But can they afford it?

By
Mortgage and Lending with San Diego VA Home Loans/858-777-9751

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:

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Rainmaker
65,008
Crystal Pina
774.289.5521 - Worcester, MA
Remax Professional Associates

First, I want to applaud you for having ethics and actually caring whether someone can afford their home or not.

With that said, would you advise the first guy to purchase a multi-family for help with the mortgage payments?

Second question, what if purchasing a home would potentially allow the family income to go up? An example is someone who has a stay-at-home mother and the father is the sole earner. They live in an apartment. If they purchase a home with a yard and near a school the mom can open a home day care thereby adding to the family income. To me this would make sense to purchase what seems like something they can't afford.

Oct 02, 2006 11:03 AM #4
Rainmaker
197,711
Roberta Murphy
San Diego Previews Real Estate - Carlsbad, CA
Carlsbad Real Estate and Homes

The applause is deafening! Common sense lending philosophies and practice have been much needed in the mortgage lending field these past few years. Thanks for a star blog.

Oct 02, 2006 11:27 AM #5
Ambassador
378,409
Karen Hurst
RICOASTALLIVING.COM - Warwick, RI
Rhode Island Waterfront!
Wouldn't you advise the first guy to purchase a lower price home? Or is the six month full time the actual deal breaker?
Oct 02, 2006 11:36 AM #6
Ambassador
3,917,715
Jeff Dowler, CRS
Solutions Real Estate - Carlsbad, CA
The Southern California Relocation Dude
Thanks for a great post - so good to hear from ethical loan officers who care about what they are doing, and using common sense.
Oct 02, 2006 11:46 AM #7
Rainer
173,250
Mark Flanders
Consulting - Silverdale, WA

Brian, another excellent post. Keep them coming!

There is nothing more uncommon than common sense.

Oct 02, 2006 12:20 PM #8
Rainmaker
311,264
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751

I love the fact that I can put a post problem up and people jump on it; it's privileged to be around smart people.

1- Sara, good point on the discriminiation.  It's basically a Dutch Uncle talk with the borrower before they proceeed with the deal.  I'll put any package in front of an underwriter; I just won't fight hard for a deal that doesn't make sense.

2- Crystal, the first guy would be perfect for multi-family; why didn't I think of that?  It looks like I have another loan now. 

 

Oct 02, 2006 12:24 PM #9
Rainer
36,692
Sara Lipnitz
Max Broock Realtors - Birmingham, MI

Brian,

I like the answer you gave.  It's a similar answer that I give when someone wants to buy a 2nd home.  I always get uneasy when I think someone is taking on more than they can handle.  At the end of the day, it isn't for me to decide.  The onus falls on the lender.  Sorry!

Oct 02, 2006 02:06 PM #10
Rainmaker
502,950
Nima Rezvan CT Lender CT Senior Mortgage Broker
Nima Rezvan Prosper First Funding Corporation NMLS#110681 - Fairfield, CT
First Time Home Buyer Expert - CT FHA Loans - FHA
I have said no before and I have gotten the realtor upset.  It is okay though because I rather be happy and able to go to sleep with a healthy mind then go to bed money happy feeling guilty.  Keep doing good business because its worth it.
Oct 02, 2006 03:48 PM #11
Rainmaker
99,063
Marguerite Crespillo
Marguerite Crespillo - Roseville, CA
Lets see-he filed BK a year ago and has been selling cars for one month and made $10,000.  Who is he going to sell to next month since all his friends and family have already bought a car from him?  Neither one really qualifies, but once you tell them that and why they go to the next lender and hold back some of the things they told you.
Oct 02, 2006 04:09 PM #12
Rainer
7,446
My Essistant
MyEssistant - Santa Monica, CA

Thanks for being one of the few that are not pushing people into home ownership for the sake of making your commission...thanks for actually looking out for your clients and for representing this industry with professionalism and compassion!

