“A lot of first time buyers don’t realize how qualification for a mortgage has worked historically since the about 1950. We have had multiple mortgages since 1987. In order to qualify for a mortgage between 1987 and 2006 (approx.), we had to prove income as follows:
1. three most recent tax returns
2. they averaged our income over those three years
3. provision of pay stubs
If you were self employed:
1. three most recent sets of financial statements
2. they averaged the income from those three years
3. provision of pay stubs for any supplementary income
We were never able to borrow more money than proven income could justify. With our last mortgage before all the EASY credit, the bank didn’t even want to give us a 25 year amortization, since we were approaching 50 years of age.
Suddenly in about 2006 or so, we were able to borrow as much money as we wanted and didn’t have to prove anything. In addition, we were able to change our amortization in the middle of our mortgage term, without penalty (reduce our monthly payment). No income verification took place and we were offered a 30 year amortization automatically.
Now everyone wonders how we got here? Lending money to people who can’t afford to pay it back is a recipe for disaster. Welcome to disaster.
We don’t own a house anymore, we are sitting on a pile of cash and renting…happily.”
– Canayjun at VREAA 5 Jun 2012 10:24am
“I work in the financial industry and I see people with huge loans their incomes can’t justify all the time. It astounds me. I spoke with a mortgage broker who told me that in recent years, people would apply for a mortgage and show their notice of assessment from their tax returns. The income on the NOA would be about $10k, however they would state their income much higher, and the mortgage would be approved based on this higher amount. It was ridiculous. A mortgage broker from a bank also called me to verify that one of my clients was self-employed “Sure,” I said, “but he’s never actually made a dime from this business, in fact he’s always had losses.” The mortgage broker assured me that that was no problem, they just needed to know he was “self-employed.” And I know for a fact that this individual was not rolling in unreported income either, maybe a little ($10k at most) but not a lot. He and his wife are essentially living on credit. There is big trouble coming.”
– pricedoutfornow at VREAA 5 Jun 2012 10:59am