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High Demand for Stated Income Loans Signals Opportunity for Investors
12 Feb 2009 | 1 Comment | posted by Corey Curwick | in News
I wanted to continue on the discussion about Stated Income Loans from a post on the blog from a few weeks ago, “Stated Income Loans – A Thing of the Past?”
A banker friend of mine shared an interesting fact about her bank’s portfolio of stated income loans. Less than 1% of this said portfolio is currently in default! This fact is amazing because it says a lot about how this particular bank has underwritten its stated income loans. It also says a lot about the ability of the majority of these stated income borrowers to cover their debt service.
Of all of the requests for loans, the most frequent request is for a Stated Income loan. The common assumption, that its a sub-prime borrower who is requesting the stated income loan, is actually wrong. Its actually the qualified self-employed, entrepreneur, investor, or other business owner who is requesting the stated income loan. And these people are coming in droves!
This represents a potential loan niche due to both the high demand from borrowers and their unique financial strength and good track records.
Let’s start from the borrower’s perspective. What is the rate of interest that the qualified, stated income borrowers typically seek? The majority of qualified stated income borrowers that I know are looking for a rate in the sevens, however, many of them are willing to sit down for as high as nine percent!
Now let’s go back to the other side of the table to where the investor sits. What would be the real rate of return on this type of investment should a group of investors decide to take advantage of this niche? With rates as high as say nine percent, along with fees and points, would it make sense as an investment in the current market?
Another consideration here is the loan to value. With real estate prices still dropping, is 75% enough to recoup your investment should a borrower default? But how likely is it that the borrowers would default if the loan is underwritten properly?
If you had access to capital right now, would you invest in a stated income borrower? What are the pros and cons and what is the real rate of return for this investment?
Posted by Corey Curwick on February 12, 2009
This article was written by: Corey Curwick
1 Comment
I have seen stated income loans only get into trouble when they were used as “liar loans”. When loan officers took good credit borrowers and stated income that were not really making thus qualifying them for loans they couldn’t really afford. There are those, such as self employed, who could benefit from stated income loans when their income taxes is not a true reflection of their income. Hard money seems to be a creative way to do that though based on what I have seen, it does come at a much higher cost.