Okay, so Freddie says they'll stop buying loans that have a high likelihood of default and that its sub prime purchase strategy would change, essentially meaning they'll stop buying sub prime loans.

It also means they'll take a stand against other "alternative" loan types, particularly loans that have "stated" or other non-verified data.

I used to be a big fan of stated loans. I might still be but perhaps I'm just getting tired of getting beat-up on by third-party know-it-alls screaming that lenders are making loans they shouldn't be making.

I'm not going to argue that point. Goodness knows there are people with loans they have no business having. But my take has always been that the "stated" or "alternative" loan program had a niche that needed to be filled both from a marketing standpoint as well as simply for borrower convenience.

Apparently though, the alternative loan market has grown so fast that, depending upon which market you look at, alt loans make up the majority of home loans made.

In addition, "stated" income loans may not be the slight "bump" in income but more of a flat-out lie to get qualified. That's why "stated" income loans earned the moniker "liar's loans" because the income was in all likelihood artificially increased either by the consumer or the loan officer just to qualify for the new house.

(That new house that was sold for a ridiculously high price I might add solely due to the emergence of exotic mortgages. Yeah, right.)

Anyway, the term "liar's loans" had always irked me. Stated loans are for those who either don't have to document their income or assets because of their credit scores or don't want to due to an occasional complex nature as to how the borrower gets paid.

Like an author who might write a book once a year and get a royalty check but unlike someone who gets a paycheck from their employer every other Friday. Stated loans offer convenience.

But one can't ignore delinquency rates. One can't ignore foreclosure rates. And one can't ignore lenders shutting their doors or filing for bankruptcy because the loans they originated went bad and they can't afford to buy them back.

Something is definitely out of whack.

But I have an idea: Stop making stated income loans altogether.

Stop making "no doc" loans, too. Stop making any kind of loan that isn't verified by disinterested third parties. Like in the good old days, right? Wouldn't that shut everybody up? Can all the consumer groups just go home now? After all they should be all worn out from protecting people all day long from mean lender-types. No?

So let's just cancel the whole parade and go back to standard underwriting guidelines and cut out all these alternative loans once and for all. I'd be for it. Cut out all the superficial "save the consumers" thing and just drop the exotic mortgage gig and press on.

What would our landscape look like? Would home sales slow down? Sure they would. Depending on which source you look at, alternative loans make up more than half of all home sales.

If people are lying to get into a home they couldn't afford then outlawing alternative loans would solve that. There would be some potential homeowners mad because they couldn't qualify. And there would be some mad loan officers and Realtors would be mad, too.

There would be some mad attorneys. Of course, there would be some mad title agencies as well and mad appraisers. Escrow agents would be mad. Home inspectors wouldn't like it too much, either. Insurance agents wouldn't like it. Home Depot wouldn't like it.

Me? I don't really care. I never really did a whole lot of them anyway. Let's just get back to our roots and do everything by hand. What do you think?

Published: March 9, 2007

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.