As most of you know by now, Congress is looking for a solution to a very real problem. Whether election year grand standing or honest efforts to help Americans, the result could be the same. The very people they are trying to protect could be harmed.

If you are in the Real Estate industry or own a home, this will impact you! If you are self-employed or receive a 1099 you will be discriminated against!!

This Bill will be voted on Tuesday and if approved, will move to the House Floor. Please respond to the link at the bottom today!!

Yesterday I wrote about how eliminating YSP could greatly hamper the ability of the lending industry to provide appropriate loans for Americans. What I don't Like About HR 3915 Pt 1. Today I want to touch on the Stated Income component of the bill.

Stated Income, for those who aren't aware, is used in lie of fully documenting a borrower's income. When used correctly, it allows a self employed businessman or woman to get a home loan they know they can afford, but can't prove with income taxes.

The IRS code favors those who are able to take advantage of deductions. It's built into the system. There are basically 4 types of legal wage earners.

• W-2 wage earner, works for someone else and receives a paycheck.
• Self-employed, owns her own business.
• Independent contractor, works for some one else, but is responsible for his own taxes and often expenses.
• W-2 wage earner with another source of incomeworks for someone else but also has additional income.

In all 4 situations, a creative CPA will allow you to show a significant reduction in your income. This is the law and our government has approved it.

Under the new proposal, you could have 4 borrowers, all with the same credit score, all making the same amount of money. All with roughly the same personal debt. But 3 of the 4 could be discriminated against, just because they don't fit a "normal" wage earner.

Borrower A makes $100,000 per year and has w-2's to prove it. His CPA has taken advantage of legal tax deductions for family and property and while his income is adjusted for tax purposes, it's not for lending purposes. He still shows $100,000.

Borrower B makes $100,000 per year but owns his own business. His CPA has asked him to leave most of his $100,000 in the business. As a result, his taxes show minimal income, yet he has just as much spending power as borrower A. The lender will want to see 2 years tax returns, a current P&L, bank statements, and then still might not give him the same loan as borrower A.

Borrower Cmakes $100,000 per year but works for someone else. She is given a 1099 at the end of the year. Her situation is very similar to Borrower B, but most likely wouldn't be quite so extreme.

Borrower D makes $80,000 in w-2 wages and $20,000 in a hobby business. Unless he has an extremely strong case, the lender will only give credit to teh $80,000 w-2 wages.

With a Stated Income loan, all 4 borrowers can be treated equally, or at least fairly closely. At 90% loan to value, with a credit score over 700, I can get the same loan and interest rate for all 4. At lower credit scores or higher loan to values, the market prices the rate according to the associated risk.

When used correctly, a Stated Income loan is another tool that a professional mortgage planner uses to meet the needs of his/her clients. It shouldn't be used to get more home then someone can afford, but it should be available for a borrower who can make the payments.

Isee this bill as being very discriminatory towards small business and independent contractors.

Without Stated Income Loans:

• We will have government controlled loan programs 
• Many homeowners who can afford a home will be excluded from that home or market.
• Home prices will drop as many borrowers are unable to document their ability to pay.

My Solution?Continue to allow Stated Income loans but have lenders scrutinize the appropriateness and increase the penalties for Fraud. Yes, we currently have laws on the book to deal with abuse. Don't introduce new laws, enforce the ones you already have!!

If you agree please write to representative today!!

You can go here to look up and contact your representative. Just plug in your state and zip code and it populates your representative:   

Larry Morris is a loan Officer with American Nationwide Mortgage in Newberg, Oregon. He specializes in relocations and Sherwood, Oregon neighborhoods and Yamhill County. He is a Board Member of the Sherwood Chamber of Commerce.He can be reached at larry@PDX-Mortgage.com. His website is http://www.pdx-mortgage.com/. This material is copy protected 2007 by Larry Morris, Mortgage News that Matters. All Rights Reserved His opinions do not necessarily represent the views of American Nationwide Mortgage.

Licensed in: OR, WA,