and although their bank statements support positive cash flow and the ability to repay, it’s hard to document using traditional approaches (1040s, W2s, etc.). Hence the advent of ‘bank statement’ non-agency programs that allow these borrowers access to financing through non-agency bank statement programs. These have proven to be extremely popular, and they’re manually underwritten.”
These borrowers often have good credit and assets, but their income is considered non-traditional. They’re often self-employed, and although their bank statements support positive cash flow and the ability to repay, it’s hard to document using traditional approaches (1040s, W2s, etc.). Hence the advent of ‘bank statement’ non-agency programs that allow these borrowers access to financing through non- agency bank statement programs. These have proven to be extremely popular, and they’re manually underwritten.”
IS GROSS INCOME THE RIGHT MEASURE?
Gross income has always been the main application standard but that’s likely to change as a result of tax reform.
RAY BROUSSEAU
Under tax reform, there were sev- eral major changes to the system.
• The standard deduction for those married and filing jointly went from $12,700 in 2017 to $24,000 in 2018. • Mortgage interest remains de- ductible for as much as $750,000 in new first and second-home real estate debt, down from $1 million. • State and local taxes (SALT) remain deductible, but there is now a $10,000 limit on combined property taxes and state and local taxes. How do these changes impact the lending process? Two results stand out: First, most borrowers will elect not to write off mortgage interest and property tax costs. Only four percent of households will claim itemized deductions, down from 21 percent under old rules according to the Tax Policy Center. Effectively, the cost of homeownership will rise in most cases while the distinctions between owning and renting will narrow.
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