History of The Stated Income Loan
One of the players in the real estate meltdown and housing crisis beginning in 2007 was the pervasive use of stated income loans. Lenders were notorious for making reckless loans without the prudent risk analysis and verification of individuals incomes listed on loan applications. The stated income loan was a vehicle for major lenders to exploit the borrowers by asking them to promise that the information provided on the loan application was correct. The underwriters of the loan took the borrowers word for it, and a snowball effect began where mortgage borrowers were exposed to variable rate loans that were out of line with the income levels of the borrowers. This inappropriate use of stated income loans did not mean that the idea of stated income was not a bad idea, merely that the context for which the loans were made were exploitative in nature.
Now a days, the stated income loan is making a comeback as lenders look to cater to the increasing demand existing for self-employed Americans looking to enter the real estate market. Lenders operating under a stated income loan program seek to lend to individuals who are unable to provide documentation pertaining to taxes and income. Small business owners often write off their business expenses to boost profitability, but this reduces the reportable income that the business reports to the IRS. This reduction in income makes it more difficult for small business owners to acquire mortgage loans. As a result, lenders use stated income loans to make it possible for these individuals to borrow.
Today, borrowers of all sorts have the ability to enter the real estate market and take advantage of its unlimited opportunities. Contact the specialists at HML Investments today for further information.