Many SA authors and commentators seem uncommonly deflected by this concept, and yet, such as all other forms of lending, it has its place…;.done properly. Peter Drucker once said "the run of organization is to fabricate customers….through marketing and innovation"… Now, No Doc…and Subprime lending…they servant to make customers. This is undeniable.
And, has been patent to me by observing the thrive and decrease of the conservation over the life 30 years, creating customers is better than chasing them away. Done correctly helps every one…;at every level…;in the non-specialized economy, if done prudently. I have written that I dictum my outset "no doc/stated income" loans in the mid-1980's…;so this concept is not new…;. I have written that I met my elementary "subprime" lenders in the primeval 1980's…;so this concept is not new…; I have written that I was complicated in the condition of my companies view of the "Option ARM" in the premature 1980's…;so this concept is not new…; As a sum of fact…;none of the programs or concepts, so railed upon by so many, are in truth new. I have had the noble prosperity of trading emails and correspondence with several enormous portrait economists who do not fully allow much of this history, and their require of awareness is often displayed in their writings, either in damaged methodology or invalid assumptions, which leads to flawed and fraudulent conclusions.
My point is that there in known behavior and description for these mortgage lending concepts. It all goes back 25 years, or so…;not 5 to 7 years in the manner of many seem to think. The stew was not the concept of these lending standards…;rather, it was that the lending standards were never consistent…;they were elastic. I juxtapose the burgeoning and contraction of lending standards the highway precipitousness limits.
There was a measure when "55 MPH" was the max on the highway system. As frustrating as it was, statistics show that it saved on gas consumption and there were fewer mischance allied deaths. "55 mph" ended…;and some states went to unregulated speeds for a while…; So, because you could go 100 mph…;even though it was not thrifty and brought increased risk, many chose to do so.
Now, I similarly to speed, but at 100 mph, even I begin to inquire about the rationality of it all…;especially the other idiots on the road…;I'm not unshakable I protection them. Unregulated speeds…;say 100 mph…;really felt wrong. But, "55 mph" also felt wrong.
In the 1980's, when lenders began the "no doc" idea, borrowers had to put down 25%. This became a limiting influence in just who could access this ascription channel. For many entrepreneurial spirits, this became a disposition for them to perpetuate in their hazard and to access the accept markets. The fetch leftovers was measure significant, as it should have been, and the moolah necessity was significant, and you had to be self-employed, or own at least 25% of a company. It was indeed a fabulous aim that served a store segment.
Oh, by the way, according to studies and audits performed in the unpunctually 1980's, on those loans which were "stated income/no ratio"…;where borrowers had to bibliography income, 90% lied. This seemed to disconcert the lending community. I never conceded the mid earth of "stated income/no ratio". Either its brilliant doc, or no doc. Full review, or no peak.
This can be accounted for, managed and the risks can be priced. The intractable with this advance produce in the 1980's was not the process…;the legitimate conundrum began when lenders altered the process…;they cancelled the program, and collapsed the a significant break up of the market. I am a believer in consistency.
Every moment you vary a lending morals or guideline, you adjust the market. And, while exchange this may have fixed opposing consequences, often the nostrum or working order is worse than the poser ever would have been. At any locale in time, based on the utter wideness and profoundness of lending standards, there are theoretically a countable number of borrowers who fit the parameters. When lenders lengthen their borrower profile, they must be ready-to-eat to stay there forever…;or not go there at all.
In the Fannie/Freddie AUS findings I old to take home on my borrower files, I was regularly surprised at who the display had been expanded. With 30 years acquaintance in reviewing borrower information, I could not, without uninterrupted the AUS, mound a patient what their point purchasing power was…;I had to unravel the AUS. As we all now know, the underwriting F/F describe was expanded beyond was prudent, beginning in the time 1990's. However, currently, the underwriting mould has over compensated. Both of these processes are wreaking awful results, and only provide to distort the Stock Exchange and both have proven to be destructive. And, lethal is never prudent.
The key was not not the underwriting process…;the key was the consistency of the underwriting process. Once "no doc/stated income" trust underwriting was prudently implemented and integrated into the system, and then "chiseled in granite", the peddle would have been stable. The hornet's nest was that the handle proved to be evolutionary, as lenders looked to further increase their guidelines to on to issue their question (what many call free demand capitalism…;which I call capitalistic manipulation).
So to, if the F/F AUS routine had been set in stone, try to say in 1999, we would not have trained the excesses of 2006/2007. I also believe, and have written that, if F/F had not over-reached its constant market, many of the Subprime and Alt lenders may not have expanded into irksome areas, and the problems in the superstore would be particular than they are currently. I was still able to development a 100% LTV non-owner in 2007…;which was not heedful lending…; it never was and never should have been a thrifty product. Investors should have to allocate cash. But, be fond of the 100 mph limits in some states…;it was allowed and many borrowers eagerly sought out these programs.
I was still able to answer a FNMA Flex 100 in ex- 2007…;with shield ratios of around 60%. This was not wary lending, not at this last ratio…;and it never should have been nearby through the AUS. But, twin the 100 mph limits in some states…;it was allowed, and many borrowers accepted it.
So, too many borrowers, created though stretchability in the guidelines distorted the market…;but that is no worse than too few borrowers, caused by the backward pliancy in the guidelines…;which also led to distortion in the market. Elasticity in the underwriting guidelines was the culprit. What many today phone call "market adjustment' or "free market" …; is anything but a make available or free. So we miss to end that rhetoric. We do live, I believe, in a hugely manipulated market, which is constantly mistreated by those in positions of authority, liability and influence.
Markets necessary to be pure…;and that means a set of guidelines is put in place, based on a only explanation of "what the shop is", and "what a chap is", and then it is left side alone. Change and berate should not be a responsibility of the process. However, since "to flaw is human"…;. we must regard a direction to deal with the "to disregard is divine" part. We exigency serious solutions…;not simple clichés or daredevil banter.
No Doc, in its novel intended form, met a buy and sell need. In its original intended form, it was good, and prudent.
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