Home loan shopping still far from perfect

Part 1: Choosing a mortgage

The mortgages being written today are certainly better matched to the needs and payment capacity of borrowers than they were before the crisis. The major reason, however, is not better decision-making by consumers, but elimination of the toxic mortgages that led so many consumers astray.

The option adjustable-rate mortgage, or "option ARM" that allowed borrowers to make payments in the early years that did not cover the interest while exposing them to the risk of sizable payment increases in the future, are no longer being offered. Its somewhat less-dangerous cousin, the interest-only mortgage, is still around but priced so high that few borrowers select it.

Another reason the quality of mortgage decisions has improved is that the subprime and alt-A markets, which had channeled loans to consumers with the weakest qualifications for homeownership, are both gone. The average mortgage borrower today is much better qualified than before the crisis because the less-qualified borrowers are not being approved.

However, better decisions resulting from a curtailment of options and tighter eligibility requirements are not an unsullied blessing. The option ARM had some legitimate uses, and these have been lost along with the abuses. Worse, more stringent qualification requirements have overshot the mark and some very well-qualified consumers, including large numbers of the self-employed, are unable to borrow.