An increase in stated income loans is being seen in the mortgage space as lenders seek new ways to attract clients, Reuters reports.
The loans, which are for those who can’t provide tax returns or pay stubs to show their income, are making a comeback as companies such as Unity West Lending and Westport Mortgage chase customers they can no longer afford to ignore.
“Lenders say these aren’t the same products as the so-called ‘liar loans’ that were pervasive before the housing bust,” Reuters writes. “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.”
But some rival lenders say the re-emergence of these types of loans add vulnerability to the industry, such as if borrowers fudge bank statements or don’t have enough money to repay the loan.
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.
Some lenders are lowering their standards to win new business, including Wells Fargo & Co, 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.
But compared to the roughly $1 trillion of U.S. home loans anticipated this year, the stated income mortgage volume at National Mortgage Service is small. 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.
In comparing today’s stated income loans to those given leading up to the Great Recession, Reuters says, “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.”