Creative Mortgages, Part 1
March 10th, 2006 | by mbhunter |I was in the mall with my family and walked past an island store with a bunch of mortgage forms in the display cases and on the counter top.
I had heard of the incredible lengths to which lenders are going to extend credit to people, but I had never seen such offers in writing.
This series will be in a few parts. The title, Creative Mortgages, is not one I made up. It’s the title of the brochure! (I won’t disclose the name of the lender.)
Let’s look at the first part — six Creative Income Programs – which are, and I quote, “ideally suited for homebuyers who are unable to document the income needed to purchase a home.” Apparently, no income is no problem!
- Stated Income. We’ll verify that you have a job, buy just tell us what you make, and we’ll take your word for it.
- No Ratio Loan. This program is used when the stated income “does not make sense.” (Apparently for people who round up too much, I guess.)
- No Income Verification. For when employment cannot be verified for two years. Up to 100% financing. (This is the scariest of the bunch here — neither employment nor income play a factor.)
- Bank Statement Program. Bring in your bank statements for the past year or two and we’ll compute income from that.
- 1099 Program. (Ok, this one seems legitimate.) This one is used for commissioned salespeople (with 1099 income).
- Average Balance Program. Can’t verify income? We’ll guess it from your bank balance over the past three months.
I wonder how many mortgages are approved under these programs. And I wonder how many of them will go into default. I also wonder how quickly these mortgages were sold by the lender who originated the loan. Markets that deal with these kinds of mortgages must resemble a big huge game of musical chairs.
Now, I understand that the lenders will be compensated for their risk by high interest rates. But return on principal makes no difference unless you get return of principal!
Am I being too harsh on these loans?
4 Responses to “Creative Mortgages, Part 1”
By Dus10 on Mar 10, 2006 | Reply
Not only will these loans be sold very quickly… they will probably be resold a few times a year. If your mortgage is resold several times in a short period, chances are, you are considered a risk.