Sunday, April 19, 2009

Bring back the stated income and 100% mortgage

Though there is an argument (often made by mortgage loan originators) that there must be a minimal risk underwriting box that for stated income and high loant to value products, these loans don't seem to be coming back any time soon.

Self employed borrowers are feeling like victims of banks' current underwriting guidelines when it comes to documenting income. Their Adjusted Gross Income (AGI) is much lower than the money their business brings in. Frequently self employed borrowers taking 2 positions when it comes to what their income is. When they file their tax returns, they use every write-off the IRS allows in order to bring their taxable income to the lowest it can be. That is legal and that is fine, however, know that what is written in the line on the tax return labelled Adjusted Gross Income, is the income that can be used with some slight variations. Often that isn't enough to qualify for a mortgage that the borrower wants.

There can be a few items (paper loss type things) that can be added back to the borrower's income. Items such as, depreciation, and home office use, can be added back to the borrower's income, but other than that, the AGI is the income that is used to qualify self employed borrowers.

Saturday, April 04, 2009

We Reward The Risk Takers...

I guess the feeling is that we have to. I just finished an article on Forbes about D. Andrew Beal and Beal Bank. He stayed out of the fray during the go-go years from 2004 until 2008, originating no real estate loans. Now his bank is solvent, capitalized and ready to buy loans from other banks who need the $. And of course, there is no TARP money for him, no Fed assistance of any kind. The ratings people thought his model was unsustainable while greenlighting such winners as Lehman, and Bear.

It boils down to who has the most power.