[quote=FormerSanDiegan] . . . Of course, the most important feature of those performing loans that originated from 1988 to 2002 is that the owners are likely to have significant equity, even after the steep decline of the past couple of years.[/quote]

Yes, concur, FSD. Most of these loans were made INSIDE the bank by the bank’s OWN employed loan officers (in SD: Home Savings, Great Western, Downey, World Savings, Security Pacific, etc), who were the “direct lenders.” Now most of these remaining mortgages have been “inherited” by the few current “Big Banks,” lol. Disclosures for these mortgages indicated that 100% of them were kept AND serviced by the actual lending bank and were never sold on the secondary market. In addition, they had certain (very straightforward) rules and features, listed here in no particular order:

-1 to 4 residential units
-20% down was usually mandatory;
-PMI was not prevalent;
-no impound services were available;
-1st TD’s only;
-pre-approval letter issued to buyer by bank’s local underwriter within a week AFTER qualification process and $40 fee pd (for credit report);
-qualifying ratios used the current fully-amortized payment (Option 3);
-11D program adj monthly and the 1YR T-bill adj once annually (after initial 3 mo “teaser” period);
-teaser rate applied for first month only (11D) or first 3 mos (1 yr T-bill);
-margins 2.4% – 2.75%;
-recast performed by bank if/when mtg balance hits 125% of orig value;
-reset on 1YR T-Bill program to occur ONLY on adj date;
-mortgage payment could be made at any branch teller counter ON the last business day occurring up to 15 days after due and avoid the late charge;
-fairly strict front end/back end qualifying ratios of 29/41;
-prime and alt-A only (after credit scores became avail, about 727 was the lowest accepted, under certain conditions);
-no tax-return submission needed;
-21-30 day closing;
-verification of employment/income/funds on hand performed twice, at opening of escrow and right before COE;
-no prepayment penalty or owner-occupancy requirements;
-borrower’s choice of paying on 1st or 15th of the month;
-doc drawing fee $150, free if redraw due to errors;
-no alienation clause, fully assumable to “qualifying” borrowers for a set small “assumption fee”
-no “garbage” charges
-very often no “origination fee”
-no appraisal fee (banks owned appraisal and borrower couldn’t see unless property didn’t appraise), appraisers directly employed by bank;
-and, of course, no interest buy-down (points) or “lock-in” fees.

Applying for and closing one of these RE mtgs back then was easy, breezy, professional, fast and cheap. They were manually underwritten by a local banker (who could make decisions locally). In the vast majority of cases, the closing docs were drawn very clean with ZERO surprises.

Borrowers in Option ARM programs during this era qualified for these mortgages at a “fully-amortized rate” of about 6.7% to about 10.8%. Of course, since the COF index has really dipped in recent years, those that still have these mortgages are along for the ride 🙂

Note: In this (now defunct) “lending model,” you didn’t see the rampant incompetency and confusion displayed by mortgage lenders today.