No Documentation Mortgage - No Doc

You run a mortgage company. You don't see yourself as some pencil pusher, tied inexorably to numbers and algorithms. You go with your gut. You trust your instincts. You basically see your persona in the mortgage financing world like that of a U.S. marshall in the Old West. Potential borrowers walk into your office. You like the cut of their jib. They just seem trustworthy to you. No need for ugly questions like "How much do you make?" or "What's your credit score?" or "Are you employed?" You just pull a sack of cash from under the counter and hand it over. They are off to buy their dream home. That's the fundamental structure of a no documentation mortgage. It bipasses the copious documentation usually necessary to get a mortgage loan.

As you might guess, it's not a well-regarded business practice. It was basically only popular for a short period of time...the brief era that ended with the mortgage meltdown and the financial crisis of 2007-2008. Basically, during the height of the mortgage boom, when originators could sell off any mortgage to "financial innovators" who packaged them into mortgage-backed securities (which in turn could get sold to suckers on Wall Street), mortgage originators couldn't crank out new loans fast enough. There was a race to get deals done as quickly and painlessly as possible.

Thus, the no-doc mortgage had its heyday. As we've suggested, it did not end well. These deals, which fall into a category of mortgages known as "Alt-A" (basically a short step above the dreaded "sub-prime" designation), contributed to the pool of toxic mortgage debt that nearly brought down the financial system in 2008. The subsequent economic crisis required a substantial government bailout to untangle everything.

It made no-doc mortgages dramatically less popular. It still comes up occasionally for specific cases, however, as in instances where people are self-employed or otherwise don't have standard documentation for their incomes.