Are stated income loans making a comeback?

They are at one lender – which means that other lenders are likely to follow suit soon.

Highlights of the Stated Income loan offered at this lender:

• 720 Minimum Fico Required
• Self Employed Only
• 70% – $1,500,000 Purch./Rate – Term — Owner Occupied
• 60% – $1,500,000 Cash Out — Owner Occupied
• 60% – $1,000,000 Purchase — Non Owner
• Second Homes Allowed at 5%-10% LTV Reduction
• Maximum Cash Out — $325,000
• 12 Months PITI Reserves Required
• Minimum Loan Amount—$417,0003/1; 5/1; 7/1; and 10/1 ARM’s
• Available Rates start in the mid 4’s and range to the low 6’s
• Programs Available For Most States

Stated income loans were popular during the big real estate runup of the early-to-mid 2000′s – and as the mortgage boom turned into a mortgage bust, all lenders that I was aware of eliminated their stated income loan offerings.

But in true business-cycle fashion, given a little bit of time – at least one lender is now back in the stated income game. And if my suspicions prove out – I bet there will soon be another lender in the stated income loan game… and then another. And another. Until they become a “regular” program again.

Let’s just hope they figure out a way to keep the waitress who makes $2.13/hour plus tips from claiming that she makes $130,000/year as she buys a $415,000 house.

And in some strange way of thinking, people seem to gravitate toward the bigger lenders thinking that there is no way that anyone from would be able to do something that would be considered bad.

Wrong.

Heck, I see it happen all the time. As recently as yesterday. The simple case highlights:

Lady came to me wanting a mortgage and I quoted her a 5.125% rate.

She said that Wells Fargo quoted her a 4.875% rate and so she decided that we were too high and trying to “rip her off”.

Realtor just emailed me this exact email:
You will be happy to know who decided to go with Wells because their 4.875 was better than your 5.125 just closed… 5.25 (DOH)

So they promised a 4.875% and she ended up getting a 5.25% rate – worse than the actual 5.125% that I could have delivered?

Yes.

I see it all the time. At least once a week. Someone promising something they can’t deliver.

I wonder how she feels about Wells Fargo now?

Sorry. Tough room.

But seriously, folks, I don’t mean to make light of what is a very, very unfortunate situation. What “situation,” you ask?

Ah, well. Goldman-Sachs, the venerated Wall Street investment firm, has gotten itself into a bit of hot water with the SEC. And the Justice Department. And pretty much every American taxpayer. There are probably some other folks who’re more than a bit upset with them, but you get the idea.

What’d they do?

Well, for starters, it would seem that they weren’t exactly … honest. Allegedly. In a lawsuit brought against Goldman-Sachs by the U.S. Securities & Exchange Commission in mid-April, it is alleged that they conspired with a hedge fund operator — John Paulson — to put together a lineup of mortgage investments that were almost sure to fail. The investment pool, which they named “Abacus,” was the Bad News Bears (or the Chicago Cubs, if you will) of mortgage securities.

Mr. Paulson was happy to invest $1 billion (yes, that’s one billion dollars) from his hedge fund in the project. You know, just to be helpful.

Once this pool of bottom-feeding investments had been assembled, as it is alleged in the lawsuit, Goldman-Sachs took the investments to other firms, such as the Royal Bank of Scotland, PLC and IDK Deutsche Industriebank AG, and sold it to them. It’s also alleged that they might not have disclosed the outlook of the securities nor about Paulson’s involvement.

Naughty, naughty.

At then end of the day, investors in the deal lost more than a billion dollars. Mr. Paulson made over a billion because he had inside information and was able to sell his shares short. In other words, before they totally tanked.

Needless to say, those other investors are pretty ticked off. To say the least.

On May 4, the U.S Justice Department filed criminal charges against Goldman-Sachs (based allegedly — I keep using that word … I wonder why — on a tip from the SEC).

The crux of the case against the investment firm is whether they misrepresented themselves. As the charges were only brought today, and since I’m not directly involved, I can’t indict them, as I haven’t seen the evidence. That’s the Justice Department’s job.

What I do know is that all of this tomfoolery isn’t going to do anything to elevate the image of the financial sector in the minds of the American public. To say that it’s going to draw their ire is a major league understatement.

So, what does this mean for us? What does this mean for the everyday American?

It’s hard to say, but it’s for darned sure going to mean increased scrutiny on the financial industry. I’m hopeful that it’s going to lead to some serious discussions about reform. Discussions about real regulation. Discussions about big players like this taking responsibility for their (alleged) actions.

There’s one thing that I am sure of, however, and it’s that there’ll be no shortage of Goldman-Sachs jokes in the near future.

In a perfect world, you would probably want your loan officer to have as much local decision making on your file as possible – because in my experience anytime decisions are made on your file that aren’t right next to the loan officer (as in right down the hallway), it adds time and sometimes complexity to the loan process.

Here are five simple questions that you can ask your loan officer to see if they have “local decision making” on your file:

1. Do you have in-house processing?
2. Do you have in-house underwriting?
3. Do you have in-house closing doc drawers?
4. Do you have in-house funding?
5. If there is a problem with my file, who makes the final decision as to whether or not I get a loan?

The answers to these questions will tell you quite a bit about how much influence your loan officer has over your file. If the question to many of the questions is “yes, they are right next to me in another office” then chances are that that particular loan officer has quite a bit of influence on your file and can get your loan done quickly.

If the answers to the questions are “no, those are all done in our operations center” then chances are that your loan officer ends up taking a number and waiting in line regarding your file. It will probably take longer to get done and if there are any problems on your file that need special attention, it will be more difficult to get done.

So remember – when it comes to getting your loan done…

Local decision making is better.

I suspect the HEFI program (explained to me by Equidebt Solutions recently) is no different — it is complex enough that I bet someone has been working on this solution for a long time — and I just heard about it.

What’s A HEFI?

HEFI stands for Home Equity Fractional Interest and it may end up being just the solution to lead us all out of the housing crisis. Or, at least – it is possible that it could help make a major dent in the problem.

The HEFI program is designed to help three different groups of homeowners:

1. Homeowners who owe more on their mortgage than their home is now worth. For people who owe on their mortgage than their property is now worth, a HEFI Agreement could be utilized to reduce the principal balance of the loan in exchange for a passive equity interest in the property to the Lender / Servicer who agrees to reduce the size of the loan to make it affordable for the homeowner.

2. Homeowners who currently have equity in their home and want to convert some of the equity into cash. For homeowners with equity in their home and who want to convert some of that equity into cash, a HEFI Agreement could be used rather than a second mortgage or a HELOC. A HEFI is not a debt instrument – it is an equity instrument.

3. People who are not yet homeowners, but want to be homeowners. For people who are not yet homeowners, a HEFI Agreement could be provided by a builder, developer or municipality where the HEFI Agreement would facilitate down payment support by a third party to reduce the overall cost of a new home purchase.

Just my opinion, but if the HEFI program can really help all three groups of people, it seems like a much better solution than some of those I have seen coming out of Washington lately.

I wonder if anyone has told them about it yet.

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