Mortgage Refinancing Increases but Some Qualified Borrowers Frustrated, Hopeful
While bailout money was given to many banks in 2009 to help stimulate the economy, the stricter rules for getting housing loans are making it a tough job for the qualified, self-employed borrower. Interest rates currently remain very low and that has some looking to capitalize on them but they're being met with frustration. "The word stated-income has been blamed along with a few other things for the whole mortgage-market meltdown," says Wallace. "It is not a word that anybody at the Federal government thinks is acceptable anymore. So none of those kinds of loans come through any government entities at all," says Larry Wallace.
But that doesn't mean the need for them has dwindled. And some, who are capable and qualified, are finding there's nothing available for them.
"We can't get the loan even though we have the equity," says Sid Levin, homeowner and self-employed businessman. He runs a two-decade-old theatrical and commercial agency in Beverly Hills, California. And he is not alone. He's searching for a no-doc loan and so far having no luck.
"The last official stated-income lender that I know of was Union Bank. Union Bank always made super conservative loans, they never got aggressive, and they're a portfolio lender—they keep their loans. Union Bank never wanted to get rid of their stated-income loans, the Federal Regulators that oversee them made them get rid of them," says Larry Wallace, a long-time mortgage expert.
"Union Bank had a perfectly performing stated-income product. They didn't have high default rates, nothing. It was perfect. … They did loans where the loan-to-values were really low," says Wallace. According to the Mortgage Bankers Association, three out of four loan applicants are looking to refinance. Many are trying to take advantage of the low rates before any possible increase occurs—some industry experts speculate that won't be for quite some time but others fear the threat of increased rates could come sooner. This abounding uncertainty is part of the nationwide financial uncertainty regarding inflation.
"[Banks] have to have all the documentation from A to Z. We've offered to show them our bank statements for the last two years, we've offered to show them our credit—no good, it has to be the tax returns. They have to see those for self-employed people," says Levin. "I get this call all the time. Sid is a textbook call for me," says Wallace. But there may be hope, "We've got this one lender who says it will do stated. I'm looking into it. But there has not been financing for this segment of the market for a year-and-half," says Wallace.
Levin is in a predicament that other self-employed folks can relate to. "We have a lot of [business] expenses that are tax deductible and we write them off. We legally and legitimately write off our expenses and in return it looks like we don't make as much money but we do; why should we pay more taxes to the government when legally we don't have to?" says Levin. So, he continues his re-finance hunt but feels that the system is penalizing even those who weren't part of the problem. "It's a stereotype or prejudice against people who require no-doc loans. A few people may have lied about them but now they're penalizing the good people," says Levin.
"If you take away small business and people who legitimately and honestly work hard … what's left? It's very frustrating because you bail out the banks that make mistakes and they're forgiven because they have to keep on providing a bank service for the public—they get a free pass and the same money that bails them out is the tax money and the tax money is the people's money," says Levin.
"Why aren't we given a break like the banks are given? I just don't see how that adds up to the public getting anything out of it," says Levin.
Tips for self-employed seeking loans: Make sure your credit report is pristine. Take the time to review it and get any errors on it fixed. If you have some bad marks, realize that cleaning them up will take several months, at least. Score of 720 or higher are best.
Keep very accurate records. The self-employed need to have excellent personal and business financial records; both are likely going to be required for a loan. Profit and loss statements and even proof of a business license showing you've been in business for more than two years should be kept on file.
Think ahead. Know that it may be a long-road ahead before lenders offer stated-income. Look to conserve costs and save where you can. Another tip from experts is to have an audited financial statement prepared by a certified public accountant.
Hard-money loans. These are available but the rates are considerably higher.
January 15, 2010
Location:Cumbre Rd,Temecula,United States
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