A recent report by analysts at Credit Suisse estimates that 80% of subprime loans made in 2006 included low "teaser" rates; almost eight out of ten Alt-A loans were "liar loans", based on little or no documentation; loan-to-value ratios were often over 90% with a second piggy-bank loan routinely thrown in.
Nearly half the loans on its books were "low documentation loans" that required less evidence of the borrower's ability to pay than did conventional loans.
And so mortgage brokers began to market subprime loans (made to people with poor credit scores) and Alt-A (or low documentation) loans with greater intensity.
"The market is paying me more to do a no-income-verification loan than it is paying me to do the full documentation loans," said William Dallas of Ownit Mortgage Solutions.
In May, 2006, the Consumer Federation of America published "Exotic or Toxic?" — a thirty-three-page paper describing the explosive growth of nontraditional mortgages, among them No Down Payment Loans, Option A.R.M.s (which allowed borrowers to decide how much they wanted to pay each month), and Low Documentation loans.
Under the rules, which take effect in January of next year, lenders cannot make so-called "no documentation" loans or offer deceptively low "teaser" interest rates, and they must take substantial steps to make sure that the borrower can afford to repay the loan.
While no documentation loans don't officially exist anymore, the difference between the no-doc loans of 2007 and today's alt-doc loans is pretty small.
Low and no documentation loans are called Alt-A mortgages, and they fall between prime and subprime loans in terms of interest rates.
[1]Stated income and reduced documentation loans... are open invitations to fraudsters.
But they said reduced documentation loans were rare at the time and generally would have come with a price markup.
You know, the liar loans, also know as no-doc ("no documentation") loans, in which all the borrower had to do was fog a mirror.
