Quote: I do get it. There are alot of calculation methods that are used to determine those final figures. Like if you have a deferred loan where there is more than a year before you start making payments then that debt isn't included in debt ratio.
There are ways to increase the income. I know that if your source of income is not taxable then they will recalculate your income at a higher figure since you wouldn't be paying taxes.
There are so many and when the LO tells a borrower that this is what he's doing then that's what you do.
I AM going to jump into this one thread to point out that you are absolutely INCORRECT. A borrower's income can NEVER BE INFLATED on the application and expenses can NEVER BE OMITTED. This is simply criminal. ALWAYS.
I was the President of a mortgage company. I am well familiar with Fannie and Freddie underwriting requirements.
Adjustments to income or expenses to support ratio analysis are done outside of the application and are supported by Memoranda to record in the loan file. The borrower may NEVER BE COACHED to inflate income based upon underwriting analysis.
I have no idea where you worked or who told you that this was acceptable. But what you are describing would be a crime everywhere. Floyd and f are correct about this. You really ought to refrain from posting information which is clearly erroneous.
There are two types of adjustments to income that would be acceptable on the borrower's final application.
First, would be those adjustments which are correcting. For example, suppose that the borrower states that his monthly gross income is $3,200 and the employment verification comes back with a figure of $3,234. The underwriter would change the figure on the final application to reflect the amount represented by the employer. But if this figure was NOT, in fact, correct, the borrower would still have a legal duty to CHANGE IT BACK or to otherwise correct the number.
Second, there are some instances where income that might be real must necessarily be excluded. For example, suppose that someone was receiving a certain level of investment income from a note or bond that was maturing within six months. The income is currently REAL, but is going to GO AWAY within a very short period of time. (While the funds could be reinvested, whether they could be reinvested at the same yield is questionable.) Take the current interest rate environment. If a ten year Treasury yielding 6% matures, in the current interest rate environment, you are NOT going to get 6% upon reinvestment.)
So the borrower's income on the final application could go up by very small amounts relating to correction or might come down if the income was found to be ineligible for inclusion.
Let us take another example. A borrower is completing a medical residency and will soon be employed as a fully qualified physician with a specialty. The physician's income is going to soar! Can the income be INFLATED? Absolutely NOT. NEVER. Inflating the income is a violation of the underwriting guidelines and a Federal crime.
This is not to say that the borrower might not be qualified. But the method is clear and it NEVER INVOLVES inflating the borrower's income. Both the GSEs have express provisions in the underwriting guidelines allowing the housing and debt to income ratios to be exceeded under special circumstances. One such circumstance would be precisely the sort of situation described, where there is a clear reason to expect income to increase significantly.
NOTHING is done to the application. Instead, the underwriter adds a Memorandum to File explaining the circumstances justifying the exception and attaching appropriate supporting paperwork.
Similarly, your assertion that the borrower would EXCLUDE expenses is also erroneous. This is required to be handled in the SAME WAY. The borrower accurately discloses. If the expense is NOT required to be included in the calculation of the ratios, this is explained in a Memorandum to record.
This is not something about which there is simply a difference of opinion or about which there exists any doubt.
Your assertion that the borrower should simply follow the loan officer's instructions in making false representations is not only inaccurate. It is really idiotic. This would never be a valid defense in a criminal prosecution any more than the analogy posted earlier about coaching someone to hold up an establishment. If I told you to go rape someone, would that make it OK?
If you worked for an employer that encouraged you to alter borrower's income representations or to omit expenses to make a loan go through, then you were probably engaged in an ongoing criminal conspiracy and you probably ought not be publishing your confession here online. It might be better to go and turn yourself in to prosecutors or to at least lay low rather than both misleading others while exposing yourself to possible criminal prosecution.