The Last Subprime Loan

I will never forget the last sub-prime mortgage that I originated and closed with my last broker. The client had a rather modest income with a poor credit score who needed 100% financing to purchase a condo. The income that the client documented was not enough to satisfy any debt-to-income guidelines set forth by any of the investors in the marketplace. Check that……ONE investor was willing to approve this deal. This investor was approving 100% financing down to a credit score of 600 using stated income for a W-2 wage earner. In a nutshell, stated income for a W-2 wage earner works like this: The income shown on the W-2 or year-to-date pay stub of the client is not enough to satisfy the required debt-to-income guidelines for the particular loan program. As a result, the loan originator is allowed to “state” the client’s income on the application. This simply means inserting a figure on the income line that brings the necessary ratios into an acceptable range for the investor.

In my opinion, stated income loans for wage earners were legalized loan fraud; legalized by the large purchasers of these loans that set the guidelines and approved of the practices. Who was I to question Lehman Brothers, Morgan Stanley, Chase, etc.? Looking back now, it is very easy to see how the whole sub-prime mess brought the mortgage industry to its knees. Hindsight is 20/20 vision!