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July 15, 1991
A favorable inflation report has mortgage rates headed back down to their lows of the last 60 days. In a release Friday, the June Producer Price Index fell .3%, and even the persistent "core" rate held unchanged.
Retail Sales fell .2% in June, offsetting some of the healthy gain in May. A better measure of the economic recovery is fewer layoffs: new claims for unemployment insurance fell 35,000 this week the seventh decline in eight tries.
Sometimes you don't know you've crossed a watershed until you're at the bottom of the falls looking back up.
Daily experience with underwriters in 1991 is confirming the start of a barrel ride in late 1988. It didin't seem to be much of anything at the time, but it was.
1988 was the year that S&Ls began to be closed in large numbers. Thousands of S&Ls were broke going into 1988, but still open: Congress hadn't coughed up enough money to close them.
Pre'88 was the Night of the Walking Dead. Regulators had taken the pen out of the Chairman's hand, and there were no more ridiculous development deals. But they could still make home loans, and they could buy loans from mortgage bankers everywhere.
The conventionals were supposed to be Fannie/Freddie deals, but the Walking Dead were still trying to "earn" their way back to life. One way to make more loans was to have a creative view of underwriting. These gimme loans were the last lurch of the Walking Dead before the RTC arrived with wooden stakes and silver bullets.
At the same moment that Zombie Federal is finally buried deep, the latest easy underwriting idea "Limited Documents" is winding to an ungraceful end.
The return to underwriting rigor is bringing daily surprises to Realtors and borrowers alike.
"I've got half a million bucks in the bank, and you're telling me I have to have a job to qualify for a $1,500 house payment?"
"What do you mean we can't go to 90% LTV on that house? There's a 90% on it now that the ownwer got just three years ago!"
"Wait a minute. His alimony and child support count as a debt in his ratios? He's at 42% before his Subaru payment. Your numbers say he can't be paying the rent he pays!"
"I've been an accountant at Touche for 27 years. I'm putting 25% down, but because I opened my own firm six months ago, I can't get a fixed rate loan? That's a joke, right?"
No joke.
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