The Self-Employed Loan Discontinued
ResMAE, a large stated income lender, announced a year ago the discontinuation of all their stated income loan programs used for self-employed borrowers. Since then virtually all sources of loans for the self-employed are all gone.
This isn’t surprising considering that most stated income loans in practice are simply fraudulent. The industry dubbed them liar loans. Bad originators and bad clients conspire to overinflated the stated income over the client’s actual income. The lenders were then on the hook for a slew of foreclosures based on fraudulent loan information.
As long as home prices kept climbing, the borrowers, many of them real estate investors, broke their backs to keep current on the payments and protect the appreciation.
Well those days are gone!
No appreciation to protect means more foreclosures down the road. More foreclosures mean less risky loan programs available in the market.
The entire subprime industry followed ResMAE’s example pulling all their stated income loans off the menu. Some may leave the 90% loan to value products in place, but not many folks use these low LTV options. The typical stated income borrower is the type of borrower who needs the 100% loan to value since not only does he not make enough money to qualify normally, he doesn’t save any money either.
But as I’ve been saying for years, the lack of prudent underwriting standards on these stated income programs would some day come back to bite us in the butt…that day is today.
Most of these stated income lenders are out of business due to the credit crunch in the Summer of ‘07, so obviously are their stated income loans.
My practice was not built on this type of borrower. Sure we did the occasional stated loan, but they were never at 95%-100% LTV. Our borrowers were not trying to “flip houses” or “get rich quick” a very typical use of the stated income programs.
If clients are okay lying about their income they’d be okay lying about whether they intended to live in the home. It’s those double liars that killed these programs…and the brokers, originators, and bankers that let them get away with it.
So for all the rhetoric about how stated income lenders help the part of our society that can’t accumulate down payment money and have “real” income issues, their true motivations emerged when they didn’t crack down on the obviously fraudulent borrowers and their originator partners in crime.
So in letting them get away with wholesale fraud, the lenders left themselves only one option when values dropped:
Kill the Programs!
So don’t believe the hype stated income lender spew about helping the working poor. The real desire was rooted in greed. They just gave the originators a wink and a nod and allowed them to misuse a program providing “flipper” real estate investors easy money instead of to those who it was intended.
Now the gravy train is over and so is the program too. What happened to being dedicated to the working poor??
Well, the same thing that always happens…
They are simply forgotten.
If you are WERE NOT a scum-bag flipper, but an honest self-employed borrowers who needed a loan to own a home, you’ve been thrown overboad right along with the bad boys.
It’s not fair, but the market often is not fair.
My question, “How are all the “good” stated income borrowers supposed to refinance or obtain a mortgage for a new purchase?
Terri has a few ideas for the income challenged borrowers in this new environment.
Terri wrote an article on it called Stated Income Mortgage Traps to guide you through dangerous waters.
Use her advice and the advice of a skilled, ethical, local broker to execute the strategy. Learn how to find and hire this local expert provider by reading our Mortgage Advantage Shopping System.
Good Luck
Author: Rob K. Blake
Published April 11, 2008
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The working poor should not own homes that are beyond their ability to put a reasonable down payment on and beyond 45% debt to income. If you don’t have cash reserves for a down payment, you probably don’t have any cash reserves for an emergency either. If you don’t honestly make enough to pay for a place using traditional ratios, you don’t belong in that home. Debt to Income and LTV ratios were created for a reason. It is to cut down on the number of people that default. You think people that have the ability to put a 20% down payment on a property and make enough to pay their bills are the ones defaulting on mortgages now?
There are plenty of people that should not own homes. They have bad credit histories on their other non-home loans, carry to heavy of a debt load and don’t make enough money to properly service their debt, or they don’t have the discipline to save and therefore have no money for a down payment. Most of these subprime lenders will lend to people that have the perfect storm of all of the above.
I am all about giving someone without enough money down a program. I am all about giving someone with imperfect credit a program. Giving a program to someone that is slightly short of the D/I ratio, but has a stable job history, income, credit score, and some down payment. These make sense. But now because of the abuses, these programs are gonna disappear. And all so that some speculators can lie on their applications so that they can flip houses and inflate the real estate markets.
March 9th, 2007 at 11:10 amLeave a Comment