In both cases, the share of low-doc loans increased over the years, as shown in Figure 6.
To most observers this would bring into question the wisdom of originators who increased the proportion of low-doc loans in their mortgage pools.
Relaxed underwriting criteria and low-doc loans
reduce the time from loan application to loan closing and enable brokers to generate greater loan volumes.
Can this risk be mitigated in the absence of basic due diligence (eg, no-doc, low-doc loans
) and under the pressure of predatory lending practices?
At the NEMBC in Newport, Steven Cofsky, chief director of examinations, Massachusetts Division of Banks, Boston, said his department is "finding that a lot of fraud and predatory lending is not happening in stated-income or no- or low-doc loans
. We're finding a lot of it in full-doc loans." Cofsky then drew nervous laughter from his audience when he noted, "When we pull a file now, frankly, we don't believe anything that's in [it].
Minorities and women have benefited slightly from Low-Doc loans
. According to President Clinton, "We expanded loans to minorities and women dramatically without lowering the volume of loans to other businesses or without lowering the credit standards one single bit."
On the other hand, some low-doc loans
can carry a higher risk of delinquency, default and foreclosure.
Recently, however, both of these agencies have discontinued or curtailed the purchase of no-doc and low-doc loans
. If your customer is not willing to share this information with you, you should think twice about originating the loan.
A survey last fall of 200 correspondent lenders by the Washington, D.C.-area Mortgage Banking Research Group uncovered evidence of this strong demand for low-doc loans