Wednesday, July 18, 2007

Housing Wire is very interesting today.....

Take a moment to read today's addition. Follow the link to

This is the important part:

"Stock-market bears say such a fire sale could force some selling of all types of securities -- which could lead to a ratcheting up of lending standards and reduce the liquidity that's been such a boon to the stock market."

My reaction, exactly. Before hitting that link, I had just chatted with JC and said the same thing, almost verbatim. I'm not telling you this to get credit, I've got to tell you this because if it's so self evident to even ME, it's pretty darn self-evident.

Let's prepare ourselves for an embrace of traditional lending standards. There is no other way to restore faith and trust in the integrity of mortgage lending. If we are to retain investor confidence in any form, we must assure the market that real risk assessment will take place in the mortgage loan approval process. Matching truly qualified borrowers with lending products that make sense for their financial situation requires thoughtful examination by a trained human underwriter.

I don't propose a return to the stone age, but I would certainly consider losing FICO scores and vendor managed quality control programs. A dose of good old fashioned due diligence is what we need to recover and recover we will. ;)


tfatkins said...

If lending standards don't return to something more traditional, the entire economy is at risk. Investors will have no confidence in the paper and the broker will be left holding the bag. We need to get back to 80% LTV.

Diane Cipa, The Closing Specialists® said...

We've had plenty of good traditional experience with higher LTVs and FHA/VA or PMI - pre-1990. The key is to have real live, trained human underwriting. If we can't restore qualified teams of underwriters then you would certainly be right. In the absence of good due diligence, 20 percent equity does the risk reduction job for you. Thanks for taking the time to add you thoughts on this tfatkins. We're in for some very interesting announcements from all the agencies.

tfatkins said...

Following up - LTV greater than 80% is OK as long as PMI is in the picture. That puts two underwriters on the loan.

Diane Cipa, The Closing Specialists® said...

Agreed. Those 80/20's were pretty darn scary.