From the Record:
Stated-income mortgage loans, which do not require borrowers to verify their income, came to be known as “liar loans” during the subprime lending bust when many of the loans went bad and widespread lying about incomes came to light.
Surprisingly, more than 2 1/2 years after the crash of Lehman Brothers, despite a nascent government crackdown on reckless lending, stated income loans are still available to those who know where to look in this slow market.
Hudson City Savings Bank, which is known as a conservative lender, has been making stated income loans for 15 years or more, and still makes them. Spencer Savings Bank, based in Elmwood Park, stopped doing them a few years ago but brought them back in February.
It’s still legal to make such loans, which are also called “low-doc” or “no-doc” loans, but for borrowers they are more expensive and lenders make it hard to lie.
“We don’t want people to tell us they’re a kindergarten teacher making half a million dollars a year,” said Thomas Laird, chief lending officer at Hudson City, the largest New Jersey-based bank.
“The asset position has to be commensurate with the income they are purported to have. They’ve got to be very high quality credit borrowers and they have to have 35 percent or more down in order to qualify,” Laird said.
Borrowers also pay an interest rate half a percentage point higher than conventional loans.
“We are extremely careful with this product,” said Mercedes Pedrick, vice president and director of mortgage originations at Spencer Savings, which has 19 branches in Bergen, Passaic, Morris, Essex, and Union counties.
“If they have a savings pattern that shows they are making the kind of income they are telling us they are making, even if they’re not necessarily showing it to Uncle Sam, they may qualify [for a stated income loan],” Laird said.
Eventually investment bankers started buying the loans and securitizing them, Alverson said. During the real estate bubble in the mid 2000s the loans were made to many amateur real estate speculators of modest means, and many of those loans soon were in default, Alverson said.
“Everybody wanted to be the next Donald Trump.”