Crash Victim: The Mortgage “Honor System”
I thought I knew a lot about go-go mortgages. I had already written several articles about the explosive growth of liar’s loans, no-money-down loans, interest-only loans and other even more exotic mortgages. I had interviewed people with very modest incomes who had taken out big loans. Yet for all that, I was stunned at how much money people were willing to throw at me.
–Edmund L. Andrews, “My Personal Credit Crisis“; The New York Times (5/14/09)
When Times financial reporter Andrews says personal, he means personal: the details are things you wouldn’t even expect close friend to divulge.
Leaving aside the stress, aggravation, etc. that has engulfed Andrews and his family, he reports a phenomenon I saw and heard about in spades a couple years ago — namely, anyone with high credit scores could borrow virtually as much as they wanted.
Which is why I routinely counseled my clients to distinguish between how much mortgage they could qualify for, and how much they felt comfortable borrowing.
Today, of course, that advice is no longer necessary: banks once again are telling customers how much they can borrow, instead of vice versa.