Released: November 25, 2006

Low down on low-doc mortgages

Source: Kenneth R. Harney, Washington Post (Free Registration)

If the IRS wants to spot large numbers of people who are stiffing the tax collectors, it might want to consider auditing a fast-growing segment of the home-mortgage market.

New research suggests that more than 17 percent of all borrowers who take out limited-documentation or no-documentation mortgages do so in part because they have significant under-the-table income they do not report on their federal tax filings.

Limited-documentation and no-documentation mortgages once were used primarily by self-employed professionals, small-business owners and individuals who are heavily dependent upon periodic bonuses or commissions. In limited or no-documentation programs, applicants typically state their income and assets to the loan officer but are not required to show detailed proof of that information for the lender’s files.

Generally, applicants are required to have good credit histories, but at the extreme - no income verification, no asset verification, or NINA - they need not document much of anything to qualify.

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