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Lenders Pushing “Stated Income” & 100% Financing; Return of 2008?

Lenders Pushing

A Few More Notes On Rates Dropping By March

I got a bit of pushback from yesterday’s blog (Why I Am Convinced Rates Will FALL By March) and I wanted to touch on it quickly before hitting my main blog points today.

  1. The Fed Is No Longer Buying Mortgage-Backed Securities (MBS). Yes, the Fed is backing off on purchases, and this huge drop off in demand would push rates up much higher but for the fact that the total volume of MBS has plummeted – by over 50%. Less demand in the face of way less supply is not that serious.
  2. The Fed Is Not Going To Reduce Rates. Even if the Fed does not bring down short-term rates (Fed Fund Rates), long-term (30-year) rates can move independently of the Fed – particularly if inflation cools and/or if the economy shows serious signs of weakness.

Irony: Lower rates will bring lower rates because investors expect today’s loans to be refinanced! Another factor that is keeping rates so much higher today is the fact that investors that buy loans don’t want to buy them because they too believe that today’s loans will all refi relatively soon (corroborating yesterday’s blog). Hence, once rates drop a bit, investors will be more willing to buy loans, and that will push rates down that much more.

Are Volume-Chasing Lenders Going To Bring Us Back To 2008?

Many lenders are pushing their “alternative loan products” (100% Financing; “No Income Verification”) very aggressively right now in an effort to generate volume in a slow market. And – I have had a couple of agents express concern that this looks like a return to the pre-2008 era.

BUT – not even close.

Prior to 2008, buyers could buy properties with BOTH 100% financing AND no income verification AND no asset verifications – with only moderately good credit. And yes – it was insane!

Today’s 100% financing loans require ample income; and today’s stated income loans require large down payments of 20% or more in most cases. Many stated income loans also require substantial asset verifications.

In other words, borrowers always need to VERIFY substantial income or substantial assets – or make substantial down payments. This is nothing like the pre-2008 era.

Ironically, it is the officially sanctioned high LTV loans (FHA, Down Payment Assistance, VA) that present the most risk, as a major cause of foreclosures after 2008 was a lack of equity, as buyers simply walked because they were upside down and didn’t want to keep making payments. Hence, if we see a major correction (and I don’t think we will), we could see that phenomena again.

Jay Voorhees
Founder | JVM Lending
(855) 855-4491 | DRE# 1197176, NMLS# 310167