No-income-check loans going away for good?
One of only two NYC banks providing no-income-check loans has ended program
One of the two remaining Manhattan-based lenders that issue no-income-check mortgages — which cater to buyers of high-end real estate — canceled its loan program, leading insiders to speculate that such loans will be nearly impossible for New York City buyers to get.
While only a tiny percentage of homebuyers rely on these loans — namely, self-employed individuals with a large volume of assets or people with nontraditional income sources and complicated tax returns — they are disproportionately used in high-end real estate purchases, including condominium and co-op sales in Manhattan, sources said.
Indeed, Rolan Shnayder, director of new development lending at H.O.M.E. Mortgage Bank, said he has clients worth “millions and millions and millions of dollars” who are not able to qualify for typical mortgages because of their byzantine tax returns. Every no-income-check loan he has worked on, he said, has involved millions of dollars.
“These loans are for people that have plenty of money, own plenty of assets, have great credit, but their tax returns are so complicated they don’t conform to what current guidelines are,” Shnayder said.
But no-income-check loans will likely be a thing of the past in New York City, mortgage industry sources anticipated.
“If I had to guess, these loans are no longer going to be available,” Shnayder said.
One of the two tri-state area banks that provided the loans in the city canceled its no-income-check loan program on Friday. (The identity of the bank was not immediately clear, and Shnayder and other sources declined to elaborate.) In response, the remaining bank that offers the loans increased interest rates and added stricter requirements for buyers to get this type of loan.
And the unidentified bank is only the latest to cancel the program. Big banks, such as Citibank and JPMorgan Chase, stopped issuing them years ago, said Debra Shultz, the senior vice president of mortgage lending at Guaranteed Rate.
“These loans have been disappearing since 2008, 2009 when things really started going badly,” said Tracy Makow, a real estate partner at the Brooklyn-based law firm Brickner Makow, who said she has not done any no-income-check loans lately.
Indeed, big banks stopped providing no-income-check loans around 2007 or even before, reports show.
“The banks are terrified and the underwriters are terrified, so they don’t want to do it,” Makow added, explaining why lenders are reluctant to issue such loans.
Likely, banks are unwilling to issue no-income-check loans because they do not fit Fannie Mae’s guidelines. Fannie Mae’s numerous guidelines have been a constant hurdle for mortgage lenders, brokers and buyers, sources have said over the past few months. Nevertheless, the government-sponsored mortgage backer posted a $17.2 billion annual profit in 2012, as previously reported.
That said, there are alternatives for these buyers, Shultz noted.
“I used them a lot when I used to work on Long Island,” she said. “When I moved to Manhattan, I didn’t really need them. Even [with my clients] that are self-employed, I can utilize a lender that isn’t nervous about the income ratio or I can ask them to qualify” based on their assets.