Stated income loan

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A stated income loan is a mortgage where the lender does not verify the borrower's income, by looking at their pay stubs, W-2 forms, income tax returns, or other records. Instead, the borrower is simply asked to state their income, and taken at their word. These loans are sometimes called "liar loans."

These loans are nominally intended for self-employed borrowers, or other borrowers who might have difficulty documenting their income. Stated income loans have been extended to customers with a wide range of credit histories, including subprime borrowers. The lack of verification makes these loans particularly simple targets for fraud.^[1]

In August 2006, Steven Krystofiak, president of the Mortgage Brokers Association for Responsible Lending, in a statement at a Federal Reserve hearing on mortgage regulation, reported that his organization had compared a sample of 100 stated income mortgage applications to IRS records, and found almost 60% of the sampled loans had overstated their income by more than 50 percent.^[2]

U.S. Senator Chuck Schumer is currently leading an effort to restrict stated income loans;^[3] his Borrowers Protection Act of 2007 would essentially forbid them.