Ever met anyone self-employed who wrote off everything from dog food to toilet paper? They may have a realistic cash flow of $5000 a month, but their AGI is $19400 a year. An underwriter uses the $19400 (plus some depreciation) as their income.
Now, there are loan programs allowing for using the average amount of deposits into a bank account for 12 months (called "bank statements" programs) but generally only subprime lenders allow this.
You mean people who lie about their real income to avoid paying taxes will now face consequences for it? That's really too bad.
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.