The "Stated Income" Phenomenon

With the influx of home purchases in the late 90's and into the New Century, a phenomenon hit us all. Homes were increasing in value and the banks needed to figure out a way to keep business flowing. Otherwise, it would come close to a schreeching hault, due to the afordability factor. Yup, the ability to afford your car payments,credit cards,personal bank loans and ofcourse...Your Mortgage! In reality, all outgoing payments should be around 38 cents going out in debt for every dollar coming in through income. 

Since clients "true incomes" didn't fit the model for meeting the calculated risks of offering a home loan, many just pretended. In the beginning, it was anyone's guess. Then, underwriters started buckling up and using websites like Salary.com to check a "stated income" to make sure it was in line with what the average person in that capacity would make. 

Now, the rest will be unfolded and history for all to see. Fingerpointing? Check out Kristal Kraft's great blog on her area!

I think it is important to note that not all lenders are the same. Personally, I have always cared if my clients can make the payments on their homes, period. Also, I have been blatantly honest with all clients seeking a home loan, telling them if I did or didn't think that purchasing a home was in their best interests with their past,current and guestimated future financial situation. With the inclusion of “stated income loans” in the mortgage industry, many lenders will overstate a clients income substantially higher than their actual income. Why? For the sake of bringing business through the door. Is it right? No. Is it a monster that the industry and consumers have created? Yes. Just the thought of people getting into homes that they couldn't afford from the get go seems unfair. The deception came on both sides. Borrowers that understood their actions and took the risk. While others simply went with the flow and never sought to truly know if they could afford the home. Many well respected people in the real estate field will agree with me that the madness must stop. Yes, real estate is a great investment over the long haul. People will always need homes. Aside from the value of the U.S. Dollar, Real Estate is the backbone of our economy, period. It is the largest financial decision that many Americans will decide on. Having a mortgage professional that takes the time to go through your personal situation and tells you “how it is” is important! You may or may not agree with my decision, but atleast you'll appreciate it in the years to come!

Scott Gormley
Broker/Owner
Oak Valley Mortgage
2006 Chico Assoc. of Realtors Affiliate Chairman
Direct: 530.592.8362
Fax: 530.267.5555
Website: http://www.CALoan.com

Blog: http://activerain.com/blogs/lendingmagician

"You find the perfect home, we'll find the perfect loan!"