From a plugged-in reader refinancing a home up in Portland:

We just signed on our refinance (4.625% for 1 point) and we were talking to a woman who worked at the title company and she said things are going right back to the old (bad) ways. People taking mortgages that over extend them financially, brokers pushing through anything they can. She said it is going straight back to how things were before and she wasn’t happy about it.

Is it an “only in Oregon” or anomalous report?

18 thoughts on “Mortgage Rates Are Down But Are The “Bad Ways” Picking Back Up?”
  1. As long as the brokers can keep unloading the loans on Freddie and Fannie, why should they stop? The taxpayer will just foot the bill when these products blow up as well.
    It’s amazing that with all of the proposed legislation that little or no attention is being paid to mortgage brokers. Rates can’t stay this low, and when they eventually move back up we’ll get a second serving of the same mess.
    The cure for this mess is no different than the disease that got us to this point. Welcome to Japan 2.0.

  2. Well, they actually sent an appraiser to our house for our refi, who actually entered the house and did measurements.
    I’d never experienced that before, but I’m told it was common practice more than a decade ago 🙂
    Seriously, if they require a downpayment (say 20% — the anecdote did not say), it’s not that big of a deal, and in fact you could argue it’s “good” that folks with savings are being induced to “over extend themselves financially”, if you get my drift.

  3. How can people over extend themselves if the loans are full doc and the DTI (debt to income ratio) is in the 40% range? All these loans requir income verification and tax returns. For qualification.

  4. Don’t worry, once the government reinstates DAP and raises the conforming loan limit we’ll go back to the no-money down days. Can’t wait!

  5. When did making your own investment decisions become something you were not responsible for? If you want to be an idiot, by all means. If you want to make an intelligent play, by all means. Either way, don’t blame the brokers for supplying the demand. Shall we require an oversight committee for day traders?

  6. @tall guy,
    1) Encouraging overstatement of income.
    2) Working with appraisers to overstate property values.
    3) Providing approval to loans that they knew they could not pay.
    The amount of mortgage fraud that went on and contributed to this mess is astounding. Read a few of Tanta’s old posts on Calculated Risk to see the inherent conflict of interest that MBs had with respect to both consumers and buyers of the loans.
    With respect to day trades: false dicohotomy. An idiot is one who continues to make the same mistake expecting a different outcome.

  7. this surprises me. the “bad” ways of no-doc, 10% or less down really isn’t happening as far as i can see. great credit scores, 20% down and some serious conditions need to be met for most loans these days… as far as i know at least.

  8. @ garrett,
    For conforming loans (FHA-insured) the requirement is 3.5% down. Most of SF is jumbo-ville so the requirements are much more.

  9. All, it’s naive to assume that since the egregious practices of the yesterday are gone that all is back to normal. Remember less than really bad ain’t necessarily good….there are still many ways that one can overextend (remember it’s relative):
    – One can be honest about their prior 3 years of income, provide proof and still make signficantly less next year(I’m an example of that. My 2008 income is about 4 times higher than my 2009 will be but I can still get a loan based on my historical income)
    – One can still manipulate the heck out of appraisers. In many markets with very few comps, it’s easy to make up value. In markets with lots of foreclosures, it’s easy to make adjustments based on “unique circumstances” to justify why those short sale prices aren’t really market….
    – DTI of 40% is good but in an inflationary world, where home prices may continue dropping, job losses may continue and wages may continue shrinking, this 40% can be cut in half quickly (not a truth for all but certainly for some, I’ve seen it happen).
    Just remember, buying a house is a privilege and responsibility not a “repercussion-less” right.

  10. C’mon, you guys, if a real estate salesperson said those things, everyone would laugh, and realize it was someone in the real estate industry trying to scare buyers off the fence to put more money in the industry’s pockets.
    The title business is the SAME industry. Their motivations are the same.
    Poor title agent, I’ll bet she would feel just awful if she had more job security and raises that she’d have if things went back to where they were.

  11. C’mon, you guys, if a real estate salesperson said those things, everyone would laugh, and realize it was someone in the real estate industry trying to scare buyers off the fence to put more money in the industry’s pockets.
    Huh? Slow Monday traffic in Conspiracytheoryville, eh Tipster? You gots ta really reach for them today it seems.

  12. 45yo,
    40% DTI is a bit high in this economic environment if you ask me. I’d rather see that number lowered as well as 6-12 months reserve requirement if I were the actual purchaser of any of these loans. Congress is currently re-crafting legislation for the mortgage market. See yesterday’s LA Times on the subject:,0,2295101.story
    I don’t necessarily agree with the extent of some of the regulation, but unfortunately a lot of it is necessary to protect consumers and taxpayers from the bad apples in the system. And as others have mentioned before, the bad apples didn’t just disappear overnight.

