Mortgage Lending Rules: No Tax Returns? No Problem!
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What news items set the stage for the mortgage conversation?
With your money briefing, I'm J.R. Whalen at The Wall Street Journal in New York. If you couldn't produce a pay stub or a tax return to show income, think you could convince a lender to let you borrow money? Well, it turns out many lenders have no problem with that. We'll compare and contrast that scenario to the run-up to last decade's housing crisis in a moment. First, these money and market stories you should know. Americans are in favor of Medicare for All, but they're less in favor of it if it means higher taxes. That's the result of a poll from the nonpartisan Kaiser Family Foundation. 56% of those polled favor Medicare for All, a common theme among many Democratic politicians and presidential candidates, and that number swells to 71% support.
when people were told that Medicare would guarantee health insurance as a right. But that number drops to 37% when the tax liability is raised, and support is even lower when the idea of potential delays in care is raised. And Hulu is lowering the price for its least expensive subscription plan while raising the cost of its live TV offering.
What are non‑qualified mortgages and who uses them?
Hulu's basic plan lets users stream TV shows with ads, but doesn't include live sports and news. That'll drop from $7.99 per month to $5.99 per month starting on February 26th. The move comes a week after Netflix said it would begin charging users more for each of its plans.
The housing market is going back to the future. It wasn't that long ago the meltdown was due in part to lenders bringing on borrowers with incomplete financial profiles that might otherwise prevent them from getting loans. Well, lenders are going down that road again, and Wall Street Journal reporter Ben Eisen is here with us with some details. So, Ben, in some cases, lenders are giving approvals when people can't produce tax forms or even a pay stub to verify their income?
Yeah, this is a type of loan. It's an unconventional type of loan. It's called a non-qualified mortgage. And that encompasses a wide variety of mortgages. But one that's particularly popular is the type that's given to people who don't have pay stubs.
How do bank‑statement and asset‑based loans verify income instead of tax returns?
They don't have tax forms. Perhaps they own their own business or they have a side job or they're retired. So instead, they provide bank statements that allow them to qualify for the mortgage or they can use their assets to do that. And this sort of enables them to get around some of the traditional things that kind of block people out from the mortgage market.
As you point out in your story, these unconventional loans make up less than 3% of all mortgage originations. They made up less than 3% in the first three quarters of last year. That number is rising, though, while the traditional home loans are declining.
Right. It's important to note that this is a very, very small part of the market right now. And when you're kind of looking back to these types of mortgages before the crisis, those were... way more popular then than they are now. The reason it's notable is because it has been growing during a time when the rest of the mortgage market is getting a little bit cooler.
How large are unconventional mortgages today and why are they growing?
You've seen kind of a boom in housing over the last many years, but as rates have started rising, it's made mortgages more expensive. So you've seen purchase mortgages cool off a little bit. You've seen refis basically stop being done altogether because it's no longer beneficial to do so and now you have lenders who are looking for new business kinda starting to I this group borrowers that perhaps were able to get mortgages before
You know, but these unconventional mortgages, they don't meet the criteria to be backed by Fannie Mae or Freddie Mac. Isn't that enough of a red flag that we've seen how this can lead to instability in the housing market?
I mean, it's not necessarily a red flag if you have safeguards in place. So you might use bank statements to verify that you do have an income. And then if you have a high FICO score and you're willing to put down a lot of money as a down payment, that might be enough for a lender to say, okay, we're comfortable making this loan.
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Chapters
6 chapters
1
What news items set the stage for the mortgage conversation?
0:05–1:10
2
What are non‑qualified mortgages and who uses them?
1:10–2:14
3
How do bank‑statement and asset‑based loans verify income instead of tax returns?
2:14–3:07
4
How large are unconventional mortgages today and why are they growing?
3:07–4:21
5
What safeguards and risks exist compared to the 2008 mortgage crisis?
4:21–5:14
6
Who is monitoring non‑bank lenders and these new loan types?
5:14–6:37
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