if it’s so important to the mod squad why isn’t it that important up front?

We are in the credit business and yet we basically totally gave away credit underwriting. FICOS are a nice tool but they certainly should not replace common sense in evaluating someones credit report.

I also have a big issue with stated income for self employed borrowers. Lets get real this is just a way for people to write off all of their income or simply not report it. After cheating the tax system they then get the same interest rate that someone who pays their fair share of taxes gets.

Our government needs those tax dollars badly. Perhaps we would have a federal deficit which would then lead to lower interest rates and a stronger economy.

Lastly I think we should get back to the same lower debt ratios that we had just a few years ago. Energy and food prices are seeing inflationary pressures, health insurance has increased substancially and apparrel is quite expensive. Basically we have increased the DTIs at the same time that living expenses have increased.

I am all for automation but we have render most professional underwriters to nothing more than people who check off a list of items needed. We certainly can’t blame Underwriters for approving loans when an automated system approved the loan with conditions.

See page 13 of this PDF, released in Sept at the Wash Assoc of Mtg Brokers state convention in Bellevue:

http://www.dfi.wa.gov/cs/pdf/current_residential_mortgage_market.pdf

All things aside, the best chance we have of predicting repayment is to look at past credit history, a person’s earning capacity, their available cash reserves, and how much of a downpayment they’ve invested into the home.

Even with a newly self-employed borrower, underwriters use to (at least back in the days when I use to underwrite) look at past income capacity, so if a borrower’s business went under, how much money was he/she able to earn beforehand?

I only have my personal experience to go on. I have specialized in FHA and first time home buyers who have had credit problems for the past 10 years or more and my group isn’t having a foreclosure problem. Most of them didn’t put any money down and had 43% or worse back ratios.

Last month RealtyTrac reported that foreclosures in GA had risen over 75% from June to July. Turns out it was more like 14% when they had to correct counting over 2000 of them twice. I heard a report today, which I haven’t checked further into, that real foreclosure levels now are still less than or equal to 2002, or 1998 (I think they said, may have been 97). It has been noted by the chief economist at Moody’s (which has its own horse in this race) that foreclosure statistics are “completely inadequate” to base government policy on.

My personal opinion just from what I see in our own market in GA (for many years the fraud capital of the world) is that a lot of the FTHBs that defaulted were straw buyers and novice investors to start out with.

Not saying there isn’t a problem, because clearly there is, but it is awful hard to make decisions when the statistics are so unreliable!

Although having two kids myself I completely understand. By the way, I’m facing end-of-life issues with two of my pets and this is no financial picnic. The real solution here would be to require some sort of cash reserves.

The top two reasons why people default on their mortgage are: 1) Failure of a business, and; 2) Divorce.

We can’t do much about number 2, but as far as the self employed borrowers go, we need to fully underwrite the financials and tax returns of these borrowers.

1) We always required both the title company and appraiser to provide a 24/m chain of title and sales history for 24/m’s. In addition, our in-house review appraisers as well as we as AE’s/UW had access to online databases that checked values and also invluded ownership information. This comes down in the end to “some UW’s paying attention to the signs of fraud and flipping.

2) Disposable income is something that few looked at, and then people started looking at it, and when they did they lowered the requirements. Which as we know was a bad move.

3) FTHB’s have always been an issue to deal with, those of us who are homeowners know the costs associated with a home, and I’m not talking taxes and insurance, those can be accurately estimated, but it’s the other costs that aren’t. Looking at reserves, and not just reserves in a 401k account, but a highly liquid assets in a savings account outside of closing costs need special attention.

4) Payment shock on full doc loans shouldn’t be an issue. Either they can fully document their income and there is a high degree of certainty that it will continue, or it won’t. Lets face it, if you rent an apartment for $500 a month to save money for your DP, then you eventually get a raise or promotion and all of a sudden the new house payment is $1500 plus T&I. But this goes in hand with #3, and FTHB issues.

5) brokers and wholesalers both have gotten into the “massage” mentality because they looked at it as simply providing the file to the investor in accordance to their guidelines, even if the file isn’t factually accurate.

In the end, investors and wall street need to set the guidelines and stick to them. Because of the growth of the market, it became a “production first” mentality and everything else was more or less put on the back shelf. Anytime you substitute quantity for quality, without offsetting the risk with rate, you are setting yourself up for trouble.