A note on how lenders lower standards, and then ignore setting up loss reserves to account for it:
thehousingbubble2.blogspot.com
The WS Journal has an informative report on lending standards today. Some highlights, "Mortgage lenders are continuing to loosen their standards, despite growing fears that relaxed lending practices could increase risks for borrowers and lenders in overheated housing markets. Novel loan products have helped fuel much of the run-up, which continues to defy expectations."
"Chase Home Finance, a unit of J.P. Morgan Chase & Co., this spring began allowing some of its customers to take out home-equity loans and lines of credit without having their incomes verified. Under the new program, income verification isn't required for home-equity loans of up to $200,000, provided that the borrower's total mortgage debt doesn't exceed 90 percent of the property's value or $1.5 million."
"Last month, Wells Fargo & Co. began allowing buyers of investment properties in some parts of the country to take out interest-only mortgages."
"Countrywide Financial Corp...recently cut by 20 points the minimum credit score borrowers with bigger loan amounts need to qualify for one of its popular loan programs."
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"Washington Mutual Inc. says it's loosening its guidelines on some products while tightening them on others. In June, it began offering home-equity lines of credit to borrowers who buy condominium units as an investment or as a second home. Another recent change lets borrowers who buy a second home or investment property finance as much as 90 percent of the home's value, up from 75 percent. Sales of investment properties have surged recently, adding fuel to the heated housing market."
"Some lenders say they are being forced to relax their standards to remain competitive. 'We're just offering the product that a lot of our competitors have offered,' says U.S. Bank President Dan Arrigoni. 'If anything, we have to think about loosening them if we want to compete.'" |
