Source: Wall Street Journal

“Aryanna Hering didn’t have pay stubs or tax forms to document her income when she shopped around for a mortgage last year – a problem that made it tough for her to get a loan. But the nursing student who works part time providing home care for children and the elderly eventually hit pay dirt: For a roughly $610,000 home loan, a mortgage company let her verify her earnings with 12 months of bank statements and letters from clients. Ms. Hering said money she collects from roommates and from renting to Airbnb guests covers more than two-thirds of her roughly $4,300 in monthly payments, and her earnings cover the rest….Lenders issued $34 billion of these unconventional mortgages in the first three quarters of 2018, a 24% increase from the same period a year earlier, according to Inside Mortgage Finance, an industry research group….During the financial crisis, many unconventional loans soured after borrowers misstated their incomes and lenders didn’t ask for documentation, earning them the nickname ‘liar loans.’ ‘It’s a slippery slope,’ said Mat Ishbia, the president and CEO of United Wholesale Mortgage, a large nonbank lender that doesn’t issue these loans. These mortgages don’t meet the criteria to be backed by Fannie Mae or Freddie Mac….’Some banks have initiated this practice without the appropriate risk governance controls,’ the Office of the Comptroller of the Currency said in a December report.”

 

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