I was going to let this pass without commenting, but just can't do it.
I keep watching the financial "experts" on TV who come on and talk about the new mortgage rules as if this is something that no one did before. They are talking about "qualified" loans.
These rules are the original underwriting rules that good savings and loans used for years before the commercial banks and mortgage brokers got into the business of lending for homes. The entire banking and lending business started going downhill many years ago when the criteria that had been used for years was ignored in favor of "no docs, low docs" and speeded up underwriting and loan commitments.
I'm not speaking from a spectator point of view. I worked in the business and saw it evolve over a period of almost 40 years. I was taught lending and servicing procedures at a very conservative savings and loan. I can tell you that if those procedures had been kept and used, the mortgage loan bubble would never have happened.
We were taught to use a specific loan-to-income ratio. Credit was checked and analyzed by the people who were underwriting the loan, not the credit scoring that is done now. The mortgage application was taken face-to-face by a loan officer.
Our system was to have the loan officer take the application and order all of the required items such as credit report,property appraisal, pest inspection, etc. In the case of a construction loan, the officer kept track of the work in progress.
When the loan papers were complete enough to make a decision, the application was sent to a loan committee. There the application was discussed and reviewed by several experienced loan officers. It was either approved, denied, or sent back for more information. In the case of really large loan, it went to a senior loan committee, comprised of senior officers.
The loan officer who originally took the application could either recommend or deny the loan, but the final decision was made by the committee.
I can assure you that those techniques made good solid loans. We did not put borrowers in danger of losing their homes. We did not have the tremendous amount of foreclosures that we see today.
The banking industry went from a conservative, solid place to do business to a wild west type of lending and servicing customers. Employees were pressed to produce loans and to "sell" products. People were employed on the basis of their sales ability rather than their knowledge of banking or their background in finance. By the way, employees were salaried or paid by the hour, they were not paid "bonuses" for producing huge amounts of loans.
I embrace a return to conservative lending, to loan servicing departments that don't lose paperwork and entire loans. I want to hear some degree of banking knowledge coming from the person that I deal with in the bank.
Hooray for the "new" rules...they are only the "old" rules brought back because they worked, on behalf of the lender and the borrower.
