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Do We Need Stated/Stated Loans?

How many times have you heard this called a "Liar's Loan?"

But is it really a liar's loan? I don't think so. It is a loan for good people who have trouble documenting their income for a variety of reasons.

Among those who need this loan are successful business owners who run successful businesses but pay minimal taxes because they have many legitimate "write-offs."

There are also the successful investors who make beaucoup bucks but have huge interest and depreciation write-offs.

These people could do a "full doc" loan if the underwriting standards and guidelines were such that the "net taxable income" from their IRS Form 1040 was NOT THE NUMBER that they used to qualify them.

Until and unless we get better underwriters and underwriting standards and guidelines, the Stated/Stated loan is our only hope for a healthy real estate market.

A healthy real estate market needs many buyers and sellers. If we take a big group of people out of the game then we can expect the market to suffer.

Those that call this a Liar's Loan have no idea what they are talking about. I'm sure that there has been some fraud associated with these programs, but I don't believe that it represents anything more than a very small percentage of the loans that have been made.

Those that are willing to lie are also willing to supply "false" documents for full doc loans. Or say that they intend to live in the house when they have no such intentions. Why penalize those that really need the stated/stated loan product because of a few bad apples? Especially since the bad apples will find a way to do their thing anyway?

Posted by Bill Roberts - "Baby Boomer" Retirement Planning on 07/27/2007 02:40 PM

Comments (45)

stated stated, stated loan, full doc, liars loan, underwriter, underwriting, real estate

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45 Comments on Do We Need Stated/Stated Loans?

JUL

2007

liar/lair loans as you have so named them are created by liar/liar loan officers looking to place people in loans they could not other wise qualify for or be approved foe. End of story

Stated income loans are not liar loans. If people choose to lie than shame on them. They dont let bus boys claim 10,000 per month income.

Stated loans are a great tool in the loan officers tool box to get deserving people like business owners and truck drivers into housing.

Michael, shame on you for believing that and for saying that. It sounds like you didn't even read my post.

Bill Roberts

Hi Scott, You're absolutely right but you see what we are up against.

Bill Roberts

Hi Cseer, More people need to understand the reality of stated/ststed loans.

Bill Roberts

Gee that's funny.....let's shift this to the consumer side. Bob walks into my office to buy his dream home about a month ago. He can document about $75K per month from several business ventures that are all coming together right now, all of which are fully verifiable from contracts, cash flow etc.... He and his wife have made about $125K per year for the last few years, but not quite enough to qualify for what they are looking to buy. As a full doc deal, you're looking at a 15% debt to income ratio, IF he had 2 years of history or seasoning to prove his income, BUT like Bill says, the rules do not allow for us to write the mortgage that way, so we go Stated/Stated because of the inconsistency in which the money comes in. Now bear in mind, that there is a GUARANTEE that this income will continue for at least the next 5 years contractually, yet full doc only looks at the PAST not future earnings, except in extreme circumstances such as athletes, actors, and such. Most stated/stated deals that I choose to deal with place a greater down payment, meaning there is LESS risk not MORE. I have NEVER had one of these loans or any loan for that matter default, because like Bill we customize our programs for the sake of the consumer without falling prey to having to write a deal because we make more money off of it. These are wonderful tools that like anything else have to be used properly. This is the only way to facilitate this credit worthy clients purchase of this home.

Think of this: A nailgun is very powerful. Can it be mis-used in the wrong hands? Do you think the nailgun should be eliminated, or just used against anyone with the shortsightedness to spew off about liar's loans?

Great post Bill Roberts!

Thanks Bill for sharing your experience with a client who is so obviously qualified and deserving.

We have been the victim of too much negative press, to the point that people within the real estate profession have bought the lie.

We need to get the word out regarding the truyh of this issue,

Bill Roberts

They do serve a purpose and shoud be only granted to those who have shown a history of good credit, the 620 Stated/Stated Deals are far gone but should have never been. Just my 2 cents worth

Hi Leo, I think that good credit should be a consideration on the pricing of a loan, but if loans are available at any particular credit score full doc then they should be available at the same credit score stated.

Thanks for weighing in.

Bill Roberts

Bill,

You make a compelling argument. That Liar Loan name is mostly inaccurate. Stated loans serve a definite purpose out there, as you mentioned. And some people just prefer not to disclose their income to anyone, and they know full well that stated loans carry a higher interest rate, but so be it.

OK Bill, you've come out of your corner swinging so it is my turn to volley back ...

First, you use two examples of who the loan is intended for and in those circumstances they are not to be considered your "liar"

However, living in a market that is driven by first time buyers, I can tell you that the majority of the loans that I have seen written in the past couple of years were the stated income/no doc loans or the "liars loans" as you put it and I have often referred to it as.

