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We haven't seen the last of the mortgage crisis. Some analysts predict it could take another 12 months before things get back to normal. Some industry analysts are blaming a certain kind of loan, and it's not the subprime.
The "stated income" loan was created for self-employed people who needed to borrow money. It took into account certain expenses other borrowers don't have. Here's a hypothetical example.
Loan officer Lee Yates with First Advantage Mortgage said, "If he was just starting out in a business, and he had done it for three years, and in the first year he may have lost money, but in the second year he may have made money and in the third year it was going strong, it would take that into consideration. That was the advantage of the stated income loan."
Despite the fact that loan officers like Yates think it started off as a good deal, the stated income loan was taken off the market, and no one can get one under any circumstances.
"It's much more difficult for a self-employed borrower to get a loan today than it would have been two years ago or even a year ago," Yates said.
So, why are they gone? These loans didn't require proof of income, so the loan agent or the borrower could inflate their income to qualify for the loan.
"It was one, I think, that had potential for a lot of abuse," he said.
Other loan officers say it was abused so often, it earned the nickname "liar loans."
Mortgage consultant Al Bingham said, "You would have janitors or you would have someone making $12 to $15 an hour who would write their income for $8,000 to $10,000." That's $8,000 to $10,000 a month.
Bingham says we're seeing a second wave of the mortgage crisis because of these loans. He says it's even more potent than the sub-prime mess because more people used stated income loans.
"There are many people out there who got caught in this mess here in Utah, and you are starting to see substantial damage to our real estate market because of this," he said.
Bingham says lenders are looking over every one of these loans now.
"In the last two years, there were so many of these stated income loans that were generated that were just fraud. It was outright fraud and misrepresentation," he said.
Not every borrower that used these loans lied about their income. But Bingham says borrowers don't need to worry about being investigated until their home goes into foreclosure and if they significantly lied about their income.
E-mail: pnelson@ksl.com
