As we know all too well today, that underwriting method has the potential to be abused and Krystofiak's main point in the interview was that it was being heavily abused at the time by mortgage brokers, particularly in high-cost states. The underwriting was intended for borrowers who face hurdles when applying for financing because they don't earn a regular paycheck--borrowers like real estate sales people, as a matter of fact.

But the use of stated income had gone far off the charts at the height of the housing boom. Krystofiak says account representatives at the big lending houses were typically seeing half the loan applications coming in from mortgage brokers underwritten as stated income, and some account executives were seeing more than 90 percent of their loans coming in that way.

These numbers applied to subprime as well as conforming loans. Indeed, the automated underwriting software of Fannie Mae and Freddie Mac permit originations to be structured as stated income at the same pricing as fully documented loans. With good pricing as their incentive, mortgage originators would "change the numbers until they got the response they wanted to hear" from the software, said Krystofiak.

In some cases, borrowers didn't know their loans were being structured as stated income. All they knew was that the loan officer had made it possible for them to get the home they wanted, and at the same pricing as fully documented loans. What's more, they didn't have to submit their past tax returns or recent pay stubs. For an unsuspecting borrower who knows little about the mortgage process, what could be better than that?

Given the resulting disaster we've seen in the mortgage market, with hundreds of thousands of loans going bad, particularly in the subprime area, you'd think mortgage brokers would stay as far away from stated income underwriting as they could. But just last week I received a promotional e-mail from a mortgage broker touting stated income underwriting for loans up to $1 million, either fixed-rate or adjustable, at full-doc pricing. No doubt the mortgage broker is trying to leverage the new $720,750 maximum high-cost conforming loan limit passed by Congress for 2008.

To be sure, borrower's would have to put some skin in the game: maximum LTV is 75 percent for loans up to $650,000, 65 percent for loans up to $1 million, and 70 percent for second-home loans. Borrowers who can't come up with equity in these amounts could try to get a second loan, but lenders say that's difficult today.

But at its core the ad is a marketing pitch for stated-income underwriting, which we've seen can wreak havoc on markets when it's made available indiscriminately to borrowers for whom it wasn't intended. Let's hope lenders take a balanced approach and limit stated-income underwriting to borrowers who really need it.