Anybody who knows me will know that I ask that question a lot when it comes to getting borrowers approved for loans. The second C of underwriting, capacity, from the Three C's of Underwriting, is fast overtaking the first C, credit, as the preeminent qualification for mortgage approvals. Here's the reason why:
Stated Income loans, once a favorite of the self-employed and commissioned borrowers have been frightfuly abused in the past 3-4 years. It used to be that these loans required above average credit and a loan-to-value of no greater than 80% (meaning 20% downpayment). Wall Street, in its infinite hunger for yield, started offering to securitize loans for high credit borrowers. Mortgage bankers appeased them and thus, the birth of "exotic loans".
It used to be that a borrower "stated" her monthly income to reflect what she makes today as opposed to tracking a two year payment history. It worked well when she was starting to "break out of the box" in terms of income earnings but didn't want to wait two years to buy a home. Today, stated income loans have become "liar loans". Some of you may remember my ability to fund loans two years ago with just about anything "stated" on the application; frankly, that era in the business made me ill.
Today, the questions from borrowers are, "Can I get approved" rather than "Can I afford it?" I have taken the loan application proces a bit farther with these borrowers by asking them, "OK, how are you really going to make the payment?" Sometimes, they have a girlfriend/spouse/roomate who will be contributing but doesn't want to be on the loan. That makes good sense. Let me give you a good and bad example of this phenomenon:READ ON