An income tax return is a mortgage where the income of the borrower is tax – deductible , income tax returns, or other records. Instead, borrowers are simply asked to state their income, and taken at their word. These loans are sometimes called loans or liar loans . [1] Stated income loans Were originated by Ameriquest . [2]

Reasons for stated income loans

These loans are for self-employed borrowers, or other borrowers who might have difficulty documenting their income. Stated Income Statement , Including Subprime Borrowers. The lack of verification makes these loans particularly simple targets for fraud . [3]

Stated income loans that would not be available. For example, a mortgage and other loan payments should be taken no more than 45% of the person ‘s income. This would seem prudent for a person just their own home. However, a real estate investor may receive a small amount more than their loan payments on each house, but end up with $ 200,000 in disposable income. Nevertheless, a non-stated income loan would decline this person’s debt to income ratio would not be in line. The same issue can arise with self-employed borrowers, where the bank with a fully documented loan would include the borrower’s debt in their debt to income calculation. Stated income loans also help borrowers where fully documented loans as well as earnings. Fully documented loans. Another type of loan is the disclosure loan.

In August 2006, Steven Krystofiak, President of the Mortgage Brokers Association for Responsible Lending , in a statement at a Federal Reserve hearing on mortgage regulation, reported that his organization had a sample of 100 reported mortgage applications to IRS records, and found almost 60% of the sampled loans had overstated their income by more than 50 percent. [4]

In 2010, the Dodd-Frank Wall Street Reform and Consumer Protection Act , restricted income loans, went into effect. Section 1411 of the Act states: “A creditor making a residential mortgage loan shall verify the amounts of income or assets of such repayment ability …” [5] Currently, lenders are conducting their own version of income and asset verification.

Stated income loans are typically small local banks. Qualification requirements are based on stable employment, good reserves, good FICO and no less than 40% equity position in the property. Stated income loan.

See also

  • Alt-A mortgage
  • William K. Black
  • Financial crisis of 2007-08

References

  1. Jump up^ [1]Sounds Warning On Stated-Income And Interest-Only Mortgages, Realty Times, January 10, 2005
  2. Jump up^ Paul Muolo and Mathew Padilla. Chain of Blame . John Wiley & Sons , 2008, 2010. p. 86. ISBN  978-0-470-55465-4 .
  3. Jump up^ ‘Liar Loans’ Contribute to Mortgage Problems, NPR, March 17, 2007
  4. Jump up^ Steven Krystofiak,[2], statement at a Federal Reserve, August 1, 2006, cited in Mark Gimein,Inside the Liar Loan: How the Mortgage Industry Nurtured Deceit,Slate Magazine, April 24, 2008
  5. Jump up^ Section 1411 of Financial Reform Bill,[3], August 2010