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November 18, 2006
Liar, Liar, Pants On Fire - "Liar Loans" Lead To A Spike In Mortgage
It starts out all so innocently, the loan application (1003) is filled out while gathering the income and debts verified through credit reports and mortgage payoffs. Then the Debt To Income Ratio (DTI) is calculated dividing the debts including the new housing expense by the income and wham, it happens. The DTI is over 60%. Conventional loan guidelines historically have been around 28% for housing expenses including taxes, insurance, private mortgage insurance and homeowner maintenance fees. The total debt ratios had been around 36% for all monthly debts including the housing expense. With computer modeling and automatic approvals some DTI are allowed to float up in some cases to 50% to 60% if the borrower has lots of assets and the loan is on a full doc basis. As time passed, more and more hybrids began to show up. Mortgage Brokers were inundated with this new loan product called Stated Income. Simply the borrower would state their income on page two of the 1003 loan application and ratios would fall within lender acceptable limits. The original thinking by lenders were grounded in the premise that many busy well to do borrowers didn't have time to compile tax returns and a litany of proof for their assets. Borrowers who were just trying to get a loan to pay off debts and a few months down the road after the new mortgage was in place were not able to make their payments. Foreclosure action followed in many cases. This was a loan with a wink. Liar, Liar, Pants On Fire
From Liar, Liar, Pants On Fire - "Liar Loans" Lead To A Spike In Mortgage
Posted by Russell at November 18, 2006 03:14 PM
