Stated income has always been laughable to me. For the most part the way that it’s been implemented in the industry is as outright fraud - pick a number that makes the loan work and find a way to justify it to the brain-dead underwriting team that is just trying to hit their numbers. Now, I don’t need the 10 comments about what stated income was originally designed for, and how it helps self-employed people; we get it. Simply put, a huge portion of the fraud in our industry can be attributed to stated income loan products.
No Stated for Mortgage Professionals
One of my favorite ironies of the recent credit crunch has been the policy that many banks have taken towards those in the mortgage, real estate and home building industries. That policy is to require all people in those industries to fully document their income. As they say in the business “you can go stated if you’re not in the industry.” It seems to be the ultimate irony. The banks are wary most of those who would be most likely to “game” the system - and those people just happen to be the same folks send loans to them.
Some of the more prudent banks have had this policy in place since day one - recognizing the massive conflict of interest that the relationship holds. Others, greedy for every dollar and loan, ignored the conflict completely - until loans held by those in the industry started going sour like milk 2-days past the “use by” date.
It’s a ringing indictment to the malfeasance that oozes out of the origination community. Not only does it say “we know you don’t make anything close to what you made last year” it also says “we don’t trust you in the least,” both of which are responsible positions to take if you’re a bank dealing with folks on the origination side. Is it a sad statement that those with the tools cannot be trusted to use them responsibly by those that provide them? I think so.
Funny how banks will accept stated income from other professions of dubious repute and squirrelly income documentation but outright refuse those in the industry. Conflict of interest is right - there is no question that mortgage brokers, retail loan officers, appraisers, processors and underwriters were some of the biggest offenders when it came to using the “stated income” loop hole in qualifying for financing they had no chance of receiving.
Stated income is gone in Minnesota, Colorado, pending in North Carolina and may soon be on its death bed in California. While it will be difficult for self-employed folks to qualify for a loan banks will need to “invent” a more responsible product that can fill the needs of the self-employed mortgage borrower without exposing itself to the massive fraud that stated income perpetuated across the entire industry.
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