Lets be honest here and quit looking at the "poor people" who are "victims". Yuck, you are sounding like a left wing socialist from Massachusetts...lets take care of all the poor people - they need protection form the capitalists...ohhhh the poor people. Yuck

I say they knew exactly what they were doing. I say many of them were steered into these programs being convinced that buying was better and even cheaper than renting - so they followed the leader and kept up with the Joneses. They bought thier #300K house on a 100% Neg Am loan with stated income (over inflated) and no docs to back it up with their 580 FICO score.

Hello, how many ways can you spell disaster waiting to happen?

They lied to get the loan. I have turned down two listings this week for short sales because they outright lied. The loan reset and their $1500 payment (cheaper than rent) went up a grand and the $80K a year they have on their application is closer to the short side of $50K. So guess what? They lied!

Now the loan itself is good and does deserve a purpose as you explained - but what percentage of the loans out there fall into this category? I have nothing to back this up, but my guess is we are talking less than 40% of these LIAR LOANS were for legitimate and qualified buyers. Even the 40% that are not in trouble I believe fudged somewhere...but who am I to say.

OK Bill, it's your turn, lets just keep the gloves on though and keep this civil...LOL

John Occhi, Hemet CA REALTOR
Mission Grove Realty

JUL

2007

Hi Esko, thanks for chiming in. We need more people to defend this loan. There are already plenty to vilify it.

Bill Roberts

OK John, We'll keep the gloves on. Actually, I don't think that we are on opposite sides on this issue. It might be that in your particular market you are seeing more abuses than the average. This could be due to a number of reasons: dishonest LOs, infuence of friends who "did it," a desire not to be left out. I think that at the starter level more abuse is likely than at the "move up" level.

But many of your "clients" that are upside down might be well advised to find a way to ride out the storm, because a rising real estate market just might save them. The higher payments might hurt but in the final analysis they would be better served by giving up their new cars and toys and finding a way to save their house,

Bill Roberts

Bill Roberts - You make an excellent point. Even if the market stays down for 2 years the buyers will be rewarded not only with the restoration and increase of equity but they will be far above their peers because they will have good credit and so when they go to buy the new car or toy a few years down the road, they will be paying much less than they their friends.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR
Mission Grove Realty

Ah John, you make me glad all over. What can we do to help some of these people? If we help them now won't it help us in the long run?

Bill Roberts

Bill,

There are several things we can do to help them...if they really want the help.

My first solution is to seek the council of God. Just get down on your knees and pray. I actually advise just about every short sale situation to do this - sometimes I even use more tact (but not often).

My next solution is to instill in them a sense of entrepreneurism, that we as REALTORS® take for granted. I have helped clients start a eBay business as well as a yard sale business, where they buy storage units at auction. Both very easy business to get going that will generate cash flow and easy enough o manage as well as grow when growth is appropriate.

But the bottom line Bill, is they have to WANT help. They have to want to HELP THEMSELVES and get out of the paycheck mentality, which to be frank is just above the welfare mentality. It is societies way of controlling the masses -now don't get me started on my conspiracy theories, but you have to admit that many are too content going through life on that fixed solid steady income. I suppose it is that mentality that is the backbone of America - but then again it was also the mentality of the people in the USSR and communist China - do enough to get by.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

John, you are one of the really good guys. I was thinking maybe a one-day workshop called "Save My House." What do you think about that? The multiple streams of income is also a good message.

Bill Roberts

Bill, it will never work and I'll tell you why. No one will show up because of pride and egos. It is one thing to put together a first time buyer seminar or an investor seminar - everyone wants to be seen with the in crowd. but who wants to get labeled a loser in public.

I however have a plan - but not to be discussed in public. Call me and I'll fill you in.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

OK John, you're probably right.

Bill Roberts

Pride and Ego are such an evil set of sins - but I can't help myself when I read those words coming form you.

John

Hey, look at all of the exciting banter that I missed going back and forth....time to let me get in the ring! haha. Seriously though, I agree with both of you about helping people understand that it is better to find a way to work it out, than to throw in the towel and give up. Little do so many people realize that rents are on the way up; so walking away from their loan that is increasing will only allow them to get out of the pot and into the fire. Regrettably, far too many Hispanics in particular have fallen victim to this type of loan because of ignorance. I can say it. I'm Hispanic. I've helped dozens of these clients, save their homes so I'm interested in any publicity that you may conjur up to address the issue. San Diego is fairly safe, but I'm extremely concerned about the impact that Riverside and San Bernardino counties will experience if too many people choose to walk away. Think of the hit to their pride and ego when they no longer own a home. Then what? Facts are to be dealt with, not fought.

