Stated Income (Liar Loans) Still Available for Some
By: Rosemary Rugnetta
July 28, 2010 (FreeRateUpdate.com) – Not so long ago, during the height of the housing boom, roughly 40% of all new mortgages originated were stated income or low doc loans. Then came the financial crisis and the housing crash in 2007 during which time 39% of the sub prime mortgages, which included stated income and low doc loans, defaulted. With thousands and thousands of loans defaulting, lenders quickly discontinued their stated income mortgage programs indefinitely. That is until this year. It is fair to say that stated income (liar loans) loans are still available for some, but not for all.
The stated income loan is a mortgage in which the lender does not verify a borrower’s income with actual pay stubs, tax returns and W2′s. In many cases, assets are also stated and not verified. Originally, these loans were intended for small business owners and self employed individuals who may have had a difficult time documenting their income over a two year period. They also became popular amongst borrowers with questionable credit histories who had entered the sub prime arena and for investors who did not want to give out their financial information when all they wanted to do was flip the house they were purchasing. For other borrowers, using a stated income loan was a way to buy a home that they could not qualify for under normal conventional loan terms. As for income, borrowers were simply asked to state their income on their application to the lender although some stated income loans did require a verification of employment or a certification of business.
After the housing crisis, studies showed that most borrowers exaggerated their income by an average of 15% to 19% with some even higher. Thus, the stated income loan inevitably was now labeled the liar loan.
When housing collapsed, most lenders quickly stopped all stated income loan programs. Although there were still some hanging around, as of February, 2010 only 8% of all loans originated were stated income loans. Even today, stated income loans (liar loans) are still available but there is definitely a price to pay for them. They are quietly being offered by smaller community banks and lenders who are keeping them in their own portfolios.
Unlike the past, these loans are not easy to obtain and come with a price.
So who is eligible to be approved for the current stated income loans? Qualifications for stated income loans are credit scores that can be as low as 660 to as high as 720 with down payments from 30% up to 60%, depending on the lender.
Naturally, these loans present a higher risk to lenders and, therefore, carry a higher interest rate than the majority of loans on the market. These are not your typical requirements that any loan shopping consumer can easily meet.
Yes, stated income (liar loans) are still available for some, but with these stipulations and conditions, a very select few or the wealthiest of borrowers will be the only customers applying and getting approved for this type of loan.