Blunt Words on America's Mortgage Meltdown

Aug. 24, 2007 — -- You would not know it by the snap in his step, but former Navy pilot Tony Cato is a warrior on the front lines of America's mortgage meltdown. Cato, who is now a mortgage broker, has hit the streets to survey the damage and shore up the troops.

First stop: a meeting in downtown Washington with assorted real estate pros, including agents, a lawyer and a condo developer. Cato's message is blunt. "The party is over," he told them.

That is, the party of easy money, no down payments, teaser interest rates and home values that soared like helium balloons.

"I think last year was a party," Cato continued. "Everybody came to the party … We were able basically to give out money through people not proving their income -- 100 percent on $650,000 loans, $700,000 loans."

The agents, of course, are seeking assurances that their home buyers can still get mortgage money.

"Now, what can we do if the rates are going up 6, 8 percent?" asked James Williams, a real estate agent at Cato's meeting. "What are the things that we can do as real estate agents to help lessen the burden?"

The answer is a cold splash of the new housing reality: Traditional lending standards are in, exotic mortgages are out.

"We are going to get back to the basics on conforming," said Cato. "So when I am saying let's get back to basics, if a person doesn't have any assets, if a person doesn't make the income, what are we doing putting him into those mortgages anyway?"

It's a good question, and one put to Cato himself as he hustled between appointments. After all, brokers like him made a lot of money hawking those mortgages when the real estate party was rocking.

"I could find a product for you some way, somehow, and if I couldn't do it as a primary lender, I could go to a broker who could do a subprime loan or an alt-a loan where we don't need documentation. There was just no reason to say 'no' because we had a product for you."