Should stated-income loans be banned?

Rising foreclosure rates warrant probe

A stated-income loan (SIL) qualifies a borrower using the income the borrower states, as opposed to the income the borrower can document. With an SIL, the lender agrees not to verify the income the borrower states on the application. As one might expect, SILs are priced higher than fully documented loans, and the foreclosure rate is also higher. With overall foreclosure rates reaching uncomfortably high levels, SILs have emerged as a possible weak point in the underwriting process. Regulators and legislators have been considering whether they should bar SILs or limit them in some way. Why SILs? Singling out SILs for special regulatory treatment is a little strange on the face of it, since they are only one of a spectrum of alternative forms of documentation that have developed in the marketplace. Ranked by restrictiveness, furthermore, SILs stand immediately below full documentation, and above all the others. While lenders don't verify income on an SIL, they do verify ass...