March 2007 - Interest Notes
In this issue:Southern Luncheon features information on Stated Income Loans: ‘Let the fund begin!’
The Southern Chapter held its monthly luncheon February 14. Greg Grandchamp, Colorado Area Sales Manager, IndyMac Bank, shared information on stated income loans.
During his presentation, Mr. Grandchamp noted the popularity of stated income loans. He also urged caution in this arena and clarified what stated income IS and what it is NOT. “Stated income is NOT a way to get a loan approved because your borrower really doesn’t qualify full doc, nor is it a way to drop one spouse off the deal due to credit – “stating” the remaining spouse’s income higher because as a couple they qualify,” he noted. “Stated income is an accurate representation of the borrower’s current income where the borrower cannot, or chooses not to, fully document to the lender’s satisfaction.”
While stated income loans have their place in the market and can be a valuable tool for loan officers who find themselves faced with borrowers who have lost W2’s, cannot document actual income, have other sources of income that cannot be documented, or a host of other reasons, improper use of stated income can lead to loan fraud, which occurs whenever a loan originator intentionally and/or knowingly misrepresents factual information in a loan file. “This is, of course, highly illegal – not to mention unethical – and can have serious implications,” Mr. Grandchamp shared.
“A real litmus test you should conduct is to ask yourself when examining a loan file is ‘Does this make sense?’ Do the borrower’s assets match what they claim they are making? Does the borrower credit profile make sense for someone making what the borrower is claiming? If not, that should be a red flag.”
There are a few scenarios where no ratio may be better to use than stated income. “If the income does not fit the borrower credit profile, if income is not aligning with assets, or if income is out of the norm for employment history, or if income from numerous sources can’t be tracked, you may want to consider no ratio,” Mr. Grandchamp noted.
In conclusion, Mr. Grandchamp urged luncheon attendees to consider themselves in the role of financial advisor. “Think about how you would treat your family and friends,” he noted. “Overstating your borrower’s income to get them a loan they don’t qualify for is bad business practice and short-sighted. Utilize stated income only when it is necessary and when it’s just the right thing to do.”
