Can anyone explain to me the new rules for self employed. Before we use to use stated or no docs and I am told these are no longer vialble. As an example in march of 2008 I was approved for $200k in loans and now through the bank I cant even be approved for a 50 K loan with 30 % down. I am not sure what that was all about other then the bank stated that stated income is no longer accpted. I am not interested in hard money lenders as I am looking to buy my own home for the long term. Are there any mortgage companies out there that still service these types of loan? understanding what self employed options and process is would be of great help to many  people.

SO WHAT YOUR SAYING IS THAT WE WILL BE FORCED TO PAY MORE TAXES AND NOT USE ALL DEDUCTIONS TO GET A MORTGAGE? I find this a bit troubling because it puts business owners at a disadvantage to pay more taxes which is not good for  small businesses or not being able to buy a home.I would think it would be based on credit scores, what the gross income of the business is and how long the business owner operated the business.If in fact  what your saying is the case then I would be forced to lay people off and cut back on expenses and not  expanding my business.There has got to be a better way.

A slippery slope was created with the creation of these programs.  10-12 years ago, there was a clamoring for a loan for sel-employed people who paid their bills on time, had money in the bank, but tax returns showed a low net income becuse some expenses were tax deductible that would not have been for W/2 employees.  The stated income and sister programs were born of this 'need'.  Then folks who worked 'on the side' or had tip 'income' that they did not need to declare wanted in.  And soon there were others who entered into these programs because they 'made sense'.  The very purpose for the existense of these loans was defeated as the floodgates opened.  And we are left with the aftermath of that and other loan programs that essentially allowed non-paying debtors access to mortgage money.

Will the other programs return for the purposes originally intended?   Perhaps.  A different solution might be to go FHA with a non-resident co-borrower, as unpalatable as that may seem.  It still may be better than private money.

Michael, some states are passing legislation is making illegal to fund loans with documenting the ability to repay. I my home state of MD, originating a loan without income documentation to support the debt is illegal. I have a client that I have been doing loans for for 10 years. He is self employed and owns multiple properties. When he found out that I could no longer do ANY loans for him, he filed amended tax returns to show a higher income. Back when I started originating loans 1998, if you couldn't document enough income with W-2's or tax returns, you could not get a loan at a favorable rate. Stated income didn't even really exist. After the billions (probably end up being trillions) of money lost due to bad loans, it's pretty obvious that it was a bad idea to allow people to get mortgages without documenting their income. Many of the loans made to self-employed borrowers with high credit scores and no income documentation over the last few years are delinquent or default. Lenders lost plenty of money on high credit score borrowers too. Not just the "sub-prime" that dominates the headlines.

"when he found out that I could no longer do ANY loans for him, he filed amended tax returns to show a higher income. Back when I started originating loans 1998."

I think amending tax returns would create  more of a liabilty to pay the taxes on the income that you cliamed to be higher then originally or was it just ameneded as a copy to submit.In other words if I paid my taxes already and submit them to IRS with payment  and then alter my tax returns to a banking institution as an amended version isnt that fraud or am I misunderstnding you?

Seems as a small business owner I have 3 choices one being giving myself a w2 at year end and pay taxes on what I claim to make and the other is to not take the allowable deductions on my business or to show my business at a loss ( profit on w2 )and not profitable which would kill off any chances of selling it

Thinking this through I believe that the first option would be the better solution.

To the comment you made that:

Many of the loans made to self-employed borrowers with high credit scores and no income documentation over the last few years are delinquent or default.

Can you tell me if any statistic prove that? It would be interesting in terms to know what the break down actually was or are you just speculating?

My client ended up paying IRS over 30k in additional income taxes by doing this. I'm not accountant so I'm not sure how it works. I know it wasn't just amending for qualifying purposes. If a bank pulled a 4506, the income is reported to the IRS. It was worth it to him. He need to do a 1031 exchange on a rental property. If he didn't then he would have ended up paying much more than 30k in capital gains tax.

W-2 income may be a good option. Be careful not to show a large loss on business income. Even if you qualify with W-2 income, the underwriter will need to see tax returns as well. Also, if you file a schedule C for your business, it may be best to have a good loan officer take a look at it. There are certain deductions that can be added back to boost the bottom line. Depreciation is typically the largest and it can be added back dollar for dollar. If you pay any of your debts that show up on your credit report through your business, this can help your debt ratio as well.

The breakdown of stated vs. full doc delinquecies is not easy on a national level. Many stated loans were pooled with full doc. Individual banks typically report based on their own portfolio. BB&T was one of the banks that used to buy our loans. They had a great stated and no doc program for high credit score borrowers. They had to discontinue the program. My rep at the bank told me that they ran 4506 forms on a large sample of loans to verify the income that was stated on the loans was in line with what the actual income was. They found that over 50% of the applications had stated income that was over 50% higher than what it actually was. The delinquency rate on these loans was 35% higher than a similar pool of full doc loans. This was back in late 2007. I can only imagine that these #'s got worse during 2008.

Michael Donovan:

SO WHAT YOUR SAYING IS THAT WE WILL BE FORCED TO PAY MORE TAXES AND NOT USE ALL DEDUCTIONS TO GET A MORTGAGE? I find this a bit troubling because it puts business owners at a disadvantage to pay more taxes which is not good for  small businesses or not being able to buy a home.I would think it would be based on credit scores, what the gross income of the business is and how long the business owner operated the business.If in fact  what your saying is the case then I would be forced to lay people off and cut back on expenses and not  expanding my business.There has got to be a better way.

 

Right now the mortgage industry is in a bad time.  This has lead to cost cutting measures.  Those measures have tightened the guidlines for income qualifying.  If you have customer that buy on credit, I am sure that if you started seeing huge losses, you would implement some measures that wouldn't favor everyone.  Unfortunately, self employed people are the ones finding it harder to get loans today if they have a lot of write offs.