  13. if a 20% downpayment is required, buyers will think long and hard before embellishing on mortgage applications, with or without a broker luring them.

  14. It wouldn’t surprise me if the same shenanigans were happening, after all, what reforms have their been in the RE industry?

  15. “We must Re-start Lending by financial institutions”
    Barack Obama
    February 24, 2009
    Below obsevations by
    Nouriel Roubini
    Americans lived in a Made-off and Ponzi bubble economy for a decade or even longer. Madoff is the mirror of the American economy and of its overleveraged agents: a house of cards of leverage over leverage by households, financial firms and corporations that has now gone bust.
    When you put zero down on your home and you thus have no equity in your home your leverage is literally infinite and you are playing a Ponzi game.
    And the bank that lent you with zero down, a NINJA (no income, no jobs and assets) liar loan that was interest only for a while with negative amortization and an initial teaser rate was also playing a Ponzi game.
    And private equity firms that did over a $1 trillion of LBOs in the last few years with debt to earnings ratio of 10 or above were also Ponzi firms playing a Ponzi game.
    A government that will issue trillions of dollars of new debt to pay for this severe recession and to socialize private losses may risk to become a Ponzi government if – in the medium term – does not return to fiscal discipline and debt sustainability.
    A country that has – for over 25 years – spent more than income and thus run an endless string of current account deficit and has thus become the largest net foreign debtor in the world (with net foreign liabilities that are likely to be over $3 trillion by the end of this year) is also a Ponzi country that will eventually default on its foreign debt, if it does not – over time – it must tighten its belt and start running smaller current account deficits and actual trade surpluses.
    Whenever you persistently consume more than your income year after year (a household with negative savings, a government with budget deficit, a firm or financial institution with persistent losses, a country with a current account deficit) you are playing a Ponzi game; in the jargon of formal economics you are not satisfying your long run intertemporal budget constraint as you borrow to finance the interest rate on your previous debt and you are thus following an unsustainable debt dynamics (discounted value of your debt growing without limit in NPV terms as the debt grows faster than the interest rate on it) that eventually leads to outright insolvency.
    According to Minsky and according to economic theory Ponzi agents (households, firms, banks) are those who need to borrow more to repay both principal and interest on their previous debt; i.e. Minsky’s “Ponzi borrowers” cannot service neither interest or principal payments on their debts. They are called “Ponzi borrowers” as they need persistently increasing prices of the assets they invested in to keep on refinancing their debt obligations.
    By this standard media US households whose debt relative to income went from 65 percent 15 years ago to 100 percent in 2000 to 135 percent today were playing a Ponzi game.
    And an economy where the total debt to GDP ratio (of households, financial firms and corporations) is now 350 percent was a Made-Off Ponzi economy. And now that home values have fallen 20% and they will fall another 20% before they bottom out and now that equity prices have fallen over 50% (and may fall further) using homes as an ATM machine and borrowing against it to finance Ponzi consumption is not feasible any more. The party is over for households, banks and non-bank highly leveraged corporations.
    The bursting of the housing bubble and of the equity bubble and hedge funds bubble and private equity bubble showed that most of the “wealth” that supported the massive leverage and overspending of agents in the economy was a fake bubble-driven wealth; now that these bubble have burst it is clear that the emperor had no clothes and that we are the naked emperor. A rising bubble tide was hiding the fact that most Americans and their banks were swimming naked; and the bursting of the bubble is the low tide that shows who was naked.
    Madoff may now spend the rest of his life in prison. The US household and financial and non financial firms and government may spend the next generation in debtor’s prison having to tighten their belts to pay for the losses inflicted by a decade or more of reckless leverage, over consumption and risk taking.
    Americans, let us look at ourselves in the mirror: Madoff is us and Mr. Ponzi is us!

  16. I bought in SF in 2004 — appraiser came to the condo for the purchase and wow, in 2006, we refinanced and the appraiser came out and measured too! Well Fargo, I guess that’s why they aren’t in trouble. Where’s was the shenanigins? Unfortunately, the 20% that got the shit-filled loans are the ones that make the other 80% suffer. Look out for those 20%!

  17. @Lazy — but nobody is suffering right now!
    Deadbeats can walk away consequence-free (and maybe get featured in the NYT), those with equity can get a new kitchen, backyard, and man-cave (which they desperately needed anyway), folks with downpayments can get 10-50% off (depending on whom you believe 🙂 ), and renters can look like geniuses (finally).

  18. The story does not add up… Title and escrow officer dont know underwriting standards… all they see is the down payment, they can not tell if someone is over extending themselves (in terms of income)

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