Industry News

Subprime guidance could restrict no-doc loans

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A top federal banking regulator said Wednesday new guidance now being drafted for subprime lenders should address the widespread use of stated-income loans, which present "a temptation for misrepresentation" and "outright fraud." Comptroller of the Currency John C. Dugan, speaking to members of the Neighborhood Housing Services in New York, outlined his concerns that the misuse of stated-income loans helped drive an increase in delinquencies and foreclosures among subprime loans. Last year, Dugan said, nearly 50 percent of all subprime loans relied on stated-income applications. Considering that stated-income loans carry higher interest rates, and most subprime borrowers are wage earners who can easily produce copies of their W-2 forms, it's worth pondering why the loans are so popular. "Two reasons jump to mind, neither of them reassuring," Dugan said. Borrowers may not understand how much more they pay for the convenience of not providing income verification, and that...