Goodbye my Friend "Stated"
Later today (Friday August 3) some lenders will be announcing they are discontinuing the use of Stated W-2 (Wage Earner) loans, no matter what the FICO score will be.
In America, it seems we always have to place blame it on someone, so lets take a look at whose fault it really is.
- Mortgage Broker... has to be (Don't you know we are the root of all evil)
- Realtors....They will do anything to make the sale and help a file move along
- Account Executives for the lenders... a glorified sales job based on commission
- Underwriters for the Lenders. Many are paid on the amount of files closed and funded...hhhmm
- The lenders themselves. After all they have huge advertising budgets they have to maintain so what's a few bad loans. They have to keep the machine running
Don't be fooled when people say that they work for a direct lender....everyone has guidelines they must follow.
Lets take a look at what stated means and who it was meant for.
First off going stated means, that you are just stating on the loan application what your income is and in some cases what your assets are. You do not need to provide proof of this. It is all based on your honor and some research from the underwriters to see if you really could be making the income that you state. The underwriters for the lenders would use as a guide a web site based on Salaries. If you are a cashier at Burger King you can't state that you make $50,000.....(although I am sure many have tried). However, if you are a bartender you are a w-2 wage earner but you still make tips. These tips are cash and not always are on your pay stubs as income. So the lenders would understand this and allow for a fee the borrower to go stated.
Unfortunately, these loans became known as liar loans. As most wage earner borrowers really did not need this type of loan. All they really need for income documentation are the following:
- last 2 pay stubs
- last 2 w-2
- Either bank statements or Verification of Deposit (VOD)
It really is not a lot of paperwork.
When people are self-employed (1099) it is a little more difficult to provide an actual true picture of income as most lenders will require your tax returns and depending what type of corporation may include your company's tax return. This could be a paper work nightmare so many lenders would allow you to go stated to save the paper jam.(for a higher interest rate) One of the advantages of being self employed is the benefit of tax deductions that you can have. However, this is a double edge sword because the lenders have to look at your "Net" income.. on these returns.
So it comes to this, unfortunately the few penalized the masses. I am sure most of these where solid base (I would hops so) at first. But through a bad system many borrowers got used to lying on the mortgage applications and excepted this as acceptable way of doing business. I know I still get phone calls from people telling me they have to go "Stated" and when I ask why they inform me because they don't make enough money to qualify. HELLOOOOOooooo...
I tell them going "Stated" Does not mean it is ok to lie. I even had one client ask me to make the number up and they would sign anything. Please.... They did not understand why I would not do thier loans. They told me so and so did it before but now that person is know longer doing mortgages.. (I wonder why)
In closing I really think all sides of the business deserve equal blame. We really just can't point to one section and point blame. The system it self was flawed.
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who's playing hall monitor? there are rules already in place. where's the enforcement?