What did she mean about homeowners paying extra fees...

[KansDem]

...to avoid documenting their income?

Perhaps she should have told the homeowners to "cut it out?"

Adios...

[floriduck]

1. Stated income or no document loans came with a higher fees and interest rate since they were

rated as riskier loans.

[KansDem]

2. Thanks for the explanation

My wife and I bought our current home 28 years ago. I didn't remember being offered this option.

Was it a relatively new concept?

[unblock]

3. compared to 28 years ago, yes.

the legitimate problem is that many people have income more than sufficient to pay a mortgage, but it is not in the form of a steady paycheck. consultants, sole proprietorships, etc.

stated documentation loans are a legitimate way to mortgages for such people.

the obvious problem is that people can lie, and because the incentives, the best person to check those numbers only had an incentive to close the deal, not an incentive to prevent a bad deal from closing.

so they started to become known as "liar loans" and in the days of easy credit, some originators actively encouraged applicants who shouldn't qualify for a mortgage to simply declare and adequate income and essentially pay a fee to not have to provide documentation to support that claimed income.

it was one of the contributing causes of the financial collapse, but ultimately its roots were in the banks' eagerness to invest in anything and everything as quickly as they could without doing proper due diligence.

[KansDem]

6. Thanks!

[mahina]

5. Yes. Check out This American Life's podcast, the Giant Pool of Money for a great

Explanation of what went down, and how. They go into the process and outcomes in a very interesting way, no nonsense.

http://m.thisamericanlife.org/radio-archives/episode/355/the-giant-pool-of-money

[KansDem]

7. Thanks!

I'll check it out later today...

[mahina]

9. You bet.

I hope you like it. Please let me know what you think!

[surrealAmerican]

4. ... and a higher down payment.

My first mortgage was a no-doc. Being self-employed, even with a steady income and good credit rating, left no other options.

[floriduck]

8. Thanks for adding that. LTVs were lower due to the inherent risk and overall performance.