Some stories to chew over this fine morning

Existing home sales were a biggie yesterday, with news that activity fell much more sharply than expected. I shared a few comments on the topic with the Washington Post and the Sun-Sentinel.

Next up: New Home Sales at 10 a.m. The sales rate probably bounced back by a few percentage points from February, which was the worst month since July 2000. I say that because we had a slight pop in the Mortgage Bankers Association's purchase application index index in March, as well as better weather. But the big picture outlook for housing remains weak, regardless of what happened last month.

In other news, here's a great story on Bloomberg about "liar loans" -- known by their more P.C. name "stated income mortgages." It was an open secret during the boom that both mortgage brokers and borrowers lied all the time about incomes. It was the only way to push loans through the system; if real income figures had been used, the loans would have been kicked back as unaffordable by the underwriters.

These loans DO have a legitimate purpose -- to help self-employed borrowers or non-U.S.-citizens, who have difficulty documenting income in the traditional manner, buy homes or refinance outstanding mortgages. Unfortunately, they morphed into yet another "affordability product" used to keep volumes up as short-term interest rates rose and housing activity slowed.

Low or no-doc loans accounted for $276 billion, or 46%, of all subprime mortgages in 2006, versus just $30 billion in 2001, according to the story. Surprise, surprise -- the default rate on those mortgages was a hefty 12.6% in February, compared with just 1.5% on full-doc prime loans.