Comments on: About Liar’s Loans

By: Frugal

Frugal — Tue, 24 Oct 2006 05:39:32 +0000

Thanks for your good summary, Ken. I can perfectly understand that some people have a legitimate need for such loans.

By: Ken

Ken — Sun, 22 Oct 2006 07:47:41 +0000

The thing with stated income loans is that it asks for a monthly income, not a yearly. A salesperson could have made 10 more sales than normal last month thereby getting a nice $20,000 commission check instead of the normal $5,000. He can then state he makes $20,000 a month because he did.

A no doc loan is basically based on credit score, down payment and reserve funds only.

By: Frugal

Frugal — Mon, 16 Oct 2006 02:39:35 +0000

Thanks Brian for your detailed comment. When no doc on income is provided, sometimes it could be quite easy to fake the asset value, right?

By: Brian Brady

Brian Brady — Mon, 16 Oct 2006 02:08:31 +0000

I’m a 12 year mortgage banking veteran and 19 year financial services professional. I hope to clarify what is, and what is not a “liar’s loan”.

A stated income loan is where a borrower can “state” the current income and not be subject to the traditional 2-year “look back” for income verification. It is extremely effective for self-employed or commissioned borrowers who have “broken through” and started earning more income today then thay did last year. e.g.-if you owned a janitorial services company and received a big contract from the Navy this year, your last two years income wouldn’t reflect your newfound largesse. This loan would be appropriate for you. If you are simply overstating your income, you’d be misrepresenting your income (or lying). Hence, the term “liar’s loans”.

No Doc loans or for borrowers who do not want their income considered at all. Income is not a determinination in the underwriting decision. It is impossible to term these as “liar’s loans” because no statement can not be a misstatement. They are the appropriate loan program for borrowers who truly can not provide any documentation whatsoever.

I think a good litmus teset for me is this questin I ask borrowers who want to use stated income loan programs: If I gather your last 3-4 monthly bank statements, will I be able to legitimately extrapolate your income to equal what you stated?

By: Frugal

Frugal — Tue, 03 Oct 2006 18:35:00 +0000

Dr. Housing Bubble,
I agree with you. What’s in the media and what’s happening in CA is not healthy. When enough people abuse Other People’s money, it will all eventually come back and bite everyone of us.

By: Dr Housing Bubble

Dr Housing Bubble — Tue, 03 Oct 2006 15:35:17 +0000

Look at the show Deal or No Deal. It strikes directly at this type of mentality where people are apt to gamble “other people’s money” or OPM much easier. How many times have you seen someone on that show with a guaranteed $100,000 bank offer and has a 20 percent chance of winning $500,000 only to give up the $100,000 to end up with $20,000 or less. These liar loans demonstrate how easily people will spend other folk’s money to make a quick buck; think of the recent fall of the Amaranth Hedge Fund.

Nothing wrong with stated-income if they are used for their purpose (i.e., a doctor starting a new practice in a new area). But in reality how many people fall in this category? Recent stats show that in California alone 70 percent of loans are either ARMs, interest only, or no-doc negative amortization loans. Many are called option-ARMs with a fixed term. But again, out of this group how many meet the criteria for the stated income loan? Looking at the Los Angeles Times article it seems that many are truly lying to make it into a home.

By: Frugal

Frugal — Mon, 02 Oct 2006 21:40:31 +0000

Yes, ironic indeed. Sometimes, I’m wary of myself becoming another hypocrite.

By: Larry Nusbaum

Larry Nusbaum — Sun, 01 Oct 2006 13:56:26 +0000

Our society stands for so much more than money……but, that all comes AFTER the money. lol

By: Frugal

Frugal — Sun, 01 Oct 2006 03:05:34 +0000

It should be measurable by taking a sample. A sample by itself is not accurate across the entire spectrum, but by theory of statistics, you can limit your standard deviation by using sufficient number of random samples.

Certainly, if they always underwrite the loans by using the same assumption of vacancy, it’s definitely not good enough. That I will always agree.

There are probably some loans that are hard to evaluate and underwrite. That’s the job of a good loan officer. But these days, the loan officers are just another accomplice or the director throughout the home buying process. If they do their jobs like they should, then things will probably be better.

In any case, I’m not in any position to criticize anyone, since this is really a capitalistic society. But I only hope that our society is really more than just money and capitalism, but more about integrity and honesty. Such degeneration is not good for all of us in the long term.

By: Larry Nusbaum

Larry Nusbaum — Sat, 30 Sep 2006 18:18:19 +0000

I have thought about this a lot. There is simply no way to measure how many people lie. Lenders say that it’s good for the self-employed and the commission sales people or bonused people. But, I have no idea why. I was a commercial/business lender at three banks, including BofA and CalFed and we routinely were able to underwrite self employed individuals (including those using IRS Schedule C)
However, let’s take my case. On my most recent 2005 IRS Schedule E: I have 8 properties listed. Now, I have never had a vacancy in almost 20 years (I have bank statements to show the bank), but when they underwrite a full doc loan, they automatically slice off 25% of your income due to “vacancy” allowance. But, face it, that income is the major source of household income for me and should be counted. In my case, it never matters.