by Calculated Risk on 9/22/2005 01:37:00 PM

SNL Financial reports:

Golden West CEO concerned about underwriting of competitors amid talk of housing bubble Golden West Financial Corp. Chairman and Co-CEO Herbert Sandler attempted to hammer home to investors that the company focuses on quality in underwriting mortgages, as opposed to some who just focus on generating volume, a practice that concerns the executive.

"Are we concerned about what we see happening in the field? Are we concerned about throwing around the so-called 1% payment rate on the option ARMs, attracting people who are not really qualified for loans? Yes, I'm scared to death about that," Sandler said at the Banc of America Securities 35th Annual Investment Conference. "We leave volume on the table because we give the correct appraisal [on properties]."
...
the executive pointed to the dramatic increase in the secondary market over the last year, with a number of players focusing on volume. And the executive believes that companies engaging in such a practice will face problems when interest rates eventually increase and home prices flatten or decline.

Sandler added that in some markets such as Las Vegas, Orange County, Calif., and Southern Florida — where housing prices escalate as investors purchase homes and look to make a quick profit by flipping the property — housing prices could drop dramatically.

"You're are going to see losses up the gazoo on those loans and you've got to be very careful about lending you do in any lending you do in those geographic areas," Sandler said.

And NBC follows up with this article: No down payment? No sweat

Push-the-envelope loans and low interest rates have taken housing to extraordinary levels in price and homeownership rates. And as lenders found more creative ways for people to buy, the higher prices attracted speculators.

Many warn this volatile combination could end in a prolonged period of stagnant or falling home values. That could bring more foreclosures and bankruptcies and undermine an economy relying heavily on housing.
...
Chris Thornberg, a senior economist with the UCLA Anderson Forecast, argues that the dramatic rise in what he calls "ultra-high-risk" mortgage financing is a sign of a "distended market."

"What happens when you run out of people who could even qualify to buy a house with an interest-only, (zero-down), variable-rate mortgage?" Thornberg asked. "The answer is ... there are no more shills to enter the bottom of this pyramid and, therefore, the pyramid scheme will have collapsed into itself. We are in the midst of the biggest bubble we've ever seen."

Blunt talk on a serious problem.