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No-Doc Loan? No Dice
Prior to the mortgage meltdown, it was easy to get real estate financing without a fully documented loan application.
“Many mortgage lenders set the bar so low that lenders simply took eager borrowers’ qualifications on faith,” said the government’s 2011 Financial Crisis Inquiry Report, “often with a willful disregard for a borrower’s ability to pay.”
Lenders also found other benefits to no-doc financing: The processing was quick, and borrowers often paid a premium rate for mortgages that lacked full documentation. After all, if a borrower had good credit and home values were always rising, why not offer such financing? The answer is that home values do not always rise, and good credit is not enough to protect lenders against risk.
These loans that came so easily between 2000 and 2007 continue to undermine the housing market and the economy. People who had good credit when paying $1,000 per month for a mortgage fell behind when toxic loan payments rose to $1,600 per month and higher.
Recently, some have argued that no-doc loans have value for borrowers who want privacy or because their finances are complex, a view which is not accepted by the overwhelming majority of lenders. However, some lenders are cautiously looking once again at no-doc loans – but they are not going near deals that lack substantial down payments or equity. They instead want borrowers to have big money invested in the property, so that if something goes wrong, it will be the borrower who loses money, not the lender.
Today’s no-doc loans have far-tougher requirements than the no-doc products of just a few years ago. Such mortgages are now generally jumbo-loan products that require 30 to 40 percent down, high credit scores and interest levels well above the rates paid by well-qualified borrowers who document their loans.
For specifics, speak with local lenders.
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to email@example.com.View Foreclosure Article Archives
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