Stated Income Home Loans Return

Stated Income for Self Employed

Stated Income for Self Employed

Words like “stated income” and phrases like “1 day after short sale” combined with “mortgage product” remind us all of the precursory times that led to a Real Estate debacle which then led to an economic meltdown.   As a mortgage banker that has been through the before, during and after those words stir up similar connotations.  My mind flashes words careless, reckless and irresponsible across my radar.

However, the resurgence of these types of words slipping their way back into the mortgage vernacular may not warrant such harsh recollections.  In fact, these words are being refined at the factory before being shipped out to the market.  The carelessness and greed that accompanied these mortgage products pre-melt down have been ground down and sanded out of the “new” versions of these once poisonous home loan options.

Alternative Home Loans – Then vs. Now

Back “then” some stated income loans were doomed from the start (and so were some stated loan applicants).  They allowed homebuyers to aimlessly state their income.  This was an option even for someone who was paid a salary or earned a W2 wage (in other words fully documentable income).  There was often no “reasonableness” test performed against the stated income.  The loan applicant’s statement of income earned was taken at face value.  They were also often allowed to purchase without any down payment.  No verification of a stated income borrower’s minimum net worth was required.   Credit score requirements were often virtually non-existent so people who have poor attitudes/abilities to meet pre-existing debt obligations were allowed to take on significant new mortgage payments.  Essentially, we have just described the mortgage wild west.

Today, a stated income loan still allows the home buyer to “state” their income.  However, that same borrower now must be self-employed in order to use todays’ stated income loan.  After all why would a W2 wage earner be allowed to state their income?  The modern stated income borrower must also provide business bank statements so that a lender can analyze deposits and expenses to confirm that the stated income is deemed realistic and reasonable.  A stated income borrower must also put at least 30% down (far cry from the 0% down programs of yesterday).  Credit scores must be high.  The new version of a stated income borrower must document a significant net worth in order to qualify for today’s stated income loan.

Sensible Mortgage Lending in the Gray Area’s

Mortgage Lending is not and cannot be black and white in order to serve everyone effectively and responsibly.  However, for quite a while it has been very cut and dry.  Post melt down, Federal Regulators birthed all kinds of restrictive legislation into the home loan industry.  Lenders were timid to offer much more than standard conforming lending products.  While conforming lending products serve the vast majority there is a segment they cannot serve.

Today, home loan lenders are stepping into the gray toned middle ground .  A very different area of lending than what they were immersed in pre-meltdown.  It may look similar or even the same at first glance.  I implore the critics of today’s gray area to look deeper.  The devil is in the details as they say.  Today’s mortgage lender offering a reduced document loan is responsible, thorough and confident. Yesterday’s mortgage lender offering a stated income loan was reckless, short-sighted and hasty.

By Jeremy House

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Jeremy is the Founder of The HOUSE Team and a Sr. Loan Officer/Branch Manager with PrimeLending. Over the past several years he has ranked in the top 1% of all loan officers nationwide and one of the top 200 loan officers in America. In the mortgage industry, the devil is in the details. Jeremy prides himself on being a student and an expert when it comes to everything mortgage related.

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