Posted on 07/27/2007 7:34:04 PM PDT by RockinRight
In one of the biggest overreactions to mortgage lending problems, the State of Minnesota has passed legislation outlawing stated income mortgages. On April 20, the state legislature passed House File 1004 and Senate File 988 aimed at limiting abusive home lending practices. But did they go too far?
Oops, I Think the Baby Was in That Bucket
Requiring that borrowers must now document income and assets for all loans on primary residences and 2nd homes, the law prohibits the use of any Stated Income, No Ratio, No Doc, & No Income/No Asset loan. In other words, the only way a borrower can get a loan after August 1st is to show pay stubs, W-2’s, tax returns, and bank statements.
This would make it impossible for many self-employed people, not to mention those with income from unseasoned second jobs, notes or child support/alimony lasting less than three years, to secure a home loan. See my previous post on 4 Reasons to Keep the Wage Earner State Income Loan for a better understanding of this issue. Dumb idea? Yes, I think so.
And That Ain’t All
Minnesota’s bill also bans all negative amortization loans as well as prepayment penalties on loans of less than $75,000. It establishes an agency relationship for mortgage brokers with civil and criminal penalties to go along with it. Now, we can discuss the merits of suitability standards and penalties, but before you decide whether this legislation actually protects consumers or just covers legislators’ asses, read this:
“The agency duties above and the civil penalties specified below would not apply to mortgage originators employed by federally and state chartered banks and credit unions; since they have been exempted from these provisions in the proposed legislation.”
In other words, mortgage bankers are exempt. In grateful acknowedgement of the mortgage bankers’ lobbying efforts, huge campaign contributions, free trips, jet rides, massages, and you name it, Minnesota’s legislators once again exempted their corporate friends at BofA, Countrywide, Wells Fargo and the rest from any consequences of abusive lending practices.
Are You Kidding Me?
Sorry, no. This is a consistent theme over the years. Mortgage reform is invariably targeted at mortgage brokers. Why? Because they have more money, and we are taking away market share. Mortgage brokers have to disclose our fees and we can shop all the banks to find the best deal for our clients. The bank can’t shop and don’t have to tell you how much they’re making.
Kinda gives new meaning to the phrase, “No one can do what Countywide can.”
Cheat is such a harsh word. Some of us have aggressive right off policies though. They wrote the rules, we just abide by them. (How many ft^2 is that home office again?)
It’s not like right offs aren’t subject to review in an audit. Being self-employed does bring tax advantages and disadvantages.
Well, it’s a good argument in favor of the FairTax...
I’m in this business.
I educate people enough that even if they don’t use me in the future, they’ll remember what I taught them.
It’ll crash.
Not really, the complications in the tax code are mostly about figuring out what net income is. You can’t tax a small business on gross, so that complication will continue.
Very early in my carrier I used computers to count beans for a regional loan originator.
I saw the week over week sales reports.
We fluctuated our commission structure based on market conditions and sometimes the execs gut instinct. We had price of money exposure during locks and origination. The big cheeses got daily reports from which they were supposed to hedge. They didn’t and got crushed (like the legendary commodity trader at ‘Barron’s Bank’ but much smaller.) They would have gotten themselves very big bonuses had the market moved the other way. Not their money. Place went belly up.
Anyhow, most brokers steer customers into the highest commission loans, not necessarily the best loans for them.
If you are as you say then being a legal agent for the borrower wouldn’t change the way you do business much.
IMHO always ‘Trust but Verify’.
Come to the People's Republic of Washington... We have a B&O tax which is a tax on GROSS receipts. It's 0.5% on manufacturing and sales. And it's 3 times as high for a service industry as for a manufacturing industry, meaning as a consultant I pay 1.5% tax on every dollar brought in, regardless of whether or not I actually make a profit.
When I got my refi mortgage, my brother in law was my broker. He did a great job, got me an extremely low rate. But because I was self employed and my income was all over the map (on tax returns, too), I had no choice but to do a stated income loan; having a tax return history of net income of $80K, $12K, $65K, and $9K for the previous 4 years was too chaotic. Never mind the taxable income was driven by business purchases and deductions, and cash flow was always great...
Minnesota just put a lot of self-employed people off the home buyer's rolls. Self-employed/small businesses just have a chaotic net income. That truck my neighbor the plumber just bought took his annual net income down to near-nothing. It is a legitimate business expense. But purchasing it for cash pretty much will wipe out most of his gross income this year, in terms of taxes. Which is one of the benefits of being self-employed. But this change would make it impossible for him to buy a house, never mind he lives a very high-middle-class/low-upper-class lifestyle.
I’m in more or less the same boat (minus the tax on gross).
My remaining mortgage is almost gone though. Got that while I was still a sucker working crazy hours on salary.
Actually yes, I worked for 2 small businesses and the owners of said businesses did exactly that.
The issue of self-employed individuals getting loans has always been complex. However, such people do get loans, and have gotten loans even before these "creative" mortgages came into existence.
>Well, I’m exaggerating about dog food and toilet paper, but I haven’t met many people that will forego a legitimate write-off.<
Mo you’re not. Cattle ranchers write off the cost of their dogs because the dogs are a necessary tool. Anyone with an indoor office would write off the cleaning materials for the building and that includes toilet paper.
I have never once knowingly made a donation to the IRS that they didn’t have legal claim to.
Self Employed people are allowed to right off most expenses off there taxes! Its written in the tax code!
The first part in bunk. BANK STATEMENTS suffice, therefore people who are self-employed, receiving alimony, etc. can show what they’ve been depositing. But unfortunately, it does not cut illegals out, since many of them have bank accounts.
As for “Minnesota’s bill also bans all negative amortization loans”, I sure hope they didn’t wipe out reverse mortgages with that provision. They are often critical to elderly retired people remaining in their homes with a decent standard of living, but they do indeed technically constitute “negative amortization loans”, because the homeowner is receiving regular loans secured by the value of the house, while their equity in the house is being gradually reduced.
Nope, see my post #32.
I didn't say, or mean, that they take advantage of legal write-offs. They cheat. They don't report accurately what their actual income is. Most of them deal in a lot of cash transactions and some are reported, some aren't. Their personal vehicles are always claimed as a business expense whether being used for business or not, etc. A simple review of their lifestyles would show that they don't report enough income to live like they do. The unreported, so called underground economy is huge.
You may not realize this but the IRS allows for this to happen.This is why the tax codes sway several ways on the same subject matter. I guarantee you and all of us can be looked at as a tax cheater.
I didn’t do it, nobody saw me do it, can’t prove anything!
“The unreported, so called underground economy is huge.”
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“No tax for cash?” is a question that often brings a positive answer.
Most of them consider themselves conservative and decry criminals.
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Richard Nixon (of all people) once said that people cannot pick and choose which laws to obey. The truth is that we all do it either knowingly or unknowingly because it is impossible to be totally law-abiding in the morass of current law. The biggest lawbreaker is the government itself! The majority of government activity today is in violation of the constitution. Many scholars have concluded that the income tax itself is a violation, at best it is a very bad idea!
Yes you can tax a business on gross income -—————>
if your business happens to be in wild wonderful West Virginia.
Why didn’t they pass this law ten years ago? With the current state of the market such a law isn’t necessary and will only make things worse.
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