Interest rates are up, and standards are tightening
It isn't news that Greenspan raised rates another quarter yesterday (Tuesday). It might be news to some of you that lending standards are tightening. It seems like more companies are taking a much harder look at the income being used on stated income loans. Some companies have stopped doing stated loans on retired borrowers, military borrowers, or others where you can access a pay chart off the internet. This only makes sense, as you know what the bwr is making.
I think most of you understand the "catch 22" I was trying to explain in my "liar loan" post below. It is against the law to commit fraud on a loan application, but you have a "stated income" program that allows people to do just that. Generally, people are stating their income because they don't make enough money.
When a lender gets a stated income loan, they verify the length of employment, the position/job title, but not the income. So it is not like a bwr can say they worked a job for 3 years when they haven't. A janitor cannot say they are the CEO. Most companies use one of the many salary comparison websites to see if the income stated falls with in a range. These things will be done in underwriting. It just comes down to whether or not the lender and the investor will "buy off" on the income stated. As property appreciated, and investors were eager to buy more loans, the scrutiny on stated income deals seemed to slip. Well, that is all changing again. Rising housing prices and interest rates are "driving" up the incomes that need to be stated for borrowers to qualify for a loan. If you look at home prices in CA, you will see that you have to state quite a bit of money to do a 100% stated purchase, or way more than than the median income of about 53-54k. I hope this helps explain a bit more the situation, as well as what the lender does to check the income.