Stated income loans..?

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We have all heard the stories of those getting home loans were the payment was as much or more than their monthly take home pay. Many place this blame on the Credit Reinvestment Act. Their claim is the government forced them to make these loans.

On many of these loans the borrower was able to state their income, without showing actual proof. What they fail to tell is this type of loan was generally used for self employed individuals, who have the required income and credit but didn’t meet traditional underwriting requirements. Many of these mortgage companies could have required the borrow to file IRS form 4506, which gave the lender permision to request verification of the bottom line of the borrowers previous two years tax returns. If the borrower defaulted quickly the lender could then check the tax returns for cases of fraud. The probem was many Mortgage brokers steered customers away from lenders who ask for for 4056.

The banks really didn’t care since home prices kept raising they expected a large number of forclosures. They would then take the home they had $ 100,000 invested in minus the payments already made. Put the home back on the market at an even higher price and increase their profit again. They failed to factor in what would happen if home prices dropped since they hadn’t seen it in their lifetime.

Agree or disagree, and why, or why not?

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