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"Liar loans" ("no income verification" mortgages) were originally a good idea when they were introduced by Citicorp(?) back in the late '80s. They were designed for self-employed people with good credit who had a difficult time qualifying for mortgages when underwriters had to rely on income tax returns for calculating income/debt ratios.

The more recent practice of offering "no income verification" mortgages to people with shaky credit was a disaster waiting to happen. Well, it is happening. Surprise, surprise.

The more recent practice of offering "no income verification" mortgages to people with shaky credit was a disaster waiting to happen.

I'm exactly the kind of person that "no doc" loans were devised for: consultant with a 780 FICO score. I had no idea they were giving them out to indigents living in Section 8a housing. That's kind of insane.

In any case Biz Week did an excellent article on the topic of option ARMs last year, everyone should take a look:

BUSINESS WEEK ONLINE
SEPTEMBER 11, 2006

COVER STORY

Nightmare Mortgages
They promise the American Dream: A home of your own -- with ultra-low rates and payments anyone can afford. Now, the trap has sprung

No one worries about used car lots with pay-as-you-go signs. No one worried when the entire rural economy was 'floated' by merchants fronting goods for the whole year to farmers, cattlemen, miners.
Almost every business in every industry carries or takes on zero no interest deals, hoping the commercial partner can move the goods. Car dealers are stuffed with 0 down deals.

Hooey, the whole bag.

There are going to be some great deals out there. None of these financial firms want to have houses/condos spread out all over.

For the last decade, at least, all anybody could talk about was how much their house had gone up and how smart they were. So, now they get to talk about something else. Everybody knew this was coming. Housing is doomed stories have been in every paper for two years.

If you want a house. Wait. Values will continue to slip and more and more people will get tired of maintaining and getting fees and taxes.

By the way, something to think about. Building materials continue to increase. Labor costs creep up even with illegals doing the work. The administration costs of putting up a single house continue to climb.

On the down side there is a huge increase in square foot per person. Then again, people like houses. We could well be a house crazy nation. What's wrong with that? So we did the typical American thing, too much. This is new? We work too much, drink too much, drive cars too big.... So long as the Democrats stay out and the houses and money stay liquid, we can all sit down with enough chips to start the cards dealing again.

The more recent practice of offering "no income verification" mortgages to people with shaky credit was a disaster waiting to happen. Well, it is happening. Surprise, surprise.

Precisely. I can't see why this is shocking anyone.

Talk about a coincidence: Our current governor, Deval Patrick, was on the board of Ameriquest, one of the shadiest of all sub-prime mortgage lenders.

Even a few years ago, a subprime person could get a no income verification loan - but the catch was, the loan-to-value ratio (the % that can be borrowed against the home's value) was VERY low - like under 70% at the highest - so that it was almost impossible to see a loss - the person could easily sell and even if the bank did take the house it was almost certain they'd recover the loss.

And it was usually only for certain situations, not for any average Joe to buy a house he couldn't afford.