Subprime’s own HAL 9000

Software designed by a former NASA engineer in the late ’90s was widely used by subprime lenders to screen prospective mortgage borrowers. The Internet-based software allowed lenders to assess borrowers’ financial backgrounds in seconds rather than taking the time to collect hard copies of applicants’ income statements and credit histories. Automated underwriting therefore allowed subprime companies to approve loans to ever-greater numbers of borrowers by significantly reducing the old paperwork process, and it is now said to generate as much as 40 percent of all subprime loans. Critics of the software said it allowed lenders to take shortcuts in terms of assessing mortgage candidates’ ability to pay off loans. more [NYT]