Well Bill and Bill,

I just posted an article that I think you will both enjoy chinming in on...

ActiveRain - I Need Your Help. Is This a Short Sale? How Would You Counsel this Seller?

If you think it is worth, plese flag it and recommend that it is FEATURED - to get the maximum exposure and responce on this important question.

Now Have a Blessed Day,

John Occhi, Hemet CA REALTOR®
Mission Grove Realty

Hi Bill, I appreciate your continued participation. I can tell that you really are concerned about the outcome of this "situation." We do need to get the word out to these people so that they do try to work out their problems instead of just giving up.

Bill Roberts

John, you know I subscribe to both of your blogs. You don't have to be so shameless. I'll give you my 2 cents worth and more. By the way, I've commented on several of your posts and I'm still waiting for a response.

Bill Roberts

AUG

2007

I love stated income loans for investors. My investors have lots of money coming in, but as you said they also have lots of write off to counter that income. So their actual income versus what the IRS hears about are really two different things.

Yes Todd, this is EXACTLY why stated income loans were created.

Bill Roberts

I think a lot of you are missing the point.

The "Liar's Loan" is the term that the media created for stated income loans. From a lender's perspective, the term fits a wage-earner (someone who is NOT self-employed, draws a paycheck from a company, and receives a W2 at the end of the year). The stated income program for wage-earners makes it easy to lie on an application. Even though that person makes $8/hour as a cashier, the program allowed for them to "state" as much as they needed to get the loan done (hence, the name - Liar's Loan). That program has tightened up over the years, as many lenders began to use salary.com as guidance for what someone SHOULD be making at a certain job in a certain area. Now, the program has gone/is going away, and there's nothing wrong with that. HOWEVER -

The stated income product is VITAL for self-employed people. It only makes sense that someone who is self-employed and has a good credit history should qualify - it's obvious they're paying their bills! You can't fault them for not being able to prove their income!

Great post once again Bill!

Gareth, thanks for the reference to salary.com. I know that the underwriters at a mortgage company I was formerly associated with used salary.com when underwriting a stated loan. The "game" was in the job description.

Self-employed applicants and real estate investors with strong portfolios are the "real" candidates for stated products. I appreciate your comments.

We need to get the word out.

Bill Roberts

I agree, stated income loans are a very necessary part of our business. I think that the "knee jerk" reaction has taken over. The problem was not the "honest" stated loan, it's the people that should have never been put into a stated loan to begin with that are causing the problems.

This too will pass but it's out of our hands now.

Hi Kate, you are right of course, but a good underwriter should be able to "weed out" the worst offenders.

Bill Roberts

Most of us Real Estate Agents are in that stated income/ asset group of people that need these loans. I have not met an agent yet who could qualify full doc on only an agent's income. I have many good honest above average income people who need these loans. This a huge market that is going to not be able to buy homes. These are not the ones and went out to get loans that they did not deserve.

This is a free society and everyone should have a choice in what loan they get. I don't buy the poor person who's mortgage officer screwed them. People can read, they can write, and yes, if they can not do that then maybe then they should not have a loan. But crying their Oh poor me crap makes me sick, their entitlement issues need to be wiped out, they need to take responsibility for their own action and BIG BROTHER, stay out of our businesses and lives! If you fall, you get back up! I mean , geeeez, I am on a rant about how bad this is.

And NAR is in favor of getting rid of these loans too! What a sad disgrace! Just because they get paid a salary! They are not on the front lines! Katerina

AUG

2007

Hi Katerina, Welcome to the party.

If NAR is opposed to ststed income loans, we the members need to set them straight. What suggestions do you have to accomplish this?

We all know how valuable and necessary stated income loans are. Can't we get the word out?

Bill Roberts

NAR wants to protect the 'consumer'. They think that by getting rid of the stated programs that they are 'helping' the consumer who can not help themselves! Since when is the responsibility been for Big Brother to protect one from making one's own choices. I get upset because my mother was born in Riga Latvia and ran away from Stalin. I know all too well about the damage government control over free choice has.

I have to go show houses. When my clients are safe on the plane back home I will look for the NAR info for you on this.

Thanks Katerina, but NAR works for us, not the consumer. If they choose to disregard their duty then we need to seek change within their "hallowed" halls.

Bill Roberts

Bill,

You are making so much noise at your party that either I have to jump back in.

Your discussion - especialy the turn the NAR has now -= makes this a veryinteresting issue. Well, I am off to an open house and what started to as a quick post turned into a 3 page article - so I just want to let you know that I am coming at this wntire discussion from a completely different angel - you can check out what I have tosay at: Conspiracy Theory: Homeowner or Renter?

