Student loan (Ofer Abarbanel online library)

student loan is a type of loan designed to help students pay for post-secondary education and the associated fees, such as tuition, books and supplies, and living expenses. It may differ from other types of loans in the fact that the interest rate may be substantially lower and the repayment schedule may be deferred while the student is still in school. It also differs in many countries in the strict laws regulating renegotiating and bankruptcy. This article highlights the differences of the student loan system in several major countries. Continue reading “Student loan (Ofer Abarbanel online library)”

Structural adjustment loan (Ofer Abarbanel online library)

Structural adjustment loan (SAL) is a type of loan to developing countries. It is the mechanism by which international financial institutions, such as the World Bank and International Monetary Fund, impose structural adjustment.[1] They carry (often controversial) policy conditions, which have included: (see Washington Consensus).[2] Continue reading “Structural adjustment loan (Ofer Abarbanel online library)”

Stated income loan (Ofer Abarbanel online library)

stated income loan is a mortgage where the lender does not verify the borrower’s income by looking at their pay stubs, W-2 (employee income) forms, income tax returns, or other records. Instead, borrowers are simply asked to state their income, and taken at their word. These loans are sometimes called liar loans or liar’s loans.[1] Stated income loans were originated by Ameriquest.[2]

Reasons for stated income 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.[3]

Stated income loans fill a gap of situations which normal loan standards would not approve. For example, a standard rule is that a customer’s mortgage and other loan payments should take up no more than 45% of the person’s income. This would seem prudent for a person just owning their main home. However, a real estate investor may have multiple properties and for each may receive only a small amount more than their loan payments on each house, but end up with $200,000 in disposable income. Nevertheless, a non-stated income loan would decline this person since their debt to income ratio would not be in line. The same issue can arise with self-employed borrowers, where the bank with a fully documented loan would include the borrower’s business debt in their debt to income calculation. Stated income loans also help borrowers where fully documented loans normally would not consider the source of income as being reliable and stable, such as investors who consistently earn capital gains. Fully documented loans also do not consider potential future income increases. Another type of loan that uses the same principles is the no income disclosure loan.

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.[4]

In 2010, the Dodd–Frank Wall Street Reform and Consumer Protection Act, restricting stated income loans, went into effect. Section 1411 of the Act states: “A creditor making a residential mortgage loan shall verify amounts of income or assets that such creditor relies on to determine repayment ability…”[5] Currently, lenders are conducting their own version of income and asset verification.

Stated income loans are still offered typically by small local banks. Qualification requirements are based on stable employment, good reserves, good FICO and no less than 40% equity position in the property. Stated income loan availability changes state to state, county to county.

References

  1. ^[1] Agency Sounds Warning On Stated-Income And Interest-Only Mortgages, Realty Times, January 10, 2005
  2. ^Paul Muolo and Mathew Padilla. Chain of Blame. John Wiley & Sons, 2008, 2010. p. 86. ISBN 978-0-470-55465-4.
  3. ^‘Liar Loans’ Contribute to Mortgage Problems, NPR, March 17, 2007
  4. ^Steven Krystofiak, [2], statement at a Federal Reserve, August 1, 2006, cited in Mark Gimein, Inside the Liar Loan: How the Mortgage Industry Nurtured Deceit, Slate Magazine, April 24, 2008
  5. ^Section 1411 of Financial Reform Bill, [3], August 2010

 

Ofer Abarbanel online library

Spot delivery (Ofer Abarbanel online library)

Spot delivery (or spot financing) is a term used in the automobile industry that means delivering a vehicle to a buyer prior to financing on the vehicle being completed.[1] Spot delivery is used by dealerships on the weekend or after bank hours to be able to deliver a vehicle when a final approval cannot be received from a bank.[1] This method of delivery is regulated by many states in the U.S., and is sometimes referred to as a “Yo-Yo sale” or “Yo-Yo Financing.”[2][3] Continue reading “Spot delivery (Ofer Abarbanel online library)”

Soft loan (Ofer Abarbanel online library)

soft loan[1] is a loan with a below-market rate of interest. This is also known as soft financing. Sometimes soft loans provide other concessions to borrowers, such as long repayment periods or interest holidays. Soft loans are usually provided by governments to projects they think are worthwhile. The World Bank and other development institutions provide soft loans to developing countries. Continue reading “Soft loan (Ofer Abarbanel online library)”

Shareholder loan (Ofer Abarbanel online library)

Shareholder loan is a debt-like form of financing provided by shareholders. Usually, it is the most junior debt in the company’s debt portfolio. On the other hand, this loan belongs to shareholders it could be treated as equity.[1] Maturity of shareholder loans is long with low or deferred interest payments. Sometimes, shareholder loan is confused with the inverse, a loan from a company that is extended to its shareholders. Continue reading “Shareholder loan (Ofer Abarbanel online library)”