Michael,

You still may find a stated loan available. While the majority of Lenders have gone away from this form of income documentation, those are mostly the banks that securitize their loans and sell them to Fannie or Freddie. I would check with a local small town bank that portfolio's all their loans and doesn't sell them. Because it's their own money and they service the loan they can make their own rules. They don't have to play by the same rules as the big banks do because they keep their loans away from wall st. 

It's not really a stated, but you can do an income wavier that's verified by phone these days and several lenders do this. Client needs a 720 FICO and to show a net worth of 500k. Or at least in Hawaii that is.

I just wanted to post what I'm seeing. With my clients in commercial/business, all business owners from small operations to large private businesses. Almost every single one is restructuring their pay. As some were telling me of troubles they were having buying a new home, or another property (even guys that had millions in liquid cash)...even through their own private banking. The days of writing everything off and creative pay are over. What a lot were doing was using credit lines through the biz and business loans to pay for personal things (mortgages, toys etc). Giving the company nice write offs, while they claimed little income in comparison to their debts (of which had no problem paying). So they had to restructure their pays and corporate finances, they have no problem making payments, but b/c of the creative setup some were now trying to purchase larger homes etc and can't show enough personal income to cover the debt.

Stated income is still available; don't have any insights into rates or max LTV, however.  I get emails from a company called Crescent Mortgage out of Atlanta that offers it and you might also look up Prefered Capital. 

Personally, I never understood the stated asset part of SISA......SIVA seems to make much more sense and much less risky.  I mean, are you going to deny a purchase money mortgage to a client with a 780, 75% LTV and verified 12 months or more in reserves?

Ted Campbell:

Stated income is still available; don't have any insights into rates or max LTV, however.  I get emails from a company called Crescent Mortgage out of Atlanta that offers it and you might also look up Prefered Capital. 

Personally, I never understood the stated asset part of SISA......SIVA seems to make much more sense and much less risky.  I mean, are you going to deny a purchase money mortgage to a client with a 780, 75% LTV and verified 12 months or more in reserves?

Doug Jordan:

It's not really a stated, but you can do an income wavier that's verified by phone these days and several lenders do this. Client needs a 720 FICO and to show a net worth of 500k. Or at least in Hawaii that is.

If the income waiver through DO is what you are referencing, then that will be gone as of this Friday.  You can still get income waiver this week, but it will be hard.  You need to have a high fico with very low CLTV.

I have a California lender that does stated income, but they are pulling out this month.  The only one's I know that are left are local credit unions and banks that will do stated income on a Equity Line to 80% financing.  Parkside may still have a stated income product, but the terms are similiar to private money.

To the original poster, you are preaching to the choir.  Most loan officer's are self-employed and we are finding it hard to qualify for loans ourselves.  You can complain as much as you want, but it is what it is.  This is a uber risk-averssive market and lenders have deemed not being able to prove that you can pay back the loan with your income as most risky.  Your best option is to re-work how you file your taxes.  I have to do this year myself and I am none too happy about it either. The other great option mentioned is the FHA loan with non-occupant co-borrower.

Before you make any changes to how you file or pay yourself, please be sure to take your income documentation to a seasoned mortgage professional.  Some changes that you make may still make it not possible to qualify.

Mr Micheal, actually all problems occur due to the interest rate that continuously increases with the passage of time.A time comes when the limits of the person are crossed in all respects.This issue can be resolved by concerning lawyers and firms and different websites.In case of loans we should have clear knowlege of policies before taking loans.I have visited a website recently that solves most of such issues[url=www.************.com]real estate expert[\url]

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estate master:

Mr Micheal, actually all problems occur due to the interest rate that continuously increases with the passage of time.A time comes when the limits of the person are crossed in all respects.This issue can be resolved by concerning lawyers and firms and different websites.In case of loans we should have clear knowlege of policies before taking loans.I have visited a website recently that solves most of such issues[url=www.************.com]real estate expert[\url]

We have known it within the industry for a while...and the public should know it especially after this:

(article truncated for brevity...this was in the journal a few weeks ago)

Self-Employed Are Frozen Out of Mortgages

Efforts to Jump-Start Lending Bypass Those Without W-2s; The Trouble With Jumbos

By NICK TIMIRAOS and RUTH SIMON

The government's recent moves to backstop the mortgage market have made it easier for many people with decent credit scores to get a loan. But for many self-employed people -- even those with pristine credit -- the mortgage freeze has yet to thaw.

A reversal of the loose lending practices that led to the banking industry's current woes was certainly expected. But some economists and mortgage brokers say lending standards have become overly restrictive, which could be exacerbating the credit crunch and helping push down home prices further.

"Underwriting criteria have swung from foolish ease to tighter than any in modern times," says Lou Barnes, a mortgage banker in Boulder, Colo.

The changes are increasingly frustrating a group of borrowers whom banks once coveted: affluent self-employed professionals such as doctors, lawyers, accountants and small-business owners.

Write to Nick Timiraos at nick.timiraos@wsj.com and Ruth Simon at ruth.simon@wsj.com

It is a hidden new tax revenue for the government making self employed report more on their returns. And don't blame the democrats on this one. This started more then 2 years ago.

It is a shame that First Franklin lost their way. They started the original bank stement programs. But they were all at least a 7 year fixed and the borrowers had to have higher credit scores. I remember when their minimum scores were 660 in 1998. And bank statement programs were not allowed for W2 borrowers.

We do need a bank statement program for self employed borrowers. We can use them for a loan modification, but not for a regular loan application. that makes no sense.