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Using the right experience
For many broad job titles, most salary databases divide the category into segments based on years of experience. What is important in determining reasonable stated income is not how many years borrowers have been in their current job, but the years of experience they have in their career.
For instance, Mike is a graphic designer who works in San Luis Obispo, Calif. He has been in his current position for two years and has worked in his career for seven years. Looking only at the number of years Mike has been in his current job, the Salary.com job title that would match his experience would be "Graphic Designer," which has a 75th-percentile income of $57,358 per year.
A more realistic job title for Mike would be "Graphic Designer Sr.," which has a 75th-percentile income of $70,779 per year and a job description noting four or more years of experience. The difference in incomes is almost 20 percent.
Not counting OT or bonuses
When determining whether a borrower's stated income was reasonable at origination, look at how the income was disclosed on the loan application. The Uniform Residential Loan Application provides separate fields for base, overtime and bonus incomes. The total income often is what repurchase demands that claim unreasonable stated income are based upon.
Online salary databases may offer the option to include bonus income, but they do not offer averages on overtime income. If borrowers list their base income as $3,700 per month and list another $700 per month in overtime income, comparing the total income of $4,400 per month to average base- salary income from any salary database would be wrong and would increase the chances of making an inaccurate determination of unreasonable stated income.
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Claims of unreasonable stated income at the time of loan origination are at the heart of many repurchase demands today. Mortgage brokers, originators and lenders who originated mortgages and are facing repurchase demands based on unreasonable stated-income data must fight back with logic and reality.
David L. Hippensteel is a member of the Gerson Lehrman Group Councils and adjunct faculty member of Bryant and Stratton College's business-development department. He provides on-site training in due-diligence underwriting, due-diligence supervision, mortgage-fraud investigations and mortgage-repurchase-prevention strategies to secondary-market mortgage-investment banks, mortgage brokers, mortgage lenders and commercial underwriting firms.
He consults public and private clients in consumer-credit repair, debt management and residential foreclosure prevention. Reach him at firstname.lastname@example.org or (414) 801-7368.
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