Oct 02, 2006 04:15 PM #13
Rainer
15,500
Joseph Crespillo
Sellstate Realty First - Rocklin, CA

Brian,  I wanted to let you know that I was in my wife's progile when I commented on your blog.  So don't blame Marguerite for my comments.  She's not as funny as me.

Oct 02, 2006 04:16 PM #14
Rainmaker
311,264
Brian Brady
San Diego VA Home Loans/858-777-9751 - San Diego, CA
858-777-9751
No worries, Joseph.  The client is making $10K a month, consistently for the past year.  I can't out him on the loan because of his BK but I can feel good about a tated loan for his wife; there is money coming into the household on a consistent basis.
Oct 02, 2006 06:14 PM #15
Rainer
153,578
Scott Gormley
Oak Valley Mortgage-California Home Loans and Refinancing - Chico, CA

Hey Brian,

Good blog. This is so true. Both of us commented on another AR blog on Saturday morning in respects to her loan question and I told her the same thing  :)

Scott

Oct 02, 2006 07:46 PM #16
Rainmaker
112,039
Carl Guild
Carl Guild & Associates - East Hampton, CT
Central Connecticut Real Estate
... But I need a sale!!! LoL - I wish there were more loan guys like you. Great post!
Oct 02, 2006 08:08 PM #17
Rainer
29,394
Michael Roberts
Real Estate Professionals of Glynn - Saint Simons Island, GA

You know it s is refreshing to hear a lender saying what you've just stated.  Why throw fuel on a burning house fire by giving folks a loan for something that they want as oppossed to what they need and can afford.  I have shot myself in the foot ... so to speak when working with buyers by simply telling them they were wasting their and my time by looking in a range that they weren't qualified for.  WHen that happened I've left them on good terms only to run into them a few weeks later being shown around by another "Professional" who likes to drive a taxi service... Nothing has changed except they found someone who would waste their time showing properties that the potential sale hasn't be qualified for  or could only be qualified on by obtaining a State Loan...

So good for you for telling folks NO!

Oct 02, 2006 11:18 PM #18
Ambassador
378,409
Karen Hurst
RICOASTALLIVING.COM - Warwick, RI
Rhode Island Waterfront!

Michael,

This is a dilemma we as Realtors all face. If people are determined to buy, they will find someone who will make that happen. Isn't it our repsponsibility to help them search out all avenues, including state loans, no matter how time consuming?

Oct 02, 2006 11:35 PM #19
Rainmaker
164,258
Home Design
Alpharetta, GA
Home Design and Real Estate
It's just the way it is this days.  People don't care about buying more house than they can afford.  Like most places, here in GA, we can get people approved for anything.  It's like those car commercials say, "No Credit, No Money, No Problem"  Everybody Drives!  LOL
Oct 03, 2006 12:43 AM #20
Rainer
340,092
Ken Smith
Suburban House Hunters - Arlington Heights, IL
I have used stated and easy doc programs for all of my personal loans over that last few years, but I have great credit. Also I actually make the money, just never have the time to pull all of the docs.
Oct 03, 2006 06:12 PM #21
Rainer
1,465
Tracy Estridge
Rocklin, CA

Grea post Brian.  You have to use common sense in dealing with Stated Income loans otherwise use No Ratio loans.  I always ask myself is this a good loan and are the borrowers going to make the monthly payments.  Also, I am running into this same scenario when some people refinance for debt consolidation or lower monthly payments.  If we refinance them they putting off the inevitable of foreclosure or bankruptcy & I advise them to sell their home & rent.  As a mortgage professional, you must carefully analyze what is best for your client.

Oct 04, 2006 03:47 AM #22
Rainer
41,109
Dominick Gaccino
Dominick gaccino - Peekskill, NY

if things look bad i explain this to the client but if theyt are really gung ho about it tjhey will just go to someone else

 

keep that in mind guys

 

DOMINICK GACCINO

First Suffolk Mortgage Corp

 

May 06, 2007 05:20 PM #23
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