Question:

Why is stated income loan fraud so popular?

Answer:

Well, stated income loan fraud is easy. All you have to do is declare larger income than you actually have and off you go. Why would homebuyers attempt to do that? Because they might need more money and if they are unable to qualify under full documentation there is little loan officers could do to prevent lying on stated income home loans.

Stated income mortgages are designed for non-salaried borrowers.

There are borrowers who really cannot document their income using W-2s or tax returns but they have it - so these are the people these loans were initially designed for.

Fully documenting mortgage loans requires that the borrower is underwritten for income amount that can be verified. Home buyers whose income comes from commission, or is seasonal, or they simply changed jobs, or were promoted recently might have to declare their earnings and go reduced doc to get the loan they need.

Stated income borrowers are usually asked to sign IRS Form 4506. That is, a permission to the lender to verify income if doubts arise. However, sometimes W2s and tax returns will not be evidence of fraud but still having to sign this form discourages borrowers from overstating their income.

Lenders do check income source on stated income home mortgages.

This is all they do about income verification, and some, but not all, will ask for Form 4506. Loan officers do not care very often where the income actually comes from as long as it exists, but they will not tolerate earnings overstating if the borrower does not actually have it. If they did they'd be taking part in fraudulent mortgage activities and risk mortgage default and possibly their job.

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