Now Have a Bless Day,

John Occhi, Hemet CA REALTOR
Mission Grove Realty

PS - wish me wll on my OH today.

John, I always wish you well.

I have already commented on your post. I think some of the others from here will also.

Bill Roberts

Bill- Here is the link for the post that discusses NAR's position and and the Fed's position:

http://activerain.com/blogsview/152577/Big-Brother-On-the

Katerina

If I may chime in on this topic...

World Savings, now merged with Wachovia, was the innovator of the QQ (quick qualifer loan)...essentially a stated/stated loan. The idea being that those who are self-employed or commissioned had unique challenges that typical underwriting guidelines made no allowances for. Naturally the lending world thought that Golden West (World Saving's holding company) was completely nuts to offer such a thing. But guess what, save if be for one other NYSE company, no other company was more successful than Golden West (voted most admired mortgage company by Forbes year after year).

This loan, now a Wachovia portfolio product, has been carefully underwritten to protect both the bank and the borrower, as it is held in the portfolio and not sold off via Fannie Mae into the secondary markets. And guess what?!?! As of last month, despite huge numbers of REOs in California, this stated/stated portfolio product has experienced a mere 157 REOs. There is a need. There are legitimate, honest LOs and worthy borrowers.

And let's not pretend that we live in a Communist country where we subscribe to the belief that people are too stupid or not capable of taking on the responsibility for becoming educated about the choices they make; where we apathetically allow Governments to make our decisions. If I have a license to drive a car then I am responsible for understanding and abiding by the laws that go along with that action. If I take out a mortgage obligation then I am responsible for becoming educated about what I am committing to.

Yes, mortgages can be complicated, but so can rearing children, learning a new job, etc. but we step up and accept the RESPONSIBILITY to learn what needs to be done to fulfill the commitment. As LOs we certainly play a role in assisting our clients in this process, but this does not negate their responsibility to understand what they are doing and take whatever additional steps are necessary.

Knowledge is power. I am less likely to be a victim if I decide to gain the knowledge. I'm in the process of putting in new windows. Rather then relying completely on the window replacement guy, I've spent some time researching all my options and the pros and cons so that I can make some intelligent choices, including how ethical and reliable the person I select to work with is.

Sorry for the soapbox, but I get tired of hearing people place all the blame on all the unethical LOs. Are there bad LOs? Absolutely! However, ethics is not a matter of profession it's a matter of personal integrity regardless of profession or station in life.

Less ignorance and more personal responsibility.

Helene- you go girl! That comment needs to be on all the posts with this topic. Thank you and AMEN! Katerina

Thank you Katerina. Feel free to cut/paste and copy! hahaha I guess you might say I feel passionate about this topic. :-)

AUG

2007

Hi Helene, Welcome to the Party. I'm a huge fan of World Savings. I hope Wachovia doesn't change too much. World's portfolio products have been a Godsend to those of us who don't do government (VA & FHA) financing. Also since you are NOT FICO driven good people with bad scores have a chance.

Thank you for "telling the truth" about this product. You are always welcome here.

Bill Roberts

Katerina, thanks for the link. I read the post. It just alludes to NAR's position. I would like to see it spelled out by NAR so that we could then go after them. It is after all our association, not the employees of NAR. iF THEY TAKE A POSITION CONTRARY TO THE WISHES OF THE MEMBERSHIP, WE SHOULD "FIRE" THEM ALL.

That's my postion. Could I be any more clear?

B:ill Roberts

APR

2008

It IS a liar loan. Stated income loans are for liars. And they deserve what they get. I know people who got them. Most own their own businesses and lie on their taxes. They then say "Our profits are up this year and I'll report more income, get the loan, then lie again on taxes.

In some cases they also get public assistance, even AFTER buying the home! MediCal is one of the biggies.

YOU got the loan. YOU deserve to be forced to pay it. It is YOUR fault!

APR

2008

Bill - I missed this post and thread which was before my time until the above post by the dodger brought it back up. You, Bill N and Helene all make the case of the theory that went in to creating the stated income loan in the first place. I do believe the original theory behind this loan was valid and made great sense for the business owners, uneven bonus/commission earners, investors, farm/ranchers. When it went to the next level with Stated Income AND Stated Assets, No Docs, etc. I believe we crossed the line of the original valid theory. Had the guidelines stuck to the original higher down payment requirements for these products, the families that chose these loans would not be in the news today. I have to believe that the percentage of my fellow loan officers who abused this program represents a small percentage, but that may be my rose colored glasses...

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