Monday, December 22, 2008

Morgan Stanley - It’s Big Part in the Great Housing/Mortgage Crisis

By Mr. Mortgage:

Below is an actual marketing piece from Saxon Mortgage wholesale, a Morgan Stanley mortgage chop-shop. These were loans being offered in July of 2006. As you can see here, by this time they had clearly lost all sense of responsibility in lending. Programs this out of touch with reasonable and responsible lending practices are only about one thing — getting as many loans as they could for MBS and CDO machines.

Financial weapons such as these made to blow up unless housing appreciates at an incredible rate is the real reason for the housing and mortgage bubble. But why did they care — after a few months the loan was securitized and sold with little recourse back to the bank. Below Morgan Stanley’s sheet is a key to what these things mean if you don’t already know.

July 2006

Notes:

1. ‘575′ refer’s to the credit score and ‘100%’ to the loan-to-value or combined loan-to-value. This is zero down/zero equity loan with 575 scores. A 575 borrower can’t even get a loan through FHA now days at many banks.

2. BK refers to bankruptcy. This is a zero down/zero equity loan to 100% with a 600 score with a BK discharged only 6 month ago.

3. BK Stmts refers to bank statements. This means they treated bank statements the same as real proof of income such as tax returns and a pay stub. They labeled it ‘full-doc’ and could get higher prices/better ratings when sold/securitized. Bank statement lending is very risky.

4. 2nd/Vacation homes are generally treated the same as a primary residence but most 2nd homes during the bubble years were really non-owner occupied investment properties, the most risky.

5. 560 credit score is very Subprime. Allowing interest only and likely qualifying the borrower at the interest only payments vs. the full indexed payments is what is responsible for the 2/28, 3/27 reset disaster.

6. VOR refers to verification-of-rent in lieu of a property management firm or mortgage history. This just means ‘hey first-time buyer — have a friend sign this form, get it back to us and you have instant housing credit history’. ‘Private party VOR’s’ is an endorsement to commit fraud.

7. Refers to ‘no questions asked on how you got the down payment’. This means they could have borrowed it from a bank, credit card, friend, robbed a bank etc. Not having a seasoned down payment that belongs to the borrower makes the loan more risky.

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