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Sep. 29, 2007
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MORTGAGE MELTDOWN: New law tightens lending

Some say end is at hand for stated-income loans

By JOHN G. EDWARDS
REVIEW-JOURNAL

The end is near for so-called stated-income mortgage loans in Nevada because of a consumer protection law enacted earlier this year, some mortgage lenders say.

Assembly Bill 440, sponsored by Assemblyman Marcus Conklin, D-Las Vegas, contains a provision that makes stated-income loans -- mortgage loans made with little or no documentation of a borrower's income -- a crime, according to some legal interpretations.

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    • Stated-income loans have been common in Nevada because of the number of business owners and workers who rely on tips and cannot provide documentation for much of their income.

    When AB 440 becomes effective Monday, pessimists say stated-income loans will become harder if not impossible to obtain. Conklin, however, said critics are misinterpreting the law and dismissed claims that the law will make such loans illegal.

    The new Nevada law only tells mortgage originators that they must investigate a borrower's income and ability to repay if all of his income is not stated on documents.

    "You have an obligation Mr. Bank or Banker, to verify that the story you're being told (about the buyer's income) is true," Conklin said.

    He noted, for instance, that a lender could use the borrower's recent bank statements to verify his income.

    Nevada Mortgage Lending Commission Joseph Waltuch has already issued written guidance that his office will not take action against mortgage brokers who collect evidence about a borrower's ability to repay when documents aren't available to verify the all the borrower's income.

    But critics say that hasn't persuaded lenders on Wall Street and big banks, who still believe that buying stated-income loans may become a felony in Nevada.

    Given the possibility of jail time, "nobody is going to do that," said Brock Davis, president of the Southern Nevada Chapter of the Mortgage Bankers Association. "The risk is too big."

    Davis worries that stated-income home loans will no longer be available in Nevada.

    Some banks and institutions continue to buy stated-income home loans, Brock acknowledged. "The reality of this new law really hasn't hit them yet," he said.

    Other lenders are already pulling back.

    Sources said Wells Fargo & Co. and M&T Bank, a $57 billion-asset bank in western New York state, said they will stop buying stated-income loans from Nevada. The sources also indicated Credit Suisse has stopped buying any home mortgage loans from Nevada.

    A Wells Fargo official said the bank has implemented a "conservative" interpretation of the new law but declined to elaborate. The other two institutions did not return calls for comment.

    Sean Corrigan, president of Aspen Mortgage, also fears that many buyers of mortgage loans will shun stated-income mortgages from Nevada.

    He hopes that state officials write a legal interpretation of AB 440 that eases out-of-state lenders' fears about being prosecuted if they purchase stated-income loans.

    "If this doesn't get straightened out, it could be catastrophic to the state's housing," Corrigan said. "If it didn't (get resolved), it would put the housing market in Las Vegas, Nevada, in a much more negative position than we could have ever seen."

    Many people who took out adjustable rate loans during the housing boom are already facing the possibility of not being able to make their monthly payments when the interest rates are reset higher, Brock said.

    The new law could make it even more difficult for many of those homeowners to refinance their mortgages, because they won't be able to offer proof of income, Davis said. To sell, these homeowners often must write a check for the difference between the amount owed and the amount the house is sold for.

    For many of the homeowners that get caught by higher mortgage bills, foreclosure will be the only other option, he said.

    "That's the big wave of foreclosures that's about to happen," Davis said.

    Scott Bice, former mortgage lending commissioner and now director of mortgage lending at Town and Country Bank, disagrees with all of the concerns, though.

    "I don't view it as 'Apocalypse Now'," he said. "There will be some Wall Street investors that do decide they don't want to purchase these loans. There will be other people who step in and do buy stated-income loans."

    Bill Ochs, owner of Nevada Mortgage, agreed with Bice. While some institutions will no longer buy stated-income loans from Nevada, others will continue to do so, said Ochs, who continues to originate stated-income loans and find institutional buyers for those loans.

    The law "does make it a little more difficult but not impossible" to make stated-income loans," Ochs said.

    However, "it was overkill in the Legislature," Ochs said. "The marketplace will straighten itself out."

    He and other mortgage lenders note that Wall Street has stopped buying so-called "liar loans" and curtailed other lax lending practices.

    Conklin said increasingly conservative lenders and mortgage loan investors -- but not the bill he sponsored -- are making it harder to get mortgage loans in Nevada.

    "Some of these loans aren't going to be made anymore. They're just bad investments," Conklin said. Complaints about the new law "have been completely blown out of proportion," Conklin said. "Stated-income loans are not illegal in the state of Nevada."

    Conklin said he requested a written opinion from the Legislative Counsel Bureau, which he plans to make public in effort to calm lender fears about the new mortgage law.

