Very often today when I hear someone complaining about the new restrictive underwriting guidelines, I stop and correct them stating "traditional" not restrictive. That is that the guidelines are closer to what they were when people actually paid us back.
First of all I'd like someone to step up and say "I did," and explain what they did.
The question would be who developed the computer approval models and how much mortgage experience did they have?
Personally I liked it better when the decsion was made by well trained, qualified human beings.
On another issue, which many may not be aware of or have forgotten.
When I first saw secondary market adjustable rate mortgages the ratios were 25/33. That's 25% for P&I and 33% for P&I plus debt. That meant 33%, not 33.5%.
You didn't get exceptions!
Government loans were a little more liberal, but if the ratios on an FHA were 29/41 then you weren't going to routinely get approvals with a back end ratio of 48/49%.
Think about that!
That's 48% of the GROSS, not the net. If the buyers gross $4000 monthly and pay 18% taxes, they net $3280. If you use the net they probably don't qualify for the mortgage.
Maybe we should follow the example of the VA and use residual income.
How many of you out there don't know what residual income is. Well the simpliest explaination is that to a certain degree it looks like a mini budget taking into consideration most of you monthly expenses and determining what's left over to live on. It's not perfect, but it's closer to reality.
We didn't have stated income.
How many problems do you think stated income caused. There is neither enough time nor enough room to cover this effectively.
We did have Portfolio loans.
That's where good, established bank customers, who didn't fit secondary market loan criteria could come in and get their needs taken care of. Yes, the rate was a little higher, but they were pretty much guaranteed a loan. It was better than stated income because to a certain degree we just didn't ask any questions about income. We already knew who are best customers were and that we were going to give them a loan. That relationship was worth it's weight in Gold!
Okay so what I'm indicating is quite simple.
It's that some of the solutions to our current problems may be hidden in
The PAST!
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