MOST IMPORTANT POST EVER

NEW -> Contingent Buyer Assistance Program
<p>awgee,</p>

<p>If you do a stated income loan you state or write in the income of the borrower. If you write down that an elementary school teacher who has been working there for two years and making $12k a month then they will know you are lieing.</p>

<p>If you don't put the income down as in a no ratio and the loan gets approved you didn't have to lie. It used to be that you could state any income on the app like a blockbuster clerk who made $9k a month like the one that my company had to buy back. Duh you know I don't think the CEO of blockbuster makes that much so you know he is lieing.</p>

<p>The legitimate reason for a W-2 borrower to use this type of loan is if they were expecting a larger bonus year after year. The tax returns wouldn't show it that increase of income and neither would the paychecks if he/she hadn't received it yet. Or if a W-2 borrower had a side business that they didn't want to show that they wrote off everything under the sun but really they can make the cashflow work. It is when you put a farm worker that makes $13k a year in a $700k house is when people ruined it for the legit brokers. </p>
 
I am with awgee on this one. I cannot think of many, if any, legitimate reasons why a borrower could not provide a W2, Schedules A or C, or 1120S, to show income. If I were a lender, I would have to assume anyone who does not have this documentation is either a liar or a tax cheat. In either case, I wouldn't give them a loan.
 
<p>What about a young couple who gets money from their parents? In my community, the children don't inherit the parent's money once they pass away. Rather, the parents slowly transfer their savings to the children with the expectation that the children will take care of them as they age. In that situation, how do you explain the bank that you can count on your parents for $10-20K a year? I guess one option is to have your parents co-sign but I frankly wouldn't like that.</p>

<p>Or, what if you are planning on taking in roomates? I had a friend who bought a condo right after we graduated with the intent of renting out the other rooms until he got older and wanted the space. How do you document future rental income? </p>

<p>I agree that many people have recently used the stated income loans as a means to lie and up their incomes but these products were around before the easy credit of the last 5 years. I don't think they were intended to be used by the masses but I do see a need for these products. </p>
 
<p>IR,</p>

<p>Let me give you an example of a loan I did back when if you did a no ratio loan it would still have to make sense. The borrower was similar to a pension fund manager and his income was determined on the performance of the portfolio he managed. This was in 2003 so you know that in 02 and 01 he didn't make as much as he was used to. He needed $400k a year to qualify but the last two years he only made an average of less than $300k. Prior to that he made $1.2 and $1.1 million and half way through the year he was already at $800k. I submitted the loan full doc with the four years of tax returns and the paycheck stubs for the entire six months. I explained to the underwriter the situation to try to have them understand. He had steller credit with over an 800 FICO. They denied the loan even when he averaged over $700k a year for the last four and half years. So I submitted it to a lender with a no ratio program and presto I have a loan. </p>

<p>So if you were presented with that situation would you have done the as me? Of course when rates dropped and his paychecks showed consistent income he refi'd into a normal loan and he brought cash to the closing to pay back the cash he withdrew from the previous loan. That was the first time and last time I ever saw that happen.</p>

<p>Most of the other stated loans I did didn't want me to see their schedule C. So I told them the lender requires you to sign an IRS form 4506 stating that you are telling the truth on what you make. I doubt that 4506 ever gets to the IRS though.</p>
 
iirc school teachers with 1 year experience were upgraded to principal for their loan documents to pass underwriting then they signed off that they make 13k/month to support their investment properties in vegas. They then used someone else's bank account (AU) to qualify as SIVA.