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    Cynthia wrote on December 02, 2008 11:13 PM: Hey Joe we are glad to hear Wells Fargo has gone more "conservative" compared to totally corrupt I wonder if these even mean anything?? We need to speak with you regarding District Court Case we are bring against Wells Fargo. Our Case#A 572179 and we are at the NV Rule of Civil Procedure 16.1 and we do want those investigation files that we requested and also we need forwarding address for Susan Eckhardt, Scott Bice said she was in Minnesota. Again our email address is listed above and our phone # is 702-594-2539. You wanted a court order to release files of investigation so we hope this will set a spark under you. Please respond as soon as posible.
    Louis and Cynthia Brown
    CASE# A 572179
    DISTRICT COURT
    NEVADA RULE OF CIVIL PROCEDURE 16.1


    Barbara wrote on April 20, 2008 04:25 AM: I appreciate what you had to say about the mortgage meltdown as it involves one in every 6 people.Some one in everyones immediate family is going through this.It is happening to one of my sons. As I tried to warn him about the same stated income loans tips can change drastically,then what do you do get a second and third job and still care for the children.I will show him the report above and he appreciates it also.


    GOD wrote on September 29, 2007 06:36 PM: Dear Angel --
    You must be the part time stripper / part time agent that thought she could rape consumers wanting to buy houses across the valley. Boo hoo, now you have to actually work for a living.... "cocktails!"

    Some of us have very highly educated, honest, hard-working jobs with tons of integrity. Don't be so hard on ones name, you need to believe in GOD, not try to hurt people in your quest for the ALMIGHTY dollar!


    DT wrote on September 29, 2007 02:10 PM: Truth,

    I am a homeowner, and am not worried about my home losing value; I intend on owning it. I also intend on buying another two homes in the next two years. This market is presenting itself with a lot of opportunity.

    I am more concerned with the US Dollar than I am with the mortgage mess. The housing market will correct itself. Over the next 20-30 years, there will be much more growth in the southwest, from here to LA. I am a good hearted tax paying citizen and I hope my neigbors and colleagues all the best. We live in interesting times!


    Angel wrote on September 29, 2007 11:50 AM: GOD, what do you do for a living, assuming you have a job? Is is admirable? Does your work contribute to anything good? I doubt it. Are you part of a good industry or one based on deceit? Stop generalizing. You also should stop using your "name" on here, as it makes you look full of yourself.


    GOD wrote on September 29, 2007 11:36 AM: Real estate brokers are on the same par as lawyers here in NV --- not liked. Along with brokers, the agents sold poor saps a false bill of goods when they knew they were buying too much house for their income.

    I DO NOT FEEL SORRY FOR THE MORTGAGE BROKERS, AGENTS, OR THE HOMEOWNERS (AND SPECULATORS) THAT BOUGHT INTO THIS FANTASY.

    The market WILL correct, and unfortunately for many, it won't be pretty.

    This law is a good one to curtail the shenanigans of the past. Too bad we couldn't make it retroactive.


    Truth wrote on September 29, 2007 10:21 AM: DT, how about we drop the price of your home, say $100k, okay? That way the future buyer of your home gets a great deal. But your comment indicates you do not own a home.


    Bob Jack wrote on September 29, 2007 08:33 AM: It appears that the new law will only require what should have been done in the first place for stated income loans--demonstrate that prospective borrowers evidence what their income actually is.

    Legislation,however,is not in my opinion the way to accomplish this result. It is an overreaction to the present credit and real estate market crisis. It is always desirable to allow the markets to resolve these kinds of problems over time.

    The proposed legislation has already given rise to misunderstandings about the legal legitimacy of stated income loans in Nevada. This is not a desireable condition, and is likely to freeze the credit markets even more for Nevada sourced loans.

    Presently, there are 26,000 existing houses on the market in the greater Las Vegas area, and about 2,000 new homes in standing inventory.

    Many sellers are in deep trouble, and will have to walk away from their homes, a number of these will declare
    bankruptcy, and most all of them will have their credit damaged.

    The proposed legislation regarding stated income loans will only exacerbate the problems in the Las Vegas real estate market.


    NVMojo wrote on September 29, 2007 07:42 AM: http://gov.state.nv.us/PressReleases/2007/2007-09-28EconomicSummitHousing.htm

    No wonder the Guv is going behind closed doors with "Lenders representing the majority of Nevada’s top mortgage loan producers" on Thursday.

    Love to be a fly on the wall since the media can't get in to the secret summit.


    DT wrote on September 29, 2007 07:26 AM: People are still going to try to get away with what they can. While there is good reason to allow stated income loans, it is unfortunate to note that abuse of the program will continue until it is absolutely gone.

    Prices need to come down. Keep this in mind. U.S. median income is being shown to be steady for the last 15 years. Yet median home prices continue to go up. 10 years from now a new couple buying their first house will be looking at a 1800 sq ft home for $700,000 on a household income of $75000. (oh wait thats already happening in California) What we should be thinking is how we are going to make home ownership affordable for future generations.

    Prices need to come down.


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