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Thread: Stupid mortgage for stupid people

  1. #1
    bigq
    Please tell me most are not this dumb?
    What if you could get into Stanford by simply telling the admissions office you are an A-plus student -- without any proof? Or how about driving a brand new Mercedes off the lot after promising the salesman you'll send him a check next week? Fat chance, right? So you might be surprised how easy it is for people buying a new house to borrow hundreds of thousands of dollars by simply telling the bank how much money they make -- without any proof. It's called a "stated income" loan, but many people inside the housing industry call it something else: a "liar loan."
    Brian is a Bay Area mortgage broker. "Michael" is his client -- a 23-year-old auto mechanic. The payment on Michael’s new home is $4,200 a month, but he only earns about $4,000 a month -- leaving him $200 in the red. He was only able to get the loan because his broker used "stated income" to inflate his paycheck. Brian (the broker) said, "I put on the application that he made $13,000 a month, which was unverified … That's the definition of a stated income loan. You state the income. Most definitely it was a fraudulent loan. The income was literally made up from thin air."
    Now you might think getting a loan still works like an old Hollywood movie, where buyers have to fully document that they make enough money to pay back the bank. But over the last decade, Bay Area home prices have gone up 300 percent -- far outpacing people's incomes -- which is why nine out of 10 households can no longer afford the median home price of $630,000. So to keep the clients and cash rolling in, banks and other mortgage companies began offering easier terms like no money down, adjustable rates, interest-only, and stated income.
    One broker, "Dennis," works for a mortgage company where he says a whopping 85 percent of loans are stated income. He says out of that 85 percent, they all have inflated numbers.
    "All of them, because that's why you're going stated." Dennis added. "We've seen the banking industry keep getting more creative, and more creative, and more creative to keep putting fuel on this fire of home appreciation."
    Consider, for example, what would happen in a Monopoly game if every player claimed to make more than $200 each time they pass "Go" -- maybe $400, $600, even $1,000 with each pass. Pretty soon: a bidding war, with players paying Boardwalk prices, even for a fixer-upper like Baltic Avenue, based on money they don't really have.
    But the buyers may not even know their incomes are being inflated.
    Dennis said, "Some may know. But for the most part I would say the consumer is pretty much left out of the loop."
    Out of the loop because the broker often prepares the loan papers without ever telling the buyer their income has been inflated. And buyers may then unknowingly sign a fraudulent income number on their loan.
    But if it leads to getting their piece of the American dream, homebuyers must be happy, right?
    Not according to Beverly and Dwayne, two Bay Area homeowners.
    "Right now I'm living from paycheck to paycheck. I'm struggling with putting gas in my car just to get to work," Beverly said.
    Last May, Beverly and Dwayne bought their first home. Their broker assured them they could afford the half-a-million-dollar price tag based on Beverly's income as a social worker. She makes $2,750 a month.
    But what they didn't know? To make the deal work, the broker boosted Dwayne's salary to an impressive $8,000 a month.
    "I wish I did make $8,000 a month," Dwayne said.
    In truth, Dwayne is out of work and only gets a small disability check. Nevertheless, based on their inflated income, they qualified for a mortgage of $3,700 a month. That's almost $1,000 more than Beverly's entire paycheck.
    "I didn't find out until the signing," Beverly said. "And I said 'I can't afford to pay that,' and the realtor said, 'Don't worry about it, we're gonna immediately refinance it.' "
    Refinancing is what keeps many new buyers in the game, but only if interest rates stay low and housing prices go up. Instead, interest rates are rising. And though Bay Area prices are still going up, the market is weakening.
    Beverly and Dwayne have spent the last five months trying to refinance. Their life savings are gone. They sleep on an air mattress. They've already been late on one loan payment.
    "This has turned into a complete nightmare," Beverly said.
    Now you might think mortgage lenders would be more careful giving out hundreds of thousands of dollars without proof of income. But in fact there's almost no risk to the bank. That's because most banks turn right around and sell their loans to real estate investors on Wall Street -- to mutual funds, pension funds -- even foreign countries.
    Raphael Bostic teaches real estate at the University of Southern California. He said in the old days, if a family didn't repay its loan, the bank took the hit.
    "In today's environment, if a family does not repay, some nameless, faceless guy in Wall Street in New York, or the investors take the hit. The bank is not put at risk at all, and so they're not that concerned."
    He added, "What it does is it reduces to some degree a bank's concern and a bank's diligence in making sure that the loans they originate are actually going to pay in the long run."
    And banks and brokers aren't concerned about getting caught cheating, said Brian, which is why stated income fraud remains a dirty little secret from most buyers.
    And the reason why nobody in the loan industry is talking about it? According to Brian, "When you have a $10,000 commission check dangling in front of you, it's kind of hard to want to give that up."
    Beverly said, "You know they say you make sacrifices to keep what you have, but they didn't tell me I would totally have to stop living and just exist because of somebody else's deceit."

