Subprime Crisis or Stated Income Crisis?
While hardly ethical under most circumstances, its hard to believe this kind of lending is even legal!
“It is standard practice for banks to count the highest possible amount of an option ARM payment versus the actual amount as revenue. This is true even when borrowers make the minimum payment and nothing more. In short, banks are claiming future revenue now without knowing whether or not they will ever see that revenue.
It sounds like a scam, but it is completely legal under Generally Accepted Accounting Principles (GAAP). The problem is that banks will probably never see the phantom revenue they have already claimed. When borrowers run out of pay options and maximum amortization levels are reached, the game will be up.”
HT: Dad
