One of the contributing factors to the housing crash of 2008 is returning: the low or no-documentation loan. These loans required little documentation of income for the borrower, and many borrowers and lenders were accused of including false information on their mortgage applications for the borrower to qualify for a loan. This led to the loans earning the nickname 'liar loans'. Most lenders put as much distance between themselves and this type of mortgage as possible.
Now, Quontic Bank of New York City is bringing the loans back, under the Lite Doc name. These loans require employed applicants to bring in only a letter to verify their employment and their last two bank statements. The self-employed only need to show the last year's profit and loss statement for their business. Because Quontic is registered as a community development financial institution, they are able to get around many of the new ability-to-repay regulations.
These mortgages differ from standard mortgages in a number of ways:
- They are much shorter: Lite Doc loans are for only five years.
- They are only available as adjustable-rate mortgages.
- Interest rates are typically no more than about five-and-a-half percent.
In contrast, more conventional types of loans usually require applicants to submit their two most recent income tax returns, the two most recent W-2 tax forms from their employer, at least four pay stubs, and bank statements. Credit checks and other information are also required.