My name is Steven Krystofiak, President of the Mortgage Broker Association for Responsible Lending. http://www.mbarl.org I have a letter in a word document form that highlights the risks of the current loan industry unrealized by regulators and economists alike, mainly due to stated income loans.
Email me at [email protected] if you want me to send you a copy.
~ Steve Krystofiak http://www.mbarl.org
A recent sample of 100 stated income loans which were compared to IRS records (which is allowed through IRS forms 4506, but hardly done) found that 90% of the income was exaggerated by 5% or more. MORE DISTURBINGLY, ALMOST 60% OF THE STATED AMOUNTS WERE EXAGGERATED BY MORE THAN 50%. These results suggest that the stated income loans deserves the nickname used by many in the industry, the “liar’s loan.”
13 main points in the letter are;
1. Stated income loans are associated with fraud, and started to become popular in 2002.
2. Banks originate these loans because they are profitable and then sell them to reduce their risk.
3. Fraud is encouraged by the banks
4. Stated income loans help no one.
5. Exotic loans originated with stated income are now causing foreclosures or forcing homeowners to refinance into negatively amortized loans.
6. Stated income loans are why home prices have skyrocketed. They have caused a large demand in the US housing supply.
7. Banks have sold their loans and have already made their profit. Investors will soon realize stated income loans are too risky and stop purchasing them.
8. Almost anyone can get a stated income loan for $950,000.
9. Stated income loans cost consumers hundreds of dollars a year because of higher interest rates.
10. Stated income loans allow tax cheats to purchase homes easier.
11. Stated income loans are not always faster than fully documented loans.
12. Appraised values are often inflated. Underwriters are basing their decision on inflated home values, inflated incomes and inflated assets. The only “real” number is the FICO (credit) score. This is why underwriters have become focused on FICO scores.
13. Rules are not enough, they must be enforced.
Steven, I found your post in the main page, sort of buried, and wanted to highlight it in the forums. Welcome to the forums. What does your company do? Could you tell us more about what you do, what you’re seeing out there? Also, if you know of anyone whose ARM is about to reset and cannot handle their new payment, would they consent to an interview with the LA Times? contact [email protected]
Update, the Origination News link is no longer working. Here is the original report, the 8th annual report by MARI to the MBA pdf file, dated April 2006.
2. Banks originate these loans because they are profitable and then sell them to reduce their risk.
What can you say about the investors who purchase these loans? Why don’t they demand a risk premium? Who holds these? Is it your mom’s pension fund, your own retirement account, your bank’s portfolio? Isn’t MBS and GSE debt the most widely held debt? Don’t GSEs own this by the billions of dollars? How much is know about the end lenders of these loans?
One of the arguments for the wholesale mortgage trade – that’s where mortgage brokers originate the loans – is that it affords the regulated lending institutions with some plausible deniability. Since they didn’t originate the loan themselves they can say they didn’t know the documentation was dummied up the day before at the MBs office or that there were 3 appraisals ordered on the same property until one came in at the right value.
There are some efficiency benefits, too; but as they say, “the ability to look innocent – priceless”.
Are we really that shocked? You take a hit on your rate when you use a “stated income” because of the added risk. One would think that you would only use this program if you absolutely had to because you didn’t make enough to qualify for the loan. Note also that the increase in rate here is not realized by the loan officer in the form of YSP and only profits the lender. Even better is the NINA loan: No income/No Asset verification. Ideally it would be used for a small business owner that would have difficulty documenting such things. Ideally being the key word….
There is more than just one survey that came up with so much information. My organization (it is not a business) has mortgage brokers and loan officers that see the destruction of stated income loans on a first hand bases. I urge you to go to http://www.mbarl.org and read both the facs and letter from the president. Both will open your eyes to the problems that arise from stated income loans. feel free to contact me at [email protected] for more information.
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