What year is it? 2006? The nation’s largest wholesale mortgage lender, United Wholesale Mortgage, has just announced the availability of bank statement loans.
Does this mean we’re headed down a familiar road of credit loosening, and a subsequent housing crash?
At first glance, it’s reminiscent of the easy lending days seen in the early 2000s, though upon closer inspection it might not be.
But the timing certainly is interesting, seeing that mortgage rates have surged higher, weighing on lenders’ ability to keep up production.
Read on to learn more about what this new stated income loan program is and is not.
How Bank Statement Loans Used to Work
Before we get into all the details on UWM’s program, we need some context.
Back in the day, bank statement loans, or stated income loans, were developed to help home buyers like doctors and business owners more easily navigate the loan process.
Instead of requiring them to provide complicated tax returns, banks and lenders were OK with applicants simply stating their income and providing supporting asset documentation.
Of course, that proved to be a slippery slope because before long, such programs were available to anyone, even those who simply claimed they did X for a living and made Y.
This gave them the rather notorious nickname of “liar’s loan,” as they allowed for quite a bit of freedom in terms of well, honesty.
The widespread use of stated income loans in the early 2000s led to the worst housing crisis in modern history, though there was more to the story.
Mortgage lenders also threw out most other underwriting guidelines, whether it was the verification of assets or credit history.
You may recall the so-called Ninja loan, which didn’t require income, asset, or credit score verification.
And the borrowers typically had loan-to-value ratios (LTVs) or combined LTVs of 100%, aka no skin in the game.
UWM’s Bank Statement Loan Program
- Minimum 640 FICO score required
- Max LTV ratio of 90%
- Loan amounts up to $3 million
- Minimum 12 months of reserves required
- Must provide 12 months of consecutive bank statements
- Two appraisals from two different appraisers required if loan amount exceeds $1.5M
- Program not eligible in West Virginia or on Texas 50(a)(6)
Now let’s turn our attention to UWM’s bank statement loan program, which is quite a bit different for several reasons.
First off, this new program is reserved for borrowers who work with mortgage brokers since United Wholesale Mortgage is a wholesale lender.
That means you can’t apply directly with UWM, but rather must reach out to an approved third-party mortgage broker.
From there, it seems the new loan program is further restricted to self-employed borrowers only.
In fact, the company calls it a “valuable option for self-employed borrowers,” those who often have difficulty documenting income the traditional way.
On top of that, you need a minimum 640 FICO score and the LTV is capped at 90%. While neither is super restrictive, it’s better than a subprime loan at 100% LTV.
And here’s what really makes these loans different than their predecessors – you need a minimum 12 months of reserves.
In other words, you need to document that you can make monthly PITI payments for a full year to qualify.
Additionally, you need to provide a minimum of 12 months of consecutive bank statements.
This condition can be satisfied via personal or business bank statements, instead of having to provide pay stubs or tax transcripts.
UWM notes that two appraisals from two different appraisers are required if the loan amount exceeds $1.5 million.
Oh, and you can only get a 30-year fixed mortgage, no higher-risk ARMs or interest only products.
So there are several checks in place to ensure these loans don’t wind up taking down the housing market a second time.
UWM’s Investor Flex Qualifies Borrowers Using Market Rents
The wholesaler has also announced the availability of a product called “Investor Flex,” which is the company’s debt-service coverage ratio (DSCR) loan for real estate investors.
Instead of using the borrower’s income to qualify, it relies upon the market rent of the subject property.
It allows for the purchase or refinance of investment properties with loan amounts as high as $2 million.
And borrowers can finance up to 20 properties to greatly expand their existing portfolios.
The max LTV is 80%, minimum FICO is 640, and a minimum 12-month reserves is required (with a minimum two months consecutive bank statements needed).
It’ll be interesting to see if more flexible products like this come to market as refinance volume continues to dwindle.
Certainly something to keep an eye on as the housing market rally appears to move closer to the later innings.