They are the ones that were not satisfied to be corporate hacks, allowing some huge company to dictate where and how they live their lives. They refused to carry a lunch bucket and lay cable for the phone company for 30 years.
Instead, they went after that other American Dream. The one about risking your talent, your money, and your time to OWN YOUR OWN BUSINESS.
This dream is at the very heart of our great nation, and defines why our economy is the greatest one on the planet.
Yet we have kicked business owners to the curb. We have wrongly painted them with the same brush as those that bought houses they couldn't really afford... with stated income loans.
Instead of turning down their mortgage applications, we should be celebrating those that have invested in our economy, creating jobs, innovative products and services, and wealth.
They are the REASON that stated income loans came into being in the first place.
Take for example the house painter, working for a painting contractor. He claimed an income of $10,000 per month to buy his $500,000 house with a 100% adjustable rate mortgage.
He got a W2 statement, he just wasn't required to use it to qualify. Nope, didn't need to back then. Chances are, he is now a foreclosure statistic, but will go on to buy a cheaper house in the near future. Why? Because ironically, thanks to his foreclosure, houses ARE NOW CHEAP ENOUGH that he CAN qualify FULLY DOCUMENTING his income.
How could the lending world NOT have sympathy for the house painter? Isn't the mortgage world carrying around a media inspired "guilt complex" for putting him in that 100% stated income, adjustable loan in the first place?
Oh, yeah, he'll get another house, on the sympathy factor alone.
But what about his boss, the painting contractor? He is the one who built a small company that gave jobs to 25 people. He is the one who bought painting supplies from the local paint store. He bought his trucks from the local car dealership. He paid payroll taxes and health insurance for his employees. Who will have sympathy for him?
As it turns out, no one.
Although he has never paid anyone late in his life, his credit score is low because he uses his credit cards for his business. He is legally able to write off his vehicles, and other business expenses from his income, and does so.
He continues to be successful since recession or not, houses continue to need painting. Because he has managed his finances and his business well for the last 15 years, he would like to buy a house.
But he can't.
You see, not only is it often the case that banks hold self employed borrowers to a higher standard (example: 700 score required for self employed vs 650 for employees), they no longer offer the STATED INCOME loan that took into account that much of his income was "written off" as a business expense.
What had been an easy process (to obtain mortgage financing) has become a nightmare. He must now show complicated, private business statements and tax returns to underwriters who have no idea how to interpret them.
In the past the lending world accepted this: This guy has been successfully managing his finances and his business for 15 years. He has good credit. The chances that he will NOT pay this mortgage are just about nil. And so stated income loans with their ease of qualification, and requirement of excellent credit, came into being to fill this niche.
And because it was assumed that his real income had been "adjusted" for tax purposes.
But somewhere along the line, we forgot about this guy. He can't buy a house because according to the new world of fully documented income, he just
- DOESN'T MAKE ENOUGH MONEY
- DOESN'T HAVE A GOOD ENOUGH CREDIT SCORE
- "GOSH, I DON'T UNDERSTAND THESE TAX RETURNS, LET'S JUST TURN THIS DOWN".
We should celebrate the guy who successfully OWNS HIS OWN BUSINESS. He is helping an economy that is badly ailing. He is providing jobs. Why did we kick him to the curb?
And yet we paint him with the same brush as those that ABUSED the concept of stated income to buy a house they could never afford. We feel sorry for the painter, but not for the painting company owner.
It is time to paint a new picture with that brush.
Because there is something very wrong with this picture.
Written by Janet Guilbault, Mortgage Lending Expert Based Out of the San Francisco Bay Area
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Janet that is such a sad but true tribute to the small business owner - I was moved by your words of compassion and understanding.