|
 Lenders say these aren't the same products as the so-called "liar
loans" that were pervasive before the housing bust. Instead, the
loans are going to borrowers such as small business owners or
investors buying properties they intend to rent who can demonstrate
an ability to repay, verifiable through bank or brokerage
statements. Lenders said they look for enough assets to pay six to
12 months of payments, while also demanding high down payments to
reduce the chance of default.
"This is not a return to the wild and wooly days of, if you fogged
the mirror, you can have a loan," said Paul Lebowitz, founder of
Westport Mortgage. "They have a smarter edge to them now."
Some rival lenders said the stated income loans on offer could be
abused if borrowers fudge bank statements or don't have enough money
to repay the loan. None of the three biggest banks offer them. Sam
Gilford, a spokesman for the Consumer Financial Protection Bureau,
said the agency is concerned, though he wouldn't say whether it is
investigating them.
The CFPB's rules don't give specific minimums for assets required to
demonstrate an ability to repay a mortgage, but critics said a
year's worth of payments for a three-decade loan may not be enough.
"It's easier to falsify bank statements than income tax returns,"
said Julia Gordon, director of housing finance and policy at the
Center for American progress.
To avoid the housing-bust taint, the new stated income loans are
being called such things as "alternative documentation loans,"
"portfolio programs," "alternative-income verification loans" and
"asset-based loans."
Borrowers usually have to have credit scores of about 700, though
some lenders, like San Jose, California.-based Western Bancorp, will
accept credit scores as low as 620. Credit scores range from 300 to
850, with 640 seen as the line between prime and subprime. Borrowers
typically pay one-half to three-quarters of a percentage point above
conventional mortgage rates.
Jae Chang, president of Los Angeles-based National Mortgage Service,
started offering stated-income loans five months ago. "We are
targeting those borrowers who have excellent credit, and a lot of
liquid reserves, but who are having difficulties proving their
income," he said. National Mortgage Service is doing $15 million
worth of stated-income loans a month.
Compared to the roughly $1 trillion of U.S. home loans anticipated
this year, the stated income mortgage volume at National Mortgage
Service is tiny. There is no available data about how widespread
stated income mortgages are, and experts said that any growth in
these products is off a small base.
But the shrinking mortgage market is prompting some lenders to
expand their potential pool of customers. The MBA's forecasts for
this year's mortgage lending volumes are down 30 percent from 2013
levels. Volumes started falling last year as rising rates cut into
demand.
[to top of second column] |
SMALL BUSINESS OWNERS
Among the customers that lenders are targeting are small business
owners, whose personal income tax returns may not reflect their
ability to repay a loan. Many keep income in their business to
reduce their personal income tax obligation. Stated income loans are
also often geared toward investors, who don't fall under the same
rules imposed by the 2010 Dodd-Frank financial reform legislation.
Other lenders lowering their standards to win new business include
Wells Fargo & Co, the biggest home lender in the United States,
which said earlier this year it is willing to make loans to
borrowers with credit scores as low as 600, down from a previous
limit of 640.
The Dodd-Frank law said that, for all owner-occupied mortgages made
in the United States, lenders must make sure the borrower has the
capacity to repay, or face enforcement from the Consumer Financial
Protection Bureau as well as consumer claims in court, where lenders
could be liable for up to three years of finance charges and fees.
Ability-to-repay rules apply only to mortgages for people who will
live in the house. That means there is potential for abuse if
borrowers apply for the mortgages saying they'll rent out the
property when in fact they intend to live there. Because these kinds
of loans are not subject to ability-to-repay rules and require less
documentation, borrowers could be talked into taking on mortgages
they cannot afford, a lender at a large bank said.
The law, and the CFPB'S rules on the matter, will likely prevent
lenders from re-embracing the worst varieties of stated income loans
during the bubble years, such as so-called "ninja" loans, a
near-acronym for "no income, no job or assets."
While even ninja loans could easily be securitized before the
mortgage bubble burst, packaging non-standard home loans into bonds
and selling them to investors is much more difficult now. Most
stated income loans today are either held in lenders' portfolios or
sold to private investors.
(Reporting by Michelle Conlin and Peter Rudegeair. Editing by Dan
Wilchins and John Pickering)
[© 2014 Thomson Reuters. All rights
reserved.] Copyright
2014 Reuters. All rights reserved. This material may not be
published, broadcast, rewritten or redistributed. |
