Proof of income now required

Bloomberg reports that mortgage giant Fannie Mae, after posting another multi-billion dollar loss for the second quarter, has wisely decided to require proof of the borrower's income or assets for all mortgages it buys or guarantees.

Present-day septuagenarians and octogenarians must be scratching their heads, wondering why anyone would lend money with no proof of the borrowers' ability to pay it back in the first place.

Similarly, future historians will someday sharpen their pencils and comment, amazed at just how dumb early-21st century bankers were.

Fannie won't accept ``newly originated'' Alt-A loans after Dec. 31, according to a statement today. The mortgages, which make up about 11 percent of the $3 trillion financed by the Washington-based company, accounted for almost half of second- quarter credit losses, Chief Financial Officer Stephen Swad said today on a conference call.

The debt, generally considered between prime and subprime in terms of expected defaults, has ``driven our credit expenses,'' Chief Executive Officer Daniel Mudd said on the call. ``Alt-A foreclosures have doubled in southern California.''

It's going to be a long hard slog back to normalcy - if we can get back there.