1. What is a stated income loan?
  2. What is a stated asset loan?
  3. Is it possible that I got a stated income loan without knowing?
  4. Why would banks want to make loans that sound very risky?
  5. I thought that these loans are only offered to a small portion of clients. Don't you have to have either a large down payment, or a lot of equity? And aren't theses loans only for people with high credit scores and high incomes?
  6. I have heard that these types of loans do not have a history of a higher default rate, is this true?
  7. So does this mean if I have credit card debt and no more equity in my home I will be unable to refinance the equity out again and have to declare chapter 7 bankruptcy on my credit card debt.
  8. In my refinance or last home purchase it was more convenient for me not to have to collect and mail my tax returns, paycheck stubs and bank statements when obtaining my last mortgage.
  9. But these loans are the only way my bank will allow me to use the income on my side business that does not show up on my taxes.
  10. My income fluctuates from month to month since I am on commission/ self employed. So the only way for me to purchase a home is with a stated income loan.
  11. These loans are not that popular though, right?
  12. I am sure there are laws already on the books to prevent predatory financing and to stop loan originators from committing fraud?
  13. Is the MBARL concerned with both negative amortization loans and Interest only loans as well?
  14. What is the difference between a Loan officer, mortgage broker, and Mortgage originator?
  1. What is a stated income loan?

    A stated income loan is where the income that is put on a mortgage application is not verified at all. Not by taxes or even with pay check stubs. The bank simply believes that the income that is put on the application is 100% true.
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  2. What is a stated asset loan?

    A stated asset loan is very similar to a stated income loan. But instead of the bank not verifying the income put on the application, the portion of your application not being verified is how much you have in your checking account, savings account, 401K, or your stock accounts. The bank simply believes what is put on the application. In most cases stated asset loans are used in conjunction with a stated income loan.
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  3. Is it possible that I got a stated income loan without knowing?

    Absolutely. Just because your loan officer, mortgage broker or mortgage originator collected your tax returns and pay check stubs does not mean that they actually supplied those documents to the bank or lender. It might have seemed that your loan officer was doing you a favor by getting you a loan that you NEEDED in order to purchase the home of your dreams. But that loan officer might have put the necessary income on your application to obtain the high loan, not the income you really do make.
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  4. Why would banks want to make loans that sound very risky?

    Banks allow such high volumes of risky loans to be originated because days after the loan funds they get pooled together with millions of dollars of other loans and sold to financial institutions, pension companies, life insurance companies, foreign governments and the US federal government on Wall Street on what is called the secondary market. Between 40-50% of all outstanding loans in the United States are owned by the federal government. After the loans get sold, which is very easy to do in the secondary market, the banks earn a nice profit and go out to find more loans to originate. John R Vogt, the Executive Vice President of The Bond Market Association wrote in a letter to federal regulators that, "selling and securitizing loans is one of the most important ways financial institutions manage their risk exposure."
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  5. I thought that these loans are only offered to a small portion of clients. Don't you have to have either a large down payment, or a lot of equity? And aren't theses loans only for people with high credit scores and high incomes?

    If the income is never verified no one would truly know if a person makes a "high income." And as far as your other portions of the question, we at the MBARL have seen a loan where you can purchase a home with 0% of a down payment, state your income AND state your assets. This same loan will allow a fico score of 620 (680 is average). Lastly this loan program will allow someone to borrow up to $950,000 dollars. This proves that virtually anyone can purchase a home of almost 1 million dollars.
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  6. I have heard that these types of loans do not have a history of a higher default rate, is this true?

    To answer this question you would have to look at the history of these loans. Since these loans only became popular in 2002 and 2003 we only have about 4 years of history to go by. And in those 4 years our country has seen historic high appreciation levels. With that said there is not much reason for these loans to have a high default rate, yet.

    If you purchased a home in 2003 with a stated income loan, and it was more than you could afford monthly, you would have had the option to put your extra day to day expenses on your credit card and in only a few shorts months you would be able to take out the equity out of your home and pay off your credit cards because your home appreciated so much. Unfortunately this cycle will end once appreciation goes back to historical averages (single digit appreciation). When this happens their will be many defaults because homeowners will no longer be able to take out enough equity from their homes to pay off their credit cards.
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  7. So does this mean if I have credit card debt and no more equity in my home I will be unable to refinance the equity out again and have to declare chapter 7 bankruptcy on my credit card debt.

