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4 out 5 homeowners in my state used stated income

by Morgan on April 1, 2008

So that’s comforting.  According to mortgage data made available by the federal reserve bank of New York 4 out of 5 homeowners in my zip code state who secured their property with an Alt-A loan used stated income to qualify for their mortgage.  Actually it’s 83%.  And 72% of the loans are ARM loans. That is a jaw-dropping statistic, is it not???  Luckily only about 3% are due to reset in the next 12 months.  So we’ve got some time until the bottom drops out of my zip state.

This is the problem people.  80% of folks in my typical state, California, zip code bought their home with stated income.  Max out the loan limits, offer modifications, expand FHA, make Fannie and Freddie buy more and leverage their capital.  Guess what?  It doesn’t matter!  Folks in these areas can’t afford their homes.  Unless you are planning on forgiving the mortgage debt you are not going to save folks from these exploding mortgages, period, end of story.

So, how many people stated their income in your zip state? 

Update: Thanks to commenter Robert for pointing out that these numbers are for the state, not just my zip code.  While I’ve been accused of using that fact to “spin” my story (also in the comments) I believe it is far scarier that the entire state is built on stated-income loans and not just an outlying, over-priced zip code in Orange County.  Now I’m truly convinced that we’re in for much more pain.  If 4 out of 5 people are using non-traditional mortgage products and 3 out of 4 people are using ARMs what are they going to qualify for when those ARMs reset and the universe of non-traditional loan products is infinitesimally smaller. 

P.S. If you’re a mortgage originator this could be the ultimate farming tool.  Check out ARMs due to reset in the next 12 months.  Get farm packs from title in those zips with >75% reset rate and cross your fingers people have equity.  Free marketing advice – just like that.  You’re welcome.

Hat tip to Matt at Inman for the link.

Last 3 posts by Morgan

Related posts:

  1. Stated income from a mortgage professional’s stand point – part 2
  2. Countrywide eliminating Non-Conforming Fast & Easy stated-income loans today
  3. Stated income from a mortgage professional’s stand point
  4. The Death of Stated Income Loans…
  5. Radian Will No Longer Insure Stated/Stated Loans

  • Joe
    Well I am not sure those numbers are correct. Think about it - 70% being stated income loans - no way.
    Most brokers just did that because at the time the pricing was about the same. But being in the wholesale business for the past 18 years - even in 05 & 06 - we had less than 40% of our volume stated. Even then we made sure that if it went stated Salary.com still had to be inline with the job title & two verification of employment had to be completed prior to docs.
    We did offer low doc loans and no doc loans but again borrowers had to qualify to get the LTV they wanted to close the deal.
    It seems to me that these numbers seem high. 3rd quarter 2006 most of these programs were cut back to much lower LTV's. Most stated still need 6 months + in verified reserves or had to settle for LTV at 70% or less.
  • Not all stated loans were liar loans and the fact that they were stated is not the big problem with most of the adjustables. The problem was qualifying at such a low rates that could only go up. In spring of 04 you could get a fully indexed rate tied to the MTA (it was 1.2% in April/May) in the mid 3s.

    A senior VP at IndyMac told me that 65% of the loans they originated in California over one 18 month period were Alt-A adjustables.

    The irony now is that those jumbo option arms fully indexed today are better than today's rates.
  • marcd
    Alt-A by definition is A credit with alternative documentation features, so the statement is basically claiming that "80% of alternatively documented loans were stated." I don't think this is surprising, since stated income is by far the most frequently used alternative documentation feature.

    These loans should have been priced for the alternative doc feature, but as we all have seen, the industry did a horrible job of quantifying the marginal risk on reduced doc loans.
  • Big Zink
    Here is the other question. Out of all the loans originated in this state that this study looked at, what percentage were Alt A?
  • Big Zink
    I'd like to see the break down of this study. After originating loans in this state for the last 4.5 years, I'd say 80% of my loans were full doc. any more clarification on how these numbers were derived?
  • Ann
    NOt surprised..where my mom lives in Broward County Florida...50% of all loans made between 03-06 were Subprime....Some communities around her where everyone thought they lived in a" Million Dollar" home are now finding the same home in their community owned by the bank and selling at $600K or less...

    She is sitting back on the sidelines waiting as prices are expected to fall more between 10-20%...
  • Title Guy
    ARMs were supposed to be the gift that kept on giving - the originator had his down-line pipe set 2(3)(5) years out. Even the nervous nellies (hate that term) thought the real risk was rising interest rates, and mistakenly, IMO, in not building equity (a 10-20% drop in values takes care of unwanted equity pretty quickly). Assuming that I know 1000 originators, I don't think 2 of them (if any) had foresight of the current situation - lower rates, yet falling values, declining credit, disappearing programs (particularly the loss of being able to re-qualify borrowers w/o relying on stated I/A).



  • Yeah, back in 2005 and 2006 I made good money and wondered how everyone could afford these $800,000 houses. According to the income stats I am in the top 20% of wage earners. So I thought I should be able to afford a nice house under conventional lending criteria but all I could afford on a conventional 30-year fixed was a trashy house in a bad neighborhood. Then I started reading the bubble blog and realized that most lending was done based on fraudulent mortgage applications. I then decided to sit it out because any economic phenomenon based on fraud wouldn't last long.
  • I think you crashed their server so I can't check right now. It still doesn't make the situation much better at all, but I noticed that your post says that "4 out of 5 homeowners *who secured their property with an Alt-A loan* used stated income". Which would mean there is a certain percentage who didn't use an Alt-A loan. Thereby decreasing the total percentage who used a stated loan - I hope. Although, I would guess Alt-A (which most people only used for the sole purpose of going stated) would have been a popular choice in CA.
  • Don
    Morgan, I think in 2005 and 2006, about 70% of all loans being in originated in San Diego County were ARMs or a non-fixed product. You could probably line up a graph showing the increase used of a product and the pricing bubble down here.

    I knew this was going to be bad.
  • Loangambit
    "Liar loans" from California? I'm shocked.

    I don't think I'll enjoy seeing the Secretary of the Treasury's claim to need a Government Mortgage Inquisitor to hold dominion over all of us (per recent news)...but if the whole golden state has rotten underwriting roots, may'be it should start the road towards penance there....

    Me thinks I'll start buying my indulgences early...
  • Title Guy - right you are.
  • Title Guy
    I take it that the marketing tip is worth what is being charged, since a high percentage of these folks cannot afford any significant further amortization? Am I right?
  • Ken - the inconvenient truth is that it's the whole state and not just the zip code? Isn't 80% of a whole sate far worse than 80% of one zip code? I thought my zip code was an outlier. In fact - I would have made a more dire post if I plugged in multiple zip codes and saw the same thing - as a state 80% of our loans are stated - that's insane.

    If you could tell me what exactly my spin agenda is I'd appreciate it. Point me toward any data of reliability that shows things are getting better and I'll happily report on it. Otherwise I'll refer to my track record of 13-months of accurate and prescient reportage as a clear record of fact-reporting and not spin. Feel free to read the NAR blog if you need to be pumped up.
  • Ken Thompson
    Robert:
    Right you are, but that little inconvenient truth gets in the way of Morgan's spin agenda tiresome as it is.
  • Actually, I think those figures are for California as a whole. No matter what zip I enter, I get the same little window that comes up with the label "California" on it. Still, those numbers are SCARY!
  • Thanks Robert for the catch - I've updated. Much scarier that it is an entire state and not just an outlying, overbought zip code in Orange county.
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