Another Sub-Prime Lender Narrows Its Lending Guidelines

Another day, another sub-prime lender getting tough on guidelines.  This time, it's New Century.

In an email titled "Guideline Changes on 1st Time Homebuyers", a New Century employee advised that effective immediately, New Century will no longer allow first-time homebuyers to finance more than 90% of a home's value if their income documentation is considered "W-2 Stated".

"W-2 Stated" means that the borrower's income is not verified by the underwriter and the borrower is a full-time employee somewhere. 

W-2 Stated is very different from "Self-Employed Stated".  When people are S/E Stated, it's usually because their income taxes include write-offs associated with their business.  This makes their reported income calculate lower their actual income.

With W-2 Stated, it is generally the exact opposite.  Applicants (and their brokers/bankers) usually state their income higher than their actual income in order to help them qualify for loans.

This is a practice that is drawing scrutiny in Congress right now.

According to the email, New Century is making this change because W-2 Stated loan "are not performing well".