    Unfortunately this option might not be a possible solution for some people. Under a new law bankruptcy law that went into affect in October of 2005, those with insufficient assets or income could still file a Chapter 7 Bankruptcy, which, if approved by a judge, erases debts entirely after certain assets are forfeited. But those with income above their state's median income who can pay at least $6,000 over five years - $100 a month - would be forced into Chapter 13, where a judge would then order a repayment plan. Unfortunately with the new bankruptcy law (that was passed through congress in early 2005 and signed by the president) a bankruptcy judge might push the foreclosure process though on your home as well.
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  8. In my refinance or last home purchase it was more convenient for me not to have to collect and mail my tax returns, paycheck stubs and bank statements when obtaining my last mortgage.

    I can see why you would not want to collect papers for 5 minuets and pay the postage to send them if you did not have to. But let's take a look at what that would have cost you. To be very conservative banks would increase your interest rate by .125% so you would not have to prove your income with paper work. (in some cases the interest rate can be more than .5%!) On a $300,000 loan this would cause your yearly interest payments to increase by $375. Over 3 years that would be more than $1100. If consumers knew this knowledge most would choose to dig into their files for that paperwork and save their hard earned money.
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  9. But these loans are the only way my bank will allow me to use the income on my side business that does not show up on my taxes.

    Well that means instead of committing mortgage fraud you are committing tax fraud. And the MBARL does not believe that banks should make the home buying process easier for people who do not pay their fair share of taxes.
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  10. My income fluctuates from month to month since I am on commission/ self employed. So the only way for me to purchase a home is with a stated income loan.

    Not so, before stated income loans became popular (before 2002) loans were often made available for people in your situation. Home buyers would show their last 2 years of tax returns and usually the bank underwriters would take an average of the last 2 years. You inferred in your comment that some months you can make a lot and sometime not. So why should a bank with a stated income loan only consider your income on your "good" months. The previous underwriting standard still allowed people to purchase homes. We at the MBARL feel that by getting rid of stated income loans, and by going back to traditional under writing practices, that self employed and commission worker will still be able to purchase homes.
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  11. These loans are not that popular though, right?

    These loans became popular in 2002, and have only become more widespread since. In 2005 37.2% of non-agency mortgage backed securities were no document loans. In 2004 49.3% of ARMS with interest only features that were originated lacked full documentation.
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  12. I am sure there are laws already on the books to prevent predatory financing and to stop loan originators from committing fraud?

    Unfortuntely the laws that are on the books are not being enforced. Mortgage originators are fully aware of this. That is why when homeowners receive fliers in the mail to refinance, or pop ups when using a serach engine, many of the adds are not compliant with current laws.

    Special Agent Kellee Casebeer of the Dallas Division Field Office for the FBI, reported that the world transformed for white-collar crime on Sept. 11, 2001. It was the number one priority of the FBI prior to the terrorist attacks in New York and Washington, D.C., on that day. "But afterward, combating white-collar crime became number seven," she said. "All the issues of terrorism moved into those first six slots."

    What's worse, Casebeer said, "within white-collar crime, financial institution fraud is number four, and within that is mortgage fraud. So, unfortunately you're number four of number seven," she told mortgage professionals in the audience, drawing some nervous laughter.

    The federal law enforcement agent said that "as a result of shifting priorities, at this time, we're not going to be able to expend resources on fighting fraud." Although she invites reports of fraud, the FBI must carefully prioritize cases to pursue and one consideration is whether there will be formal prosecution. Casebeer said: "If the United States Attorney's Office will not prosecute, we won't investigate [cases]." [Reference]
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  13. Is the MBARL concerned with both negative amortization loans and Interest only loans as well?

    The MBARL feels that both negatively amortized loans, more popularly known as Option Arm Loans, and interest only loans do serve a role in today's mortgage marketplace. Where we do see a danger is when these loans are pushed onto consumers without the homeowners knowing the full implications of these loans for there financial future.

    The MBARL is also concerned that homeowners, especially homeowners purchasing their homes only in the past 6 years, have been told by real estate "professionals" that home prices will only go up or in a worse case scenario your home might possibly flatten off. Many homeowners who have owned homes for over 30 years, knows this is not true. Home prices do go both up and DOWN! This optimism by homeowners concerns the MBARL because in many cases consumers are choosing loans based on the assumption that their home will only go up in value. This is proven with the fact that in 2005 negatively amortized loans in the San Francisco metropolitan area accounted for over 29% of all loans originated. People in this area are under the false mind set that there homes will never go down in value.
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  14. What is the difference between a Loan officer, mortgage broker, and Mortgage originator?

    The short answer is little to nothing. Every small and large business who either funds their own loans or brokers them out might use a different title for a person to describe the same thing. For all intents and purposes all of the above titles do practically the same job which is find a client, find them a loan, and see the process through to the end. Some mortgage businesses might have more people in the process, but it all comes to the same thing in the end, helping someone get a loan.
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