This should give you an idea what the app actually looks like for the farm hand making 13k/year buying the 700k house.
 
rkp - In the first situation, couldn't the couple explain where the extra income is from and still apply for a regular loan?<p>

I purchased my second home using your second situation and I put down the expected rental income. If I remember correctly, the lender required a letter from each roomate.<p>

From what I am reading, except for the no ratio loan which does not require an entry for income, it seems there are few to almost no situations which do not require lying in order to obtain these loans.<p>

Once again, I am not editorializing on the morality. I just wanted to have information. My conclusion from the info, so far, is that 99% of the stated income loans are liar loans, excepting the no ratios which are not stated income loans since no income is stated.<p>

Ya gotta wonder just how many of folks who lied on their mortgage apps are not going to be able to afford their payments. I would guess 50% at minimum, and 95% as probable.<p>

Who's got the popcorn?
 
stated income loans can be useful because not all sources of income can be documented by the w2. i had a client who's a teacher. she bought a house as the sole borrower. but she lives with her husband - who's a chemist, and her brother - who's a doctor. all three contributed to the mortgage. so yes, her stated income was much higher than her wages; but there were three people paying for the mortgage. she would never have been able to buy the house without a stated income loan.
 
<p>I do not see how this post be THE MOST IMPORTANT POST EVER. , unless if you are a mortgage broker. I am currently sending my buyers directly to banks and see no or little effect on both rates and/or qualification.</p>

<p>I know oc_Fliptrack would like to see me turn completely bearish, well, I would if there is strong indication. I have started to notice a strong shift in desireability to buy or move-up. </p>
 
<p>awgee - The idea of stated income was more out of convenience for the borrower rather than lie about their income. If a teacher had $20k in the bank aside from the down payment and $60k in a retirement account with a high FICO it is reasonable to state that they make $5k a month. They wouldn't have the hassle of digging up their W-2's and paycheck stubs. Now you seem like an organized guy but I can't tell you how many times I had to get a borrower's employer to reproduce their W-2s because teh borrower couldn't find them. It wasn't designed for people to lie but more for convenience. Of course it was abused and wall street bought it. So please make for popcorn for me because I wasn't kidding when I said my company had to buy back a loan that went first payment default by a blockbuster clerk who "stated" he made $9k a month. The other problem arose when LOs would say "you don't qualify we will have to go stated". This is and was common practice and you can't teach an old dog new tricks. The stated income debacle is number 483 why I got out of the business. </p>

<p>NIR - Glad to see you are doing well. I know the thread is now longer than any in the history of IHB other than the headlines thread but you should go through it all. Yes banks at the moment are fine. Brokers who use lenders who sell the loans ASAP are done. Banks like Countrywide who can hold their loans will be ok unless this lasts longer than they expect. Banks who don't sell their loans at all will wake up and realize WTF are we doing getting a rate of 6.5% when we can get 7.25% and still blow our competition out of the water? They will so if you have deals in the works you tell them to lock their loan ASAP and to not bleep around. If the market changes they can go elsewhere. I AM NOT KIDDING YOU TELL THEM TO LOCK NOW! Yes a realtamation mark but these banks will wake up. You should know by my posts about rates that I follow it better than most and when say to lock you lock.</p>

<p>bishie - That would be a "professional education specialist" and yes back when you could attach them to daddy's account it would work but I have heard that they cut that out. As for the farm hand he would be a "horticutural engineer".</p>
 
<p>graphrix,</p>

<p>thanks for the info. My wife and I have narrowed down our choices to 3 different houses. We would like to see prices fall in the next few months. Is it possible to lock in a mortgage now that will still be available a few months from now? </p>

<p>Thanks in advance for the advice.</p>

<p>Gas</p>
 
<p>gasjockey,</p>

<p>You can but typically you need a property address. Depending on where you do your banking and the relationship you have with them they may be able to lock you without an address. You may be able to work something out depending on how good of a relationship you and how much money you have with your bank. They might be willing to lose money on a loan if it means losing a good customer to honor a rate of today two weeks later. If you are choosing between three homes and if you use a broker he can lock you on each home with three different lenders. I don't think the lenders would care if they fallout at least the broker has deals in the works. For a bank it may be different and they may frown upon that but I would look them straight in the eye and say how many home loans have you done this month. The only problem is if the price drops they may have to underwrite the loan again which could change things. </p>

<p>Ok enough rambling. I hope that helps and continue to ask questions because I am not the only one who can help you out.</p>
 
<p><em>"I have started to notice a strong shift in desireability to buy or move-up. </em>"</p>

<p>I wonder if this year's and next year's sales numbers will notice the same strong shift.</p>
 
<em>"I have started to notice a strong shift in desireability to buy or move-up."


