No-Doc Loans Returning?

The undocumented income or no-doc loans got a bad reputation when the housing crisis occurred. Some borrowers who used the loans misstated and inflated their income, (some with the support from now out-of-business brokers). The loans thus became labeled, "liar loans". But experts say these types and other alternative loans may soon be making a comeback.

"There's little appetite for no-doc loans at this time," says Dustin Hobbs, spokesperson for the California Mortgage Bankers Association (CMBA). Hobbs spoke to me via telephone from the CMBA's 37th Annual Western Secondary Market Conference in San Francisco.

While Hobbs doesn't know exactly when these types of loans will return, he believes they will make a comeback. Some experts say they could return in six months. "There's definitely a segment of borrowers, that in some cases, this is the only product that will help them purchase a home. [The loans] will come back at some point; it's just a matter of how fast the economy turns around and how fast we get back to a period when lenders and investors are willing to take on some level of risk," says Hobbs.