Lowell Deeds

The latest on real estate recordings and new technology from the Middlesex North Registry of Deeds in Lowell

March 23, 2007

Instant Loan Approval

by @ 8:39 am. Filed under Real Estate, Technology

Today’s New York Times has a fascinating article about a retired NASA engineer who played a pivotal role in creating the system that has led to the meltdown of the subprime mortgage market. Nearly a decade ago, web-based automated underwriting software developed by Edward Jones was embraced by the lending industry as a way of speeding the loan approval process. More recently, lenders in the subprime market used this application, which relies on a mathematical mashup of credit scores and income, to give “instant approval” to even the most precarious borrowers. A number of representatives of major subprime lenders interviewed for this article spoke glowingly of this software, asserting that they never would have processed the large number of loans they did in 2003-2004 if they had to rely on mere human beings to approve these loans. Even today, these lender representatives want us to believe that this software was a good thing, that by taking human judgment out of the decision making process, it also eliminated bias or favoritism. Apparently these folks have never heard of the “GIGO factor” – an old computer term that means “Garbage In, Garbage Out.” If a potential borrower who’s making $30K per year states during the 10 second approval process that his income was $80K per year, there’s no way to verify it (nor was there any interest in verifying it, apparently). Although Mr. Jones made millions from the mortgage industry, his perception of it is informative: “You know that old symbol of the snake eating its own tail? Well, we’ve always thought the [mortgage] industry was that. And that’s kind of where we’re at right now.”

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