Where have all the good banks gone . .

Banking fell apart in January 2008. We now have all new rules for mortgages on preconstruction sales, stated income loans, and even some full documentation loans on second homes. We have all seen what the news has been reporting. As usual, I believe they are missing half the story. I believe the first problem occurred when the PMI (Private Mortgage Insurance) providers let everyone know they did not have the assets to cover all of the claims expected from the banks in the near future. Well, that shouldn’t be a big deal. Just another company some where in a far off land that goes out of business or gets bought out, right? Wrong. Within hours of the announcement mortgage bankers and brokers watched all of their portfolio lenders (the guys who actually loan you the money on your non-government backed mortgage) pull all most all of their 95% products (or loans) and many of their 90% products from the market. It doesn’t matter if you have an 800 credit score, the loans walked away. People with excellent credit and fully approved loans were notified days before closing that their fully approved loan was no longer available.

So let me explain why this happened. Banks loan you money on reasonably low margins. They make money based on the high dollar volume. Even if a loan gets foreclosed on, they have insurance on the first 20% on the value of a property. They just call the PMI provider up and file a claim. The insurance usually keeps them relatively safe. If someone suggests the insurance isn’t worth the paper it is written on, the lenders risk significantly outweighs the return potential.

Does this mean there is no money available to lend on a second home? No, but the rules are very strict. You need a very good credit score, at least 10% down (or significant assets), and a fully documented loan.

Is stated income gone?

No. State income is still out there. There are just some new rules. Back in June of 2007 they changed the rules and the general rule was “3 months income”. If you stated you make 120k a year (a nice round number so I can show that person should make 10k a month). You need to have 30k in your checking account (which is 3 months income). Now the rules have changed again. The new rule is “9 – 12 months income”. So, if you say you make 120k, you better have 120k in regular bank accounts AND it better have been there for 3 months. Now for some of the many things that don’t count. CD’s don’t count, Money markets don’t count, stock, options, retirement, anything else doesn’t count. After all, the goal is to show that you actually make what you say you make.

There is more. Be careful what you tell them you do for a living. You are not allowed to be successful at what you do. When you give an occupation, they look in a cute little book and see how much someone in your occupation should make. If your numbers don’t match your in trouble.

Is there anyone who can help me to get a stated income loan?

Yes. Find a good bank with underwriting “IN HOUSE”. If you need help finding someone, call me. I can point you in the right direction.

Disclamer:

All opinions expressed by Christopher Arnold on this website are solely Chris’s opinions and do not reflect the opinions of Prudential, Prudential Shimmering Sands or their or affiliates. Chris’s opinions are based upon information he considers reliable, but neither Prudential, Prudential Shimmering Sands nor its affiliates and/or subsidiaries warrant its completeness or accuracy, and it should not be relied upon as such. Chris’s statements and opinions are subject to change without notice. No part of Chris’s compensation from Prudential Shimmering Sands is related to the specific opinions he expresses. Past performance is not indicative of future results. Neither Christopher nor Prudential Shimmering Sands guarantees any specific outcome. You should be aware of the real risk that property values can and do fluctuate both up and down following the purchase of a property. Properties values may go down in value once purchased. You must make an independent decision regarding the real estate market and your purchases of real estate. Before using any information contained on this site, you should consider whether it is suitable for your particular circumstances and strongly consider seeking advice from other professionals that may be relevant in your decision making process.