way reduced docs are being used in the industry, I would guess we are probably not buying a whole lot through our 70 percent [LTV] program because I know there are lenders out there who are doing [low-doc lending at] a lot higher [LTVs]," acknowledges John Hemschoot, director of home mortgage standards at Freddie Mac.

Engelstad says Fannie Mae has allowed LTVs up to 75 percent in negotiated deals with selected lenders. In fact, about 80 percent of Fannie Mae's limited documentation deals come via negotiated deals.

Lenders, particularly those in the Northeast, have noticed a distinct retreat by the agencies' negotiated desks away from buying higher LTV limited documentation mortgages.

"Freddie Mac, in particular, even on just the income check, is trying to move back from 80 percent LTVs to 75 percent," says one lender.

To balance the increased risk of negotiated deals that don't meet the guidelines, Freddie Mac takes offsets, such as full recourse to protect itself and its investors.

Hemschoot agrees with Engelstad about the most important component of limited documentation loans: a sizeable down payment from the borrower's own funds.

"A borrower who puts 30 percent of their hard-earned cash into the property is going to try every way possible to realize a return on that investment. Someone who puts in only 5 or 10 percent is underwater if they try and sell the property, so they're not going to think twice about leaving it," he says.

Good lending gone bad

When low-documentation mortgages originally hit the market, they were geared toward high net worth borrowers - move-up borrowers trading their equity for a larger home.

Standard & Poor's Assistant Vice President Linda Blevins says that was not a bad concept.

"If you have someone who has 25 percent [to] put down on the new property and a history of paying their prior debts and you know the funds are theirs, then that loan should not be a problem loan," she concludes.

But as competition started to increase in 1988 and 1989, lenders began to relax their standards. Eventually, the common down payment requirement dropped from 25 percent to 20 percent, Blevins says.

"And in our mind, every time you start to eliminate part of that cash down, then you have a higher probability that there's going to be a problem with the loan," says Blevins.

There are a number of lenders that do originate a fairly sizeable percentage of loans with just a standard factual credit report, an appraisal or two and no real check of employment, income or deposits, she says.

The potential danger of this kind of lending is magnified by the ease with which one can borrow a down payment from an investor who records a second lien after the first closes.

"As long as you know it is the borrower's funds that helps you a little bit. But it seems fairly easy to be able to go out in today's market to get a second mortgage in order to put cash down," Blevins warns.

S&P's has observed instances where loans in pools with LTVs of 80 percent at closing, ended up as 90 percent LTV loans because of a borrowed down payment.

In some cases, groups of investors were rather blatant about loaning down payment money - the ink wasn't even dry on the first lien before they recorded their second.

"In the ComFed issue we downgraded, there were seconds recorded the same day as the firsts. They came up in doing some of the lien searches when the loans started to become delinquent," S&P's Blevins says. "That's a risk that the lender bears when you don't verify the source of the down payment."

Just how delinquent were the loans in the ComFed pools? The combined 30-, 60- and 90-day delinquencies on two of the pools ran between 20 percent and 24 percent. Still, despite the delinquencies, Blevins says only a third of the catastrophic credit coverage S&P's required on the offerings will be used.

The rating agency applies a matrix to determine the amount of credit enhancement lenders need to balance the extra risks of low-documentation lending.

For example, consider a AA transaction. If you had a pool of all single-family, detached properties with LTVs between 70 percent and 80 percent, then S&P's would assume that 10 percent of the pool would default.

Of the loans that were defaulting, S&P assumes you would get a return of 40 cents on the dollar. Without looking at the size of the loans, credit coverage would start at 4 percent.

If the loans in the pool had no asset, no income and no employment checks, S&P would ask for additional credit enhancements.

As Chart 1 shows, for loans with LTVs greater than 75 percent but less than 80 percent, S&P increases the default rate assumption 1.2 times for no verification of deposit and again by another 1.2 times for no verification of employment and income.

