Many self employed folks ask this question. In my opinion, yes. I think stated income loans will once again be a prodcut offered by most banks. Here is why I think this will happen: Mortgages are bundled up and sold as securities (bonds). Right now the federal government is buying most of these securities. Hence the reason for such low interest rates and strict underwriting guidelines.
When the Feds stop buying mortgage backed securities and private investors begin buying them it's my belief that they will eventually get tired of a paltry 2%-3% return on their bond investments. This desire for a higher rate of return I believe will once again spur creative financing options.
Why would banks do this? Because investors are often willing to take higher risks for a higher rate of return. If any of you reading this own stock in a company or a mutual fund then you have likely taken risk higher than that of a US Treasury. It's a matter of demand - if investors want it then banks will produce it. However I seriously doubt you will ever see underwriting as liberal as it used to be.
Approximately 10.4 million Americans are self employed. During the housing crises many of the stated income loans were available to wage earners (W2 employees). This loan product was initially created for self employed borrowers with complicated tax returns. But with a strong demand for higher returns the stated income wage earner and no doc loans were born. The stated income wage earner loan was the main culprit for mortgage defaults on the stated income loan versus those for the self employed borrower.
Bond rating agencies are to blame for our housing crisis.
These were rated as AAA (low risk) mortgages when in fact there were a lot of high risk loans mixed with the low risk loans. Sort of like selling a bag of apples with rotten ones hidden at the bottom but then telling you they are all fresh. Had the bond rating agencies rated the bonds accurately and had investors knew what they were buying the crisis would have unfolded differently. Less people have an appetite for low rated bonds and a much smaller segment of the mortgages would have defaulted.
As long as regulators carefully screen bond ratings on mortgage backed securities then I don't see more stated income loan issues when they come back.
Last time I checked (a few weeks ago) we were doing stated loans ... of course one had to put 40% down, but they are available. Now just to find me a buyer that has 40% to put down!! :)
Hi Steve - Yes it's true! Some hard money lenders and others will allow them with a huge down payment. I guess I should have clarified that it would be a normal loan product. Thanks!
I really hope that we will!! I've got a few self-employed buyers on the sidelines with enough money to pay for a home with cash...but would rather finance one with 20%-25% down! Money in the bank doesn't seem to hold that much weight anymore and it certainly should!
Hi Stephen - I hope I am right and think I am right but one never knows. I have a lot of SE borrowers who want to refinance but can't. Thanks for stopping by!
Nevin,
This is an important topic. Thanks for your insightful post on this. It will be interesting to see what happens...
I think it is good product if the income is presented, but not as it used to be where you just say jour income and broker doesn't even check it. Or mortgage broker just make it up.
www.atlantamyhome.com
Tony -thanks!
Johnny - I understand what you are saying but how do you present income when a SE borrower has so many write offs. If they are going to present income then just go full doc. I think the stated income loan should be based on a percentage of their gross revenue before adjustments.
Good question Nevin. The numbers of self-employed people says a lot. I would think 10.4M is understating however.
Carla - You probably right. I used statistical data from US Census but I'm sure they are missing a lot.
Nevin, we have stated income programs. 70% LTV with rates below 6%. The lenders with these products are keeping the loans in their portfolios and not re-selling. I know California is an issue but there are a couple of banks doing it there in certain locations only.
Eric - I also have lenders doing stated income 70% mainly in CA. However I am speaking about this type of loan being a standard product, 80 or even 90% LTV nationwide.