Stated Income/Stated Asset Mortgage (SISA)
What Is Stated Income/Stated Asset Mortgage (SISA)?
A stated income-stated asset mortgage (SISA) loan application allows the borrower to declare their income without verification by the lender. These loans were intended to ease the application cycle for purchasers who have incomes that are hard to document, for example, the self-employed and the individuals who rely upon tips as a significant portion of their income.
SISA loans are one loan in a category of products called Alt-A. SISA loans are also known as no income-no asset (NINA) loans and liar loans. Released lending requirements allowed the SISA loan to play an influential job in the 2008 subprime financial crisis.
Understanding Stated Income/Stated Asset Mortgage (SISA)
The stated income-stated asset mortgage (SISA) originated as a device for potential homeowners in specific financial situations to apply for a mortgage. Self-employed individuals, for example, frequently maximize tax deductions to reduce their adjusted gross income (AGI) and hence have access to cash flows which may not appear on individual tax returns.
Usually, lower AGIs would make these borrowers less attractive to lenders. The SISA loan is also intended to help purchasers whose income may come as tips, or other unconventional cash payments.
Initially, these loans had severe conditions to offset the risk introduced to the lender by brought down income disclosure requirements. SISA borrowers faced a combination of higher interest rates, more substantial down payments, and higher credit score requirements than traditional loans required. The borrower could have to have considerable cash reserves available in their bank accounts. Also, the loan could limit the new month to month mortgage payment to a particular percentage over their current housing payment.
Slackening of Mortgage Requirements during the 2000s
Mortgage market conditions encouraged lenders to slacken mortgage requirements in the early 2000s. Stated income-stated asset mortgage (SISA) and other Alt-A loans became popular.
These loans served both the necessities of lenders and borrowers. Lenders wanted to clear as many loans as conceivable before exchanging those loans on the secondary mortgage market. Borrowers were happy to avoid documentation requirements, especially as SISA loan terms and interest rates approached those of traditional loans. The alignment of interests prompted unqualified borrowers getting, and defaulting on, loans that were past their spending power. Foreclosure on these liar loans accelerated in 2007, as the financial crisis grabbed hold.
Once more in the wake of the 2008 meltdown, legislators and regulators examined SISA loans, and the marketplace for these loans fixed. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act seriously restricted SISA loans, making them unavailable for proprietor involved properties. Presently, these products are the setting for borrowers seeking to purchase investment properties.
Features
- Eventually, the pervasiveness of SISA loans — and the foreclosures attached to them — popped the housing bubble in 2008. Presently, SISA loans are largely utilized exclusively for borrowers seeking to purchase investment properties.
- Initially, SISA borrowers had tough requirements on loans, facing a combination of higher interest rates, more substantial down payments, and higher credit score requirements among different requirements.
- Nonetheless, during the 2000s, many of these requirements released: lenders wanted to clear as many loans as conceivable, and borrowers were happy to avoid documentation requirements.
- A stated income-stated asset mortgage (SISA) is a type of Alt-A loan application that allows the borrower to declare their income without verification by the lender.
