Stated Income Construction Loans and Subprime

A recent article in the Sacramento Business Journal sums up the general consensus in the mortgage business about how risky loans will be handled in the future. While the article focuses on WAMU, the article could be about any publicly traded bank in the country and still hold true.

“The Seattle-based company lost $113 million on home loans in the first quarter of this year. Washington Mutual said it will make fewer subprime loans, require documentation on a borrower’s income and move into higher-quality loans. ”

But what does this mean for construction loans? Subprime construction loans have always been rare in the construction loan business. Only a handful of lenders would ever considered doing subprime loans for construction in the past and have accounted for very small percentage of the total market. So the fact that subprime loans are evaporating has little impact on the construction loan business.

Stated income loans have been a large contributing factor to the subprime meltdown but aren’t isolated to subprime credit borrowers and were commonplace in construction lending. Stated income construction loans are becoming near extinct and very difficult to find lenders to do them.

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