Tuesday, December 02, 2008

Are "Stated-Income" Loans a Thing of the Past?

Realtors and other self-employed people are finding it harder to get a mortgage even when they have a substantial downpayment. In the past many self-employed took out "stated-income loans," which don't require borrowers to fully document their income. Defaults were low. But as lenders loosened their lending practices and began offering these stated-income loans to other than affluent professionals, they became known in the industry as "liars' loans." Today many banks will not offer them at all.

Underwriting criteria for the self-employed have swung from a simple process to being tighter than any in modern times. The changes are increasingly frustrating a group of borrowers that banks once coveted: affluent self-employed professionals such as doctors, accountants, lawyers, and small business owners.

Banks say they have concerns documenting the self-employed's cash flow due to the deductions and write-offs that the self-employed show on their tax returns. And there are no W-2s to support their income. Lenders are also cautious because the non-salaried can have greater volatility in their annual income.

So as the Feds try to ease the housing crisis, thousands of good borrowers are frozen out of the market.


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At 9:57 AM, Blogger Richard said...

I think so, I guess the only way they come back is with high LTV's

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At 2:52 AM, Blogger Jo said...

I agree! A lot of self-employed buyers are finding it extremely hard to get financing. I did read recently that the banks are thinking about bringing the stated income product back. It was in the Mortgage Orgination news. Thank you!

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At 8:07 AM, Blogger Bon Ryan said...

Thanks for the update! I hope the island has fully recovered now.

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