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US loses its mortgage eligibility



September 24, 2008 – Comments (0)

Once a customer walked into a bank and asked for a mortgage loan. The banker handed him a stated income form, on which the customer wrote "2.7 trillion dollars a year". Then the banker handed the customer an application form, which asked what kind of mortgage the applicant needed. The customer checked the "Other" box and wrote: "fixed-rate, zero-down-payment, 10-year mortgage loan at 3.7% for 11 trillion dollars". The banker laughed and showed the customer the door.

OK, it didn't really happen. After all, as we know, our customer (did I mention that his name was Sammie?) was able to find a subprime mortgage specialist who lent him this amount of money. But the interesting thing is, this stupid lender was a foreigner, most likely Chinese, or, perhaps, Japanese or Saudi. The customer had to turn abroad because no respectable banker within the US borders would underwrite a loan on these terms. In fact, American lenders had stopped making loans to the customer when his debt reached 7 trillion dollars, and after that, only the foreigners were still willing to do business with such a client. 

Eventually these foreign lenders will collapse like American Home Mortgage, Inc., and the market will flush them down the drain and restore the underwriting discipline.  

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