Dave Donhoff of No Bull Mortgage sent me a list of observations on mortgage lending. Here goes:

In the last 2 months, almost all lenders have dramatically curtailed, reduced leverage offered, or stopped offering entirely on manufactured homes (aka wobblies, doublewides, and “hurricane magnets”).

Several lenders have begun announcing the increase of required FICO scores (from 600 up to 620 at a few, 620 up to 640 at others) for loans with “Stated Income” documentation.

“Over Equity” 2nd loans at 115% of value (virtually ALL lenders sell these to the same, single Wall Street house) stopped accepting income documentation of 12 months’ bank statement deposits, and only accept W2s (if you’re self employed, regardless of income or liquidity, you’re SOL.)

I see the ongoing incremental tightening of standards being the trend… cautiously applied in the attempt NOT to dramatically shock the origination industry…

ALTERNATIVELY… I am seeing a few counter-trends of lenders getting more and more aggressive with No Ratio income documentation (where employment is verified, but no income need be claimed whatsoever.) I champion these over Stated Income, as you cannot commit income fraud when you don’t make any claim of any amounts in the first place.

I’d be willing to bet that, when all the dust settles, the industry will find that the fraudulent nature of Stated Income ends up COSTING that pool of loans far more than the risks of non-documentation and non-claim whatsoever of No Ratio loans. (Currently No Ratio loans are priced at a premium to Stated Income loans.) I predict that No Ratio will become far more prevalent, and the secondary markets will prefer them, as Stated becomes exposed for the cesspool of fraudulent notes it is.

Dave Donhoff
National Mortgage Banker/Broker

Thanks Dave
Mike Shedlock / Mish/