What is a stated loan designed for? It was intended for a self employed borrower that didn't claim all of his income. For example Bob Jones opens a new store. The first few years he barely pays himself a salary. By the 4th or 5th year,hes has established a well known store and business is great. He still take a modest salary, his perception is that he should leave as much money in the company so that he is able to pay cash for stock and upgrades to the store without extending any credit that is not necessary. I forgot to add that Bob always pays his bills on time or ahead of time.
Bob has a great credit score,money in his business that is his that he can use as he see fit. But he has only paid taxes on a small salary. Investors offered the Stated program because realistically Bob could and may be making double the salary that he made over the last 2 years. So,they took that into consideration and said ."Since you have such a good credit score and we see you have owned the business for more than 2 years,we are willing to take the risk and loan the money to you on stating a reasonable salary.
Next scenario
Now this is not how this was supposed to work. But was overlooked and helped push the industry over the edge.
Hourly employee- ratios are too high-has good credit. (lets state his income higher) Gee Whizz. Did you see that, When I increased his income- the ratios went down. I think I can get an approval with that.
The problem with this 2nd scenario is that the buyer still has the same bills that put him over the ratios, when you add the higher payment that he doesn't really qualify for. His ratios are really worse. (Less money available to pay his bills.)
Now there are other scenarios. But this puts this program into perspective.
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