Nevada’s new law regarding unfair lending practices doesn’t take effect for another two weeks but changes already are underway in how lenders in that state are handling stated income loans.
Under Nevada Revised Statutes Chapter 598D …
1. It is an unfair lending practice for a lender to:
(a) Require a borrower, as a condition of obtaining or maintaining a home loan secured by home property, to provide property insurance on improvements to home property in an amount that exceeds the reasonable replacement value of the improvements.
(b) Knowingly or intentionally make a home loan to a borrower based solely upon the equity of the borrower in the home property and without determining that the borrower has the ability to repay the home loan from other assets, including, without limitation, income.
(c) Finance a prepayment fee or penalty in connection with the refinancing by the original borrower of a home loan owned by the lender or an affiliate of the lender.
(d) Finance, directly or indirectly in connection with a home loan, any credit insurance.
2. As used in this section:
(a) “Credit insurance” has the meaning ascribed to it in NRS 690A.015.
(b) “Prepayment fee or penalty” means any fee or penalty imposed by a lender if a borrower repays the balance of a loan or otherwise makes a payment on a loan before the regularly scheduled time for repayment.
(Added to NRS by 2003, 2890)
The emphasis added is my own, as this is the provision which all but is eliminating stated income loans as a possibility in the Silver State. In talking to one local loan officer whose company has offices in Nevada, it had become common for borrowers to claim they were working at one of the casinos even when they weren’t.
Lenders would try to verify the information but weren’t always successful (employers aren’t particularly helpful – when I was at Schwab, anyone asking about a current or former employee was forwarded to corporate Human Relations in San Francisco.)
The change isn’t at all a bad thing. Stated income loans should be based in reality and not be used as a court of last resort. And note that the law doesn’t make them illegal, merely impractical as a risk for many lenders.
[tags]real estate financing, Las Vegas real estate[/tags]