We all know how that one ended, and many of us know how the Liars Loan Debacle will end too.
You cannot lend money carelessly to anyone who can smoke a mirror (Casey Serin), with no proof of income, no proof they can pay the money back and no proof they didn't take out multiple other liar's loans concurrently.
Oh, I correct that. Yes, in today's environment, you CAN lend money out carelessly to anyone. And that's why the mother of all meltdowns is underway.
Note, I'm short IndyMac (NDE), far and away the biggest issuer of liar's loans, via an October put.
Bear Stearns, IndyMac Say Subprime Woes Won't Spread
March 29 (Bloomberg) -- Bear Stearns Cos., the biggest U.S. underwriter of mortgage-backed bonds, said the surge of defaults in subprime home loans won't spread to other parts of the mortgage market, and IndyMac Bancorp Inc. said losses from more creditworthy customers are far below industry averages.
Lending 100 percent of the home value, not verifying borrowers' income and lower credit scores caused U.S. subprime defaults to rise, said Tom Marano, head of Bear Stearns' mortgage business, in a New York meeting with investors today. Only 7 percent of Alt-A mortgages, another low-documentation loan that's drawn scrutiny, combine all three risk factors, he said.
Shares of companies that offer less-risky mortgages including IndyMac Bancorp have fallen this year partly because investors were concerned Alt-A loans may go sour. Regulators including Federal Reserve Chairman Ben Bernanke said they don't see any ``spillover'' of defaults into safer mortgages, and IndyMac said today the industry's loss rate on Alt-A is one- seventeenth the level of subprime loans.
``The contagion isn't that big a problem,'' Marano said. ``I don't see the risk as being that significant at this point.''