My problem is that I tend to think about issues over a few days or weeks before I feel comfortable commenting. I apologize. What more can I say?
This lead in is because a few weeks ago the news carried the issue of widespread attacks on the practice called: 'no document loans.' Such loans were common in the 15 years before the housing bubble burst. They were even more common in the San Francisco Bay area.
I didn't comment on it at the time because I assumed that most readers would discount the naïveté of the attacks on such loans. As time went by it became obvious that these attacks on no document loans were being made by people ignorant of their function.
No document loans were made to small business people and independent self employed. All of us such people file a schedule C tax return that shows virtually no net income despite whatever our gross income may be.
Bankers and lenders are completely incapable of understanding a schedule C tax return and estimating actual disposable income. Disposable income is necessary to make loan payments on a mortgage. It is much easier to understand a salaried tax return.
The no document loans were based on a 20% down payment on property that was in a rising market and seemed safe. It was the only option available to lenders who are unable to understand the taxes and finances of the millions of self-employed and small business population.
So when you hear the term no document loans, you should think favorably about them because they allow the self employed and people with small businesses to buy homes.