  2. #2
    DCBDaytona
    Yes they are.

  3. #3
    cdog
    I'm afraid we are going to see a lot of this as the year goes on. The I/O stated income is a great product but they need to have some serious restrictions on who can get them. Say at least 20% down and a 700 + fico. The mortgage brokers are going to be in big trouble as the buyers pull lint out of their pockets and "say poor un informed me". It'll be the RE scandal of the decade.

  4. #4
    Mandelon
    Its this kinda deal that is keeping me so busy right now.

  5. #5
    Jyruiz
    Wow!

  6. #6
    jbtrailerjim
    Unreal. Stupid people and greedy freakin mortage brokers. I couldn't sleep well at night knowing I was putting ignorant people in bad financial positions like that.

  7. #7
    Do F150's Float?
    Stated income makes sense for quite a few people. For example: Undocumented income (side jobs, notaries, etc) don't document every couple of dollars that come in. Self employed borrowers almost NEVER put down what they actually make on tax returns. Room rent from family members... etc. etc. etc. These are all things lenders will not give you credit for. Some of it is just flat out lieing, i won't deny that.
    Aside from that, TAKE FINANCIAL RESPONSIBILITY!!! Your payment is disclosed to you before you sign your docs. Get over it people - you know what you can afford, your broker/banker doesnt.

  8. #8
    C-2
    We can argue about a slowdown vs. a correction till we're blue in the face - but when these loans adjust - it's gonna be UGLY.
    The majority of cases I'm working now are mortgage fraud, for both insurers and lenders forced to buy back loans (and this is the calm before the storm).
    Mathematically impossible..no problem.
    500 credit score - so you've had a few problems.
    No money down...not a problem.
    How can you lose sez the mortgage broker...now just sign on the dotted line do I can get paid. :220v:

  9. #9
    doesitfloat?
    right about then i would have walked away... just my .02
    Yep, she was "smart" enough to catch the monthly payment and still stupid enough to still sign the dotted line. Very sad.
    My buddy's in this boat right now. Bought a decent condo in a sh!tty part of the Bay Area for $500K on stated income (he drives a delivery truck) with an adj rate loan and a baloon in 5. The condo's now worth $425K, he just had a 2nd kid with daycare at $1000/mo x 2 kids, he is phucked. Can't make the payments...not even close
    If he can sell, he'll lose his life savings of $90K that he put down plus he'll probably have to right a check (which he doesn't have) to cover the RE comission costs.
    People do more research when they buy a car than they do when buying a home!

  10. #10
    Ryphraph
    Reminds me of a car dealership that I was trying to work a deal for a new truck at. I am trying to explain what I can afford. The sales manager tells me that with my credit I can drive off with any 3 cars on the lot. My budget though is that I can't even afford the one I am trying to buy. They don't care... Just make the sale baby!
    Ryph

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