Possible End of Stated Income Mortgages... Drop In Home Prices Coming?
Stated Income Mortgages (sometimes called "Liar loans") for Salaried Borrowers may be going away soon, if you read this from pages 10 - 11 of the Interagency Guidance on Nontraditional Mortgage Product Risks...
questioned whether stated income loans are appropriate
under any circumstances, when used with nontraditional mortgage products, or when
used for wage earners who can readily provide standard documentation of their wages.
The final guidance also cautions that institutions generally should be able to readily document income for wage earners through means such as W-2 statements, pay stubs, or tax returns.
There is typically only one reason why a borrower who works at a job and has paystubs and w-2's uses a "stated income" loan. That reason is because they cannot qualify for the mortgage loan because their income to debt ratios calculations are too high... (or according to current guidelines, they don't make enough money to qualify for a loan that size).
These types of mortgage loans have allowed people to drive up the prices of homes in California to a point where the home affordability index stands at the low teens assuming a 20% down payment...
If the mortgage lenders start eliminating the stated income loan to comply... real estate prices across the nation will drop... Possibly significantly as those who currently have these types of loans most likely will not be able to refinance in the future.
What is your observation of borrowers who use this type of loan... are they trying to buy more house than they can afford or do they really not want the hassle of finding their paperwork so they can save .250 - .500% on the mortgage rates?