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Stated Income Loans – A Thing of the Past??
3 Dec 2008 | 3 Comments | posted by Corey Curwick | in Success
Are stated income loans a thing of the past? Many people say stated loans are the reason for the current turmoil in the credit markets. I tend to disagree. I think banks made poor underwriting decisions with stated income loans. I also think stated income loans are a necessary wheel in the economy.
For example, a banker friend of mine recently told me she is one of the major advocates at her bank for keeping a stated income loan program. Why? Because only one loan in her entire portfolio of stated income loans is currently delinquent. This automatically tells me that it’s the banks which have caused the problems with stated income loans and not the borrowers. Yes, I agree, there are many exceptions to this but let’s talk about the kinds of borrowers who actually need a stated income loan.
Take a recent example of a man who came to our company recently looking for a stated income loan product. This man has 10 free and clear rental properties, all but one of these are cash flowing. He recently sold his business for millions and is coaching a local baseball team and enjoying some time off. He also has 4 million cash in the bank.
So he goes to his local bank where he’s done private banking for years and has built a relationship with his private banker. He asks his banker to refinance his home. Life is good right? Well, not so good because he can’t qualify for a conventional loan through his bank and they no longer have a stated income product.
There are a lot of hard-working people out there that are building businesses and doing great things to move money in our economy that can’t get credit. Most entrepreneurs, the self-employed, self-made investors, and other business owners tend to fall in the stated income borrower category for a variety of reason. Stated income borrowers are sometimes fairly large players.
If you belong in this category, no longer can you rely on your private banker to help you meet your financial goals. The days when you could tell your banker your true financial situation and goals are now in the past. Your banker’s hands are tied. An experienced broker, who has multiple money sources and understands how to creatively structure a deal, is a key factor in the financial success of the new movers and shakers in the economy.
Posted by Corey Curwick on December 3, 2008
This article was written by: Corey Curwick
3 Comments
Corey, you are right on. I have self-employed borrowers who have 300 grand in the bank, looking for 50% LTV, 760 credit scores and they can’t get a loan?! The economy will NEVER come back until people like that can get a loan. Another guy had 3 MILLION in the bank looking to buy a house and he couldn’t get a loan because he owned a huge international business with write-offs and had to go stated. He couldn’t buy a house with 30% down and 810 credit score! The housing market will never come back until these people can get loans. Common sense lending needs to come back where you look at each loan on a case by case basis and make an intelligent decision on the risk. Everything went to credit scoring only and that is when things went downhill from there. And with the elimination of sub-prime, the hard money lenders are having a feast! Wall Street is so dumb it took them till yesterday to figure out we were in a recession since last December. WOW.
Corey,
You are right on. The stated income loan needs to come back to help get residential real estate inventory moving, especially in the $400,000+ category. I’ve said for many months that 90% of the people who own those houses in the Salt Lake Valley could not qualify for the mortgages they have. That being said, stated income is not for the W2 employee who does not make enough money to qualify for his dream home. It should be for self employed borrowers with difficult or impossible to prove income, with lengthy excellent credit history, with assets that substantiate the income stated and substantial down payment or equity.
You guys just completely described our situation. My wife is a full-time teacher, and makes very little, and I own a physical therapy company. My credit score is 749 avg, and we have equity out the whazoo in not 1, but 4 homes (3 of which are rental homes, with positive cash flow). We are trying to purchase a house in a short sale right now and the house (according to the tax appraisal and independent appraisal) would instantly have nearly $200,000 equity in it. Guess what? We cannot get a loan because we cannot show the income. Obviously we are paying for what we have, but they cannot see how…I wish there was a stated income option! Anyone have any suggestions…and in a hurry???