Consider this -
As has always been the case, people try to hide income from the IRS. Liar loans became the mortgage of choice for these homeowners. They claimed an income that was higher than they reported on their tax returns. Yet, somehow they were able to make the payments for years - probably from those under-reported income dollars that they hid from the IRS. Today, there is talk about forcing lenders to modify loans where the mortgage payment exceeds a Magic Ratio of their income. But what income are they looking at to make this determination?
My questions is - if LIAR felt that they had sufficient income (higher than their reported income) when the obtained the loan and were successful in making payments for a period of time, then why should we use their (under-reported) tax return income for a calculation that would reduce their mortgage payment now?
Recommendation: Borrower should be required to release tax returns from the year before and the year that their existing loan closed. if the income they claimed was __x___% higher than they reported, then assume that their current actual income is also ____x______% higher than they report. Use this higher income to determine any qualification for CRAM down of the existing loan. Otherwise, the LIARS who understated their income, will have the more honest (or less creative) taxpayers subsidising their mortgage payments.
The bottom line is any alteration of the mortgage note that reduces its value will increase the risk for future investors in mortgage backed securities. This risk will result in higher mortgage rates in the future.
Have a great day!
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