Stated Income: The Band That Is NOT Getting Back Together
Not a week goes by that I don't get asked in some fashion, explicitly or implicitly, if stated income loans are coming back. And at the risk of making this a record-short blog post (for me, anyway), let me cut right to the Blues-Brotheresque-police-car-smash-'em-up chase and tell you, "No, stated income loans are not coming back!" At least not in any conventional mortgage sense. Here's why.
The not-so-new sheriffs in town are Chris Dodd and Barney Fife. Er, I mean Barney Frank. The law of the land is now the Dodd-Frank Wall Street Reform and Consumer Protection Act. Where mortgages are addressed, a concept called "ability to repay," or ATR, is outlined. In order to make a mortgage that stands a chance of having ANY legal protections should a consumer default or level a defense against the lender, the lender must be able to demonstrate the borrower's ability to repay.
Stated income gets right at the heart of ATR. In short, the very appeal of stated income to a consumer is the ability to NOT have to prove capacity to repay. So while you may hear about today's aggressive mortgage programs, alternative qualification methods (asset backed, etc.), etc., you will not find a residential mortgage untouched in some manner by ATR. Even our alternative qualification programs that are "non-QM" still address, in some form or fashion, a borrower's ability to support the future loan payments. "True stated" is a ghost and if you hear that it's come back, it's just a nightmare.
If you're purchasing or refinancing residential real estate and you need a mortgage that is consistent with what most would consider excellent, going-rate terms, you will be exposed to ATR in your loan process. HELOCs fall outside of Dodd-Frank. So does private money. But these two programs are not typically the way a buyer or borrower would finance a primary home with a first lien.
Dodd-Frank and the CFPB are on a mission from God to enforce ATR, so as a result, the stated income band is not getting back together. At least not any time soon.
Gimme some lovin',
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