I would welcome comments from community activists, regulators and industry participants about how far lenders could prudently go in approving loans with high debt ratios in order to provide mortgage credit to low- and moderate-income individuals. I note that certain GSE programs permit debt ratios up to 40%. This does not seem terribly high (or high enough) to me. What do you think?

-- Jeremy Rosenblum (rosenblum@ballardspahr.com), May 27, 1999

Answers

Many private lenders will offset those ratios with stronger equity. Ratios up to 55-60% are available with strong equity positions. Rates are generally 3-8% over market. These loans are termed sub-prime but have been around for years.

Recently, they have been marketed more aggressivly than is prudent for the lender and the consumer. The next recession will see a large upswelling of these loans going into default and foreclosure.

Consumers will be impacted as well. The knee jerk reaction will be to punish lenders with additional legislation, that are associated with subprime. What most fail to see is that the lender that makes errors by being overly aggressive in this business will be "self- punished" as they will go out of business. Over the last year, there are hundreds of examples.

www.eZDesk.com is a "members only site" serving the interests of mortgage professionals while urging "golden rule" standards within the industry.

-- Paul Christison (solutions@eZDesk.com), September 26, 1999.