November 16, 2005, Wall Street Journal — Obtaining a mortgage loan used to be an ordeal that involved retrieving reams of tax returns, pay stubs and bank statements. Now, some critics contend, it is becoming a bit too easy, putting everyone from homeowners to certain bond investors at risk. Mortgage lenders have grown much less demanding about the amount of proof borrowers must provide about their earnings and assets. The result is a sharp rise in loans known in the trade as “low-doc” or “no-doc.” These loans, which typically carry slightly higher interest rates, allow borrowers to skip some or all of the traditional requirements for verifying income and assets. The danger is that these loans may allow some borrowers to exaggerate their financial strength and buy houses they really can’t afford. If so, defaults are likely to rise, hurting homeowners, investors in shares of mortgage lenders and holders of securities backed by pools of mortgages.
Is Getta a Home Loan Becoming Too Easy? [Wall Street Journal]