The Return of the Quik-Qual

THE RETURN OF THE QUICK-QUAL

Stated income, no-peaky, quick-qualifier, no income verification. These terms all refer to a type of mortgage that was popular, and quite available, about 10 years ago. Then, as the Savings and Loan debacle completely unfolded and banks began foreclosing on homes nationwide, the lending regulators started pointing at this type of loan as contributing to the huge mortgage losses. Many of these programs disappeared completely. The few "quik-quals" that remained were either straight adjustable rate (which took the risk of a rising interest rate market off of the lender and placed it completely on the borrower) or the fixed rate, which was as much as a full percentage point higher than comparable rates when the borrower is able to completely document their income.

So why should this type of loan be allowed anyway? After all if mortgage lenders lose money because a borrower mis-stated what their income was, then the lenders would raise the interest rates in order to cover that loss and the other borrowers will pay for it. However the purpose of the stated income loan isn’t to allow someone to mis-state his or her income in order to buy a home. The purpose is to allow a borrower who has untraditional forms of income to qualify where that income wouldn’t be “allowed” by normal underwriting standards. Some examples of “dis-allowed income” are: roommate rental income, dividend and interests income that hasn’t been received and reported on for 2 consecutive years on federal tax returns. This is the same for self-employed individuals, as well as overtime, bonuses and profit sharing from an employer. Even when this type of income can be documented it is generally averaged over the last 2 years tax returns and that average number is used for a borrower’s income. There are many other examples of this kind of non-traditional income that have cost borrowers more in monthly payments, higher fees or even the ability to buy their new home.

But now we are seeing some easing in these standards. A few select lenders are participating in a trial “stated income” program through Freddie Mac, one of the 2 behemoth lending institutions that dictate interest rates for conforming loans, those loans under $300,700. This program does require good credit scores (at least 660 and above) and does add a small premium to the loan fees for the opportunity. But the rates are fixed and extremely competitive in the market place. There are a few other restrictions but most of these usually don’t apply.

Fixed Rates for mortgages under $300,700 as of 01/02/02 (a.m.) are:
30 year fixed 6.625% (APR 6.92%) payments are $1,925.42/month
15 year fixed 6.125% (APR 6.61%) payments are $2,557.83/month