The New Era of Unconventional Mortgage Loans

Lenders are issuing more unconventional mortgage loans that do not require pay stubs or tax forms for income verification.

Such lending practices played a major role in the housing crisis a decade ago. Labeled "liar loans" at that time, borrowers misreported income, lenders didn't require documentation. Today, unconventional loans are now called "nonqualified." Realtor.com reports that lenders issued $34 billion in "nonqualified" mortgages in the first three quarters of 2018, up 24 percent from the first three quarters of 2017, while originations for traditional home loans dropped 1.2 percent over the same period in 2017, and on pace for another down year in 2018, per industry research group Inside Mortgage Finance.

Aryanna Hering didn’t have pay stubs or tax forms to document her income when she shopped around for a mortgage last year—a problem that made it tough for her to get a loan. But the nursing student who works part time providing home care for children and the elderly eventually hit pay dirt: For a roughly $610,000 home loan, a mortgage company let her verify her earnings with 12 months of bank statements and letters from clients.

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