Applying for a mortgage can take time because you have to scour your home to find copies of your tax returns, pay slips, bank statements and even your 401k account summary. NINA or No Income and No Asset verification loans are streamlined mortgage products on which lