Did You Know?

Due to the high foreclosure rates of certain loans, a lot of lenders are making it more difficult for certain clients to get a mortgage.  A self employed borrower typically writes off expenses to reduce their taxes.  Doing this reduces their overall income as it would be calculated by an underwriter.  In this case a loan officer should ask the borrower what they actually earn, in other words 'State' the amount of income they make.  This would be a 'Stated Income' Loan.  Lenders are now requiring a minimum of a 660 middle credit score for 100% financing(zero down), with more preferable rates starting at 680.  In January 2007 we could have closed a stated 100% loan with a minimum score around 600 - 620.

Problems arose because loan officers were not asking what their clients actually make; they calculated what income was needed to qualify the borrowers for a house and used that number as the borrowers 'Stated' income.  One lender did some research on their portfolio of defaulted stated income loans and found that around 60% of the defaulted stated income loans showed income that was at least double the income that the borrower actually made.  The loan officer should have given these clients a 'No Income' loan, where you only show that the person has a job or has been self-employed xnumber of years then leave the income section blank.  The rates would be slightly higher but rates only increase in proportion to the amount of risk the lenders are taking.

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