“We no longer have to have our borrowers qualify in the traditional sense.”
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Bank requires few mortgage documents: Seems like housing deja vu
What could go wrong?
They were a hallmark of the U.S. housing crash: Mortgages that required little or even no documentation.
During the boom, they were called “stated income” loans, but advertised as “low-doc” or “no-doc” loans. When the damage was done, they were deemed “liar loans.” Both Lenders and borrowers alike would write basically anything on the mortgage application to get the deal done. Now, nearly a decade after the financial crisis began, a new version of the stated income loan is making a comeback.
“Lite Doc.” That is what Quontic Bank, an FDIC-insured community lender in New York City is calling its product. It requires only verification of employment and two months worth of bank statements. For self-employed borrowers, it requires documentation of one year of profit and losses. The Lite Doc loans are five-year adjustable-rate mortgages with interest rates in the low- to mid-5 percent range, according to the bank. Thirty-year fixed-rate loans, which when fully documented can offer rates in the high-3 percent range, are not part of the offering.
But how can that be? Aren’t lenders suppose to comply with the strict new “ability-to-repay,” (ATR) rules established in the wake of the financial crisis under Dodd-Frank?
The Quontic loan does not have to comply with strict new “ability-to-repay,” or ATR, rules established in the wake of the financial crisis under Dodd-Frank legislation, due to a little loophole: Quontic is designated as a community development financial institution, or CDFI, under a small U.S. Treasury program which funds economic revitalization in low-income communities.
The fund, established in 1994, “serves mission-driven financial institutions that take a market-based approach to supporting economically disadvantaged communities,” according to the Treasury website. Quontic, based in Queens, New York, meets the requirements because it makes loans to borrowers in a low-income community. CDFI lenders are exempt from having to comply with so-called ability-to-repay rules.
“We no longer have to have our borrowers qualify in the traditional sense,” said Quontic CEO Steve Schnall. “Because of this new Dodd-Frank requirement, a lot of people who don’t meet the very strict and traditional qualifying guidelines that the ATR requires are simply ineligible for financing. There’s a huge swath of the population that simply can’t get a loan on a primary residence anymore.”
Nuff said…
You can check out the rest here…
BTW, I despise the reporter. She still thinks that it was mostly the borrows fault for the mortgage meltdown as you will see if you watch the video.
Quote: “The worst case scenario is the borrow goes delinquent and you have to foreclose. Okay well there is nothing to keep these borrowers from lying on these loans, which has happened in the past, we know (laugh).
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