</em>


Ever the optimist...





If desirability could translate into dollars of demand, prices might go up. Unfortunately, it looks like the ability to channel dollars into demand is going down.
 
nirvinerealtor,





I know that real estate is your business but in my unsophisticated view, the impact of the information posted on this thread is huge. Basically, the banks/brokers have realized that home loans are much more risky and readjusted their loans accordingly. Loans are now harder and more expensive to get. I don't know how you can deny such facts when large companies are having problems getting financing for their deals. I mean if interests rate fell by 1.25 points in a week, you (and most of the other realtors) would be proclaiming what a great time to buy it is because of the low low interest rates.





Without subprime/alt-a loans, the demand for lower-priced and less desirable properties dries up and thus triggering a reverse plankton effect (see today's blog). People with good credit will wait for prices to go do while the sellers become more desperate as their monthly payment goes up.





Also, very few people ever talk about affordability. It is simply not feasible for most people to buy a 600K property, which is what a tiny 3-bd townhouse costs (see Celadon). It is ridiculous to assume that a market can sustain prices when a one-bedroom starter place is in the mid-300Ks at current wage levels. As the blog entries have repeatedly pointed out and demonstrated, the Irvine housing market is complete inconsistent with the market fundamentals and thus cannot remain at its current levels. At a certain point, people will just end up renting rather than being strapped down to their homes.
 
<p>>>>I mean if interests rate fell by 1.25 points in a week, you (and most of the other realtors) would be proclaiming what a great time to buy it is because of the low low interest rates. <<<</p>

<p>But just like David Lereah said, isn't it always a good time to buy...<strong>OR</strong> sell? </p>

<p>I always found that funny. If a broker called you about a stock and said, "this is a great time to buy <strong>OR</strong> sell XYZ stock!" What would one think? I know what I would think - "What kind of bullshit are you trying to stick on me, son?!?"</p>
 
<p>We are already at that point - people who have good credit and have cash for down payment are choosing to rent because that is the only reasonable choice out there.</p>

<p>In my mind it can only go two ways - either prices go down substantially and the only deduction from that is that this is not a good time to buy - - or all of the state of california becomes rentals - no owning - sort of like Manhatten maybe....</p>

<p>But, I feel like I have been saying this for a couple years now about CA real estate as all my friends and family kept telling me how much thier houses were worth and yet the market kept going up and up and up........</p>
 
<p>NIR,</p>

<p>Prices of homes matter more than interest rate. A 400k loan @7.75% is stil cheaper than a 500k loan @ 6.5%.</p>

<p>Prices have definitely been impacted even if you go directly through banks. I am not sure what "banks" you are sending your buyers to, but rates have jumped all across the board. I have close friends that work in retail with other banks. As a banker you have to keep up on what other banks are charging or else you won't be in business much longer. A 5 year Jumbo ARM is in the 7% range right now, compared to being in the 6% range one week ago.</p>
 
Thanks for the advice on the <a href="http://www.gmacmortgage.com">home loans</a> lendingmaestro. I realized I rather buy a 400k house with a higher interest loan than a 500k home. I realize prices have been impacted through banks as I have been applying for mortgage loans recently. Any suggestions on mortgage companies?
 
IrvineCommuter,


<strong>


the impact of the information posted on this thread is huge</strong>





I could not agree with you more. I do have more than a few clients reading this blog and I have seen how this blog influenced their re decision.





I do not deny credit is not harder to get; however, I must say the lending world is becoming extremely "emotional" and "reactive" That being said, there is something new with the lending business coming out everyday. Only last week, the loan brokerage world was turned up-side-down; a reactive reaction, or perhaps, a punishment and/or warning to brokers who originated non-performing loans. With many mortgage lenders filing bankruptcy, what investors would have any confidence at all.





The available money has not changed, only the players changed. That is why I can not say borrowers are deeply affected.





As far as my comments about the re market, I am just stating my observation. I have no desire to "puff".





lendingmaestro,





I am not in disagreement with you. I think rate went up for no reason at all, no difference than a seller' wishing price; therefore, it should retreat to where at market bearing.
 
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