Magazine article Mortgage Banking

Getting Off-Track

Magazine article Mortgage Banking

Getting Off-Track

Article excerpt

Many industry veterans saw the train wreck coming way back in the early 2000s. In our October 2005 issue, we ran a cover with a photo of a house sitting on the moon with the headline: "Uncharted Territory," and that pretty well summed things up. The underwriting, by then, had gotten completely off-track. And when that happens--all veteran lenders know--the chickens, always, come home to roost.

Back in that October 2005 issue, an article by Steve Smith, president and chief executive officer of PMI Mortgage Insurance Co., Walnut Creek, California, seemed particularly foreboding. Here's some of what it said: "What we are seeing today is an unprecedented layering of significant risks to mortgage borrowers, lenders and investors. There's a difference between a gamble and a calculated risk. I've been in the mortgage business for more than 30 years, and I'm afraid that the mortgage lending world is leaning toward the former rather than the latter."

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Smith added, "New loan products, stretched borrowers, less equity, geographical concentrations: Each of these developments in isolation might not be sufficient to cause concern. ... These developments, however, have not occurred in isolation."

The article paints a painfully bleak picture, in retrospect. But the lessons are timely today, as we seek to rebuild the industry on stronger ground. One statistic about the disappearance of borrower equity seems particularly telling: "Once upon a time (and not that long ago, either) you saved a down payment, took out a 30-year mortgage and bought a house; when you finished paying it off, you held a mortgage-burning party. …

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