Despite the matrix, Blevins says it's hard to tell where the risk in low-documentation, lending really rises significantly. Like Fannie Mae's Engelstad, she believes a 75 percent LTV may be a good benchmark.

"Any lender in an area where you have a stable market or a slightly soft market, in order to break even on the property, will have to have 25 percent down," Blevins says.

Blevins points out that so far a lot of low-doc lending has originated from areas where you still have appreciation. The true risk in some limited documentation programs has so far been masked by appreciation ample enough to cover most mistakes, she adds.

"It will be interesting to see what happens with some of these programs as the real estate market gets softer. No one expected that the New England and the New Jersey-New York markets would drop so quickly. We're expecting that they'll stay soft for some time," says Blevins.

The Jumbo version

Residential Funding Corporation - a private conduit purchaser of loans - stuck to a simple philosophy in developing what is regarded as the first nationwide limited documentation program. Their approach was to look to satisfy the players on both ends of the equation.

"What we've had to do is design a program that works from both sides: the origination side of the market and the mortgage securities side of the market," says RFC President Mark Korell.

"Maybe the reason why we have had such great success is we've talked to a lot of people. It wasn't just a loan committee saying let's do it this way and shoving them in portfolio. If they work, they work, if they don't, they don't," Korell says.

As a private-sector conduit, RFC must make the low-doc business work on the loan purchase side, as well as being able to put them into securities and sell them.

"That has forced us to be very disciplined in our design and research on this issue, maybe more so than some of the portfolio lenders who maybe haven't had the discipline of turning around and going to a rating agency and telling them why these are good loans and having data to back them up," Korell says.

RFC's "EasyDocs" limited documentation programs allow lenders to skip income and employment verifications. In addition, the program offers reduced asset verification (one month's bank statement) up to a maximum LTV of 75 percent.

Balancing the reduced documentation, RFC wants a minimum $50,000 down payment, and an excellent in-file credit report.

For loans with LTVs above 75 percent, RFC demands two appraisals.

"We've seen more delinquencies, but we've seen very comparable default, foreclosure and loss statistics which for us has been very good," Korell says. "The delinquencies being a little higher may be a function of just the nature of the customer. It's hard to explain. But as long as they don't result in losses to us that's a successful program."

Prudential: The low-doc goes relo

The reduced documentation programs at Prudential Home Mortgage Company, Edison New Jersey arose out of the faith the company had in the quality of borrowers using the firm's relocation business, says Managing Director Howard Culang.

"We have a very large and extensive business in the corporate relocation market. We have so much confidence in that business, and the paper it generates just doesn't require as much checking as a normal business," he explains.

To qualify for a Prudential relocation, reduced documentation mortgage a borrower needs a 20 percent down payment, a bona fide appraisal, a telephone verification of employment and good credit.

"You have a willing buyer, willing seller that have established [the property] value. And this is only for purchase and only for relocation," adds Prudential Managing Director Bob Williams.

In addition, Prudential offers two other limited documentation programs. Under its "Track One" program, Prudential accepts alternative documentation. "Track Two" is a slightly more liberal version of Fannie Mae's TimeSaver Plus program.

Prudential covers itself against risk in its reduced and alternative documentation programs by charging more for the riskiest loans. Their relocation product is the cheapest, followed by Track One, with Track Two borrowers paying the highest points and rates, Culang explains.

The result of this three-tier pricing strategy? Basically the same results generated by others.

"The low docs tend to be a little bit more delinquent," says Culang.

Culang suggests the higher delinquencies are the result of typical low-doc borrowers' income patterns.

"What tends to happen is the individuals that take out those loans tend to be self-employed more and their cash flows tend to be less predictable. You tend to get irregular, bigger payments if you're self-employed," he speculates.

Culang summarizes some of the safeguards in these programs while conceding that they are not immune to fraud. "The borrower's credit report is going to have to be good. The borrower is going to have to have sufficient resources to make the down payment. The borrower is going to have to list a profession that matches when we check that. I"m not saying that you can't get through, but you can say the same about fully documented loans," Culang responds.

