Will stated income loans ever come back?

By
Mortgage and Lending with Sierra Pacific Mortgage Raleigh

Many self employed folks ask this question.  In my opinion, yes. I think stated income loans will once again be a prodcut offered by most banks. Here is why I think this will happen:  Mortgages are bundled up and sold as securities (bonds).  Right now the federal government is buying most of these securities. Hence the reason for such low interest rates and strict underwriting guidelines.

When the Feds stop buying mortgage backed securities and private investors begin buying them it's my belief that they will eventually get tired of a paltry 2%-3% return on their bond investments.  This desire for a higher rate of return I believe will once again spur creative financing options.

Why would banks do this?  Because investors are often willing to take higher risks for a higher rate of return.  If any of you reading this own stock in a company or a mutual fund then you have likely taken risk higher than that of a US Treasury.  It's a matter of demand - if investors want it then banks will produce it.  However I seriously doubt you will ever see underwriting as liberal as it used to be.

Approximately 10.4 million Americans are self employed. During the housing crises many of the stated income loans were available to wage earners (W2 employees).  This loan product was initially created for self employed borrowers with complicated tax returns.  But with a strong demand for higher returns the stated income wage earner and no doc loans were born. The stated income wage earner loan was the main culprit for mortgage defaults on the stated income loan versus those for the self employed borrower.

 

 

Bond rating agencies are to blame for our housing crisis.

Bond chart

 

These were rated as AAA (low risk) mortgages when in fact there were a lot of high risk loans mixed with the low risk loans. Sort of like selling a bag of apples with rotten ones hidden at the bottom but then telling you they are all fresh. Had the bond rating agencies rated the bonds accurately and had investors knew what they were buying the crisis would have unfolded differently.  Less people have an appetite for low rated bonds and a much smaller segment of the mortgages would have defaulted.

 

As long as regulators carefully screen bond ratings on mortgage backed securities then I don't see more stated income loan issues when they come back.

 

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Nevin Williams II

Sierra Pacific Mortgage Company Phone: 888-206-5781 (919) 863-4370

nevin.williams@sierrapacificmortgage.com

NMLS #: 69651

 

2501 Blue Ridge Road

Suite 250, Office 229

Raleigh, NC 27607

Company NMLS # 1788 | www.nmlsconsumeraccess.org

Rates, terms and programs subject to change based on market conditions and borrower eligibility

Licensed in California by the Department of Business Oversight under the Residential Mortgage Lending Act

Licensed in North Carolina

Licensed in Virginia

 

 

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Show All Comments
Rainer
290,847
Richard & Carol DeGrace
1st Colonial Community Bank | Bank - New Jersey - Cherry Hill, NJ
Mortgage Loan Officers NJ 609-209-3700

Last time I checked (a few weeks ago) we were doing stated loans ... of course one had to put 40% down, but they are available. Now just to find me a buyer that has 40% to put down!! :)

Feb 06, 2010 09:42 AM #1
Rainmaker
404,508
Nevin Williams
Sierra Pacific Mortgage Raleigh - Raleigh, NC
Raleigh Mortgage Pro

Hi Steve - Yes it's true!  Some hard money lenders and others will allow them with a huge down payment.  I guess I should have clarified that it would be a normal loan product.  Thanks!

Feb 06, 2010 09:46 AM #2
Rainer
208,203
Stephen Arnold
HomeSmart International - Scottsdale, AZ
CRS, GRI, SFR

I really hope that we will!!  I've got a few self-employed buyers on the sidelines with enough money to pay for a home with cash...but would rather finance one with 20%-25% down!  Money in the bank doesn't seem to hold that much weight anymore and it certainly should!

Feb 06, 2010 10:07 AM #3
Rainmaker
404,508
Nevin Williams
Sierra Pacific Mortgage Raleigh - Raleigh, NC
Raleigh Mortgage Pro

Hi Stephen - I hope I am right and think I am right but one never knows.  I have a lot of SE borrowers who want to refinance but can't.  Thanks for stopping by!

Feb 06, 2010 10:12 AM #4
Anonymous
Anonymous
Anonymous

Nevin,

This is an important topic.  Thanks for your insightful post on this.  It will be interesting to see what happens...

Feb 06, 2010 10:39 AM #5
Rainer
19,006
Johnny Sabic
www.atlantamyhome.com - North Atlanta, GA
Atlanta Real Estate

I think it is good product if the income is presented, but not as it used to be where you just say jour income and broker doesn't even check it. Or mortgage broker just make it up.

www.atlantamyhome.com

Feb 06, 2010 10:45 AM #6
Rainmaker
404,508
Nevin Williams
Sierra Pacific Mortgage Raleigh - Raleigh, NC
Raleigh Mortgage Pro

Tony -thanks! 

Johnny - I understand what you are saying but how do you present income when a SE borrower has so many write offs.  If they are going to present income then just go full doc.  I think the stated income loan should be based on a percentage of their gross revenue before adjustments.

Feb 06, 2010 10:49 AM #7
Rainmaker
1,287,643
Carla Muss-Jacobs, Principal Broker/Owner
BuyersAgentPortland.com | (503) 810-7192 Portland Metro Exclusive Buyers Agent | 100% Buyer Representation ~ 100% o... - Portland, OR
Buyer Focused ~ Buyer Results

Good question Nevin.  The numbers of self-employed people says a lot.  I would think 10.4M is understating however.

Feb 10, 2010 11:58 AM #8
Rainmaker
404,508
Nevin Williams
Sierra Pacific Mortgage Raleigh - Raleigh, NC
Raleigh Mortgage Pro

Carla - You probably right.  I used statistical data from US Census but I'm sure they are missing a lot.

Feb 10, 2010 04:44 PM #9
Anonymous
Anonymous
Janice

Hey there,

My husband is a SE and we have a stated loan with the bank now a 7.something % interest on a 30 yr. fixed.  He is interested in lowering the interest rate as well as putting it on a 15 yr.  We as well will have to do a stated loan.  He has neve been late on the mortgage.  Can you help us with any info. that might help us? 

Nov 15, 2010 09:12 AM #12
Anonymous
Anonymous
Joey

Nevin,

I have a client who fits the 70% LTV, Great Credit and Assets and is in California. The client is Self Employed and needs a Stated Income loan. The client is high profile and I can not provide too much info. How can I touch base with you to find out which lenders are still doing Stated Income?

Dec 09, 2010 05:11 PM #13
Rainmaker
404,508
Nevin Williams
Sierra Pacific Mortgage Raleigh - Raleigh, NC
Raleigh Mortgage Pro

Janice - I sent you a PM

Joey - Unfortunately Barney Frank and Christopher Dodd created and passed a law that prohibits lenders from funding loans without checking the income of the client otherwise the lender can be sued if the borrower defaults on their mortgage.  For this reason I don;t think we will see them come back.  Not that they aren't in demand, our politicians killed this chance for excellent credit self employed borrowers

Dec 09, 2010 07:14 PM #14
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Rainmaker
404,508

Nevin Williams

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