Mortgage brokers in at least some parts of the country tell us that lenders are starting to offer stated-income loans again.
These are the kind of mortgages that were for small business owners and self-employed professionals who can’t document their income with W-2 forms as most types of mortgages require.
Problems arose during the real estate boom when lenders started pushing no-doc loans with consumer-pleasing features such as no down payments, and big fees for mortgage brokers.
The number of applications for stated-income loans soared as brokers began signing clients up for no-doc loans even if they had regular jobs and could fully document their income with W-2 forms.
It allowed them to inflate their client’s income, and that was the only way those clients could qualify for a loan that was big enough to buy the house they wanted.
When hundreds of thousands of these “liar loans” began to default in 2007, lenders discontinued their stated-income mortgage programs.
Two years later some small to medium-sized banks are tiptoeing back into the market.
Not everywhere. Mortgage brokers tell us that stated-income loans are still virtually impossible to find in California, where much of the abuse occurred.
Some of the stated-income loans we’re hearing about are pretty awful.
One Michigan bank is offering a five-year balloon mortgage at interest rates from 8.95% to 14.95% depending on your credit score, with a 25% down payment (or 25% equity for a refinancing).
But brokers on the East Coast told us about stated-income loans with much better terms:
- Emigrant Savings Bank of New York is charging an initial rate of about 8% for a 3/1 adjustable-rate mortgage and 9% for a 30-year fixed rate loan. Borrowers must have credit scores of 700 or above and 30% down payments for a purchase and 35% equity for a refinancing.
- Investors Savings Bank based in Short Hills, N.J., is charging just a quarter-point above the interest rate for fully-documented loans for borrowers with a minimum credit score of 700, a 40% down payment, four months of cash reserves and proof of assets.
- Hudson City Savings Bank, based in Paramus, N.J., is charging three-quarters of a point above the full-doc loan rate for borrowers with a well-established credit history and a down payment (or equity) of at least 40%.