Culang does worry about parties involved in the transaction providing undisclosed second mortgages.

"That is a big issue. We have very strict closing instructions that we give our closing agents and they're supposed to watch foor that. They can see what the transactions are at the table. Whether they do that all the time is an issue we're very concerned about and doing things to prevent," he says.

The whole focus at Prudential is to streamline the mortgage process, while retaining enough of a screen to filter out the bad loans. "We look for a balance," explains Culang.

But, Prudential doesn't stand alone in the market. It competes with other, more aggressive lenders who at times, have driven Prudential out.

"The whole industry has to be sure that we don't perpetuate silly things. Some lender will come out with a we-don't-check- anything routine, say it doesn't cost anything and others believe they have to compete to keep their market share. It just perverts the whole process. We have gone out of our way to sacrifice volume when we think we've gone too far," Culang says.

"We're hopeful that our fellow competitors, who invariably see the same results that we do on any given program, are rational," he adds.

Travelers: strong controls

When Travelers Residential Mortgage Group President Joseph Bryant is asked to estimate the size of the non-fully documented loan market he gets down to the details.

"If we say the total market is, rounded off, $380 billion, FHA and VA is what, 25 percent? Let's say it's $80 billion. That leaves a $300 billion conventional market. And 15 percent of that - being generous - is the MI market. We're down to $255 billion. This is a wild guess, I'd say 60 percent of that $255....that's $150 billion, so we're talking about 3/8ths of the market. So 40 percent of the mortgage market," is taken by other than fully documented loans, he estimates.

"Contrary to popular belief, we are not backing trucks up and dumping money out to people," he jokes. "Internally, we have what we feel are some very strong controls that allow us to try to ensure that we are putting a high quality product on the books."

First, Travelers requires borrowers to sign authorization and certification forms that allow the firm to verify any and all information the borrower gives. It's the same type of form Fannie Mae began requiring last fall.

In addition, Travelers looks to prior mortgage payment histories, two infile credit reports from separate repositories, telephone verification of employment and one appraisal.

Backing up this combination of alternative and limited documentation is an extra layer of protection: market-based underwriting.

"We have spent a lot of time and money developing a rating system for markets, for metropolitan areas and states, that looks at a whole variety of features," Bryant says.

Based on that information, Travelers assigns each market a rating of A, B, C or D, with separate ratings for the single-family and condominium markets.

The ratings Travelers develops for a market determine the type of product the firm will offer there.

"We will only do a 70 percent loan-to-value limited doc loan in a C market, whereas in an A market, we'll do an 80 percent loan," Bryant explains.

This type of regional underwriting has apparently paid off for Travelers. In the past 4 1/2 years as the firm has amassed perhaps one of the largest limited documentation loan portfolios, its losses have been non-existent, Bryant says.

"Through today," Bryant explained in an interview late last year, "we have never lost a penny in the foreclosure process on limited documentation loans. That's not to say that we won't. I know there are some loans in the system right now we will lose some money on. They were fraudulent deals."

Interestingly, Bryant doesn't believe that it's easier to defraud a lender who offers limited documentation programs. In fact, he believes it's easier to doctor a fully documented loan than a limited documentation loan. "However," he quipped, "it takes about 30 minutes more to do a fraudulent, fully documented loan than a fraudulent, limited documentation loan."

Great Western: quality counts

For Great Western BAnk, the secret to successful low-documentation lending is an axiom more often heard in the secondary market: You've got to know the people you do business with.

That may seem a strange statement to emerge from a company whose close to $11 billion in originations last year, put it at the top of the thrift lender pack. But Great Western Senior Vice President for Mortgage Banking E.S. "Sam" Lyons means it sincerely.

"We do almost all of our lending on a retail basis, very little wholesale. We get our loan volume primarily through our contact with Realtors and the borrower direct. We're not having a third-party or a loan broker bring us business," explains Lyons.

That's not to say that brokered business is inherently bad, Lyons adds. It's just better if the people who bring in the business have a continued stake in its performance.

Great Western's "Priority Loan" low-documentation program offers adjustable rate mortgages to borrowers with 25 percent cash down payments. Assets are verified by telephone and an in-file credit report is used.

To control delinquencies in the program, Great Western informs its staff from the start that they will be held responsible for any problem areas, Lyons says.

"We have [delinquencies] tracked by appraiser, by loan officer, by loan agent, we follow that all the way through to the people who are involved in the origination of the loan. They have a career interest. This is not something where they make a bunch of commissions and then go somewhere else," he adds.

And while the mortgage company has a very aggressive and high-powered loan servicing operation to take care of loans after they are booked, it all starts with good origination, Lyons says.

"We have a culture that runs to the origination people that states that if there is a problem in the loan you will be reviewing it with management to see what was the problem. It's the culture that's put in place from the very beginning," Lyons says.

The loyal opposition

If you listened only to the collective wisdom of these innovators in the limited documentation market, you might believe today's mortgage market is following down an irreversible path toward reduced documentation.

But, swimming against the current are a group of naysayers whose natural and learned caution makes them leery of low-documentation lending.

While these player's don't necessarily believe that you can't safely structure a low-documentation program, they do seem to think today's market has thrown caution to the wind.

Two players with highly publicized losses from low-documentation loans served as a lesson to all in 1989.

ComFed Savings issued the first senior/subordinated, pass-through, mortgage security ever to be downgraded by Standard & Poor's.

The senior class of the security in question, backed by loans originated under no-doc and limited doc programs where deposits, income and employment were not verified, was downgraded from AA to A.

Dime Savings, meanwhile, is being sued by its shareholders, who charge that the Long Island lender stands to loose $200 million on its limited documentation programs.

Inside the pressure cooker of


Limited documentation can be done safely, but not the way it's being done today, says Curt Culver senior vice president of marketing at Mortgage Guaranty Insurance Corporation.

"It has its place in the way it was originally introduced to speed the processing on applications that are no-brainers," he says.

"Our concern is where it's used as a [means of] qualifying people rather than for speeding the process," he says.

Yet, won't he concede that amidst the wide variety of programs on the market today, there exists a safe, limited documentation program?

"I don't know if you can do it safely," Culver says. "I do know the best way to do it is in strong real estate markets because in essence you're saying, I'm going to disregard the credit of the borrower and I'm going to bank on the collateral," he points out.

But as real estate markets soften, the risks of being a low-documentation lender, relying heavily on collateral, increase, he adds.

"What's happened, unfortunately is it's become a competitive issue and people are doing it because they believe they have to do it to compete. That allows some people to qualify for mortgages under this scenario that wouldn't qualify under full documentation. I think that will come home to roost," he predicts.

The agencies will tighten up, he predicts. "I think they'll try and do limited documentation on a negotiated basis with some lenders and maybe not with others. But, that gets very hard to enforce. That's why I wonder if we can do this type of lending," Culver says.

Dona DeZube, a freelance writer, resides in Columbia, Maryland. She writes about real estate finance for National Thrift and Mortgage News, Secondary Marketing Executive and several daily newspapers.
COPYRIGHT 1990 Mortgage Bankers Association of America
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1990 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Title Annotation:mortgage banks
Author:DeZube, Dona
Publication:Mortgage Banking
Date:Feb 1, 1990
Previous Article:The internal rewards of automation: investments in automation have brought big volume boosts for some mortgage originators.
Next Article:The 1988 servicing profit picture.

Related Articles
The inside line on warehouse lending.
Building business.
A new pipeline paradigm.
The new challenges of wholesale.
Home purchase lending in low-income neighborhoods and to low-income borrowers.
Newcomers to nonconforming.
Pushing the edge on alternative-A.
Experts: prepare for legal, regulatory fallout from HMDA data.
Regulators issue final guidance on subprime mortgage products.
Small Lender Survival--Part 2: surviving in a down market.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters