The stated income mortgage is all but gone these days. Stated income mortgage lenders were burned and burned badly during the mortgage meltdown so they pulled all of the stated products off the market.

Rob and I have been preaching to people for years about the dangers of the stated income loan. You can’t make up your income even on a stated income mortgage. That is loan fraud and it is wrong, wrong, wrong.

Stated Income Mortgage

AKA the Liar Loan.

The problem is I don’t think people are actually scared of the words “loan fraud” or the prospect of prison. However, they created their own prison of sorts by lying and making up income they did not have to qualify for the mortgage. A few months into the loan, they realize they can’t make the payment.

A large number of the defaults in the marketplace right now are on the stated income mortgage. Whether the borrowers themselves participated in the fabrication of their income or the loan officer took it upon themselves to doctor the numbers, that decision was a catastrophic one.

Gone are the stated income mortgage refinance they thought they could count on. Gone is the fixed portion of the loan so their payments have adjusted upwards hundreds of dollars. So they walk.

It was pretty common to get a stated income jumbo loan too. Most jumbos were adjustable and stated which is ok if you didn’t lie about your income and you had plenty of equity. But very scary if you lied about your income and your already huge payment just got bigger.

Stated income mortgage rates are or were higher than the verified income loan obviously. If the lender is not going to verify your income, it is going to be more expensive because it is more risky. Some lenders had separate programs with their own guidelines and rates for a stated income loan and others just had add ons to the base rate. Stated income second mortgages are also gone.

When the stated income mortgage comes back, and it will, let those who really need it use it. Stated income loans are for self employed borrowers whose CPA writes off a sizable chunk of their income. This paper loss lowers their tax bill, but also lowers their income once again on paper…not in the real world. This fake loss can be added back into the person’s income to more accurately reflect his real world income.

So, if your CPA didn’t write off paper losses in a significant way, a stated income mortgage is not for you!

The stated income mortgage pretty much left the marketplace in 2008 and will probably stay gone through 2009 but I am sure as the real estate market gets back on track and things head the other direction, they will be back. And for the folks who actually need them, that is a good thing.

Good Luck!

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