A Warning About Re-Financing from First Heritage Mortgage

WARNING! If Your Current Loan Was Obtained Using “Stated Income”, you need to read this.
Posted February 1st, 2009


If the mortgage on your property was obtained using a “stated income” or low-documentation loan and you’re considering working with your current loan servicer to reduce your interest rate and/or payments, you could be opening yourself up for a potential fraud case.

Whether you are solicited directly by that lender or you contact them yourself to inquire about modifying your loan terms, the lender will typically ask you to provide income documentation (paystubs, W-2s, federal tax returns) for the past two years so they can determine your eligibility for a lower rate. If that supporting documentation coincides with the year you applied for the loan and proves a much lower level of income, that lender can cite you for fraud and exercise their right to call the loan due. Not only would you not be able to refinance, but you would also have to pay the entire balance due on your mortgage.

Until recently, stated income loans were offered to borrowers who had erratic income streams, complicated tax returns and/or disproportionate levels of deductions. Self-employed borrowers and commissioned salespeople frequently sought out these types of loan programs, as they likely wouldn’t have qualified for traditional, “full documentation” loans. These loans carried a slightly higher interest rate but eliminated the need to provide tax returns, etc.

However, if you provide that documentation now – even years later – and the lender cross- references it with your current loan file (and there is evidence they’ve been doing just that) and finds the income on your original application to be misleading, they can take action against you.

Your best option is to contact a lender other than the one you are currently paying to determine your eligibility to refinance to a lower rate. Even if you cannot qualify now, it’s better to keep your current loan than to open up a whole new set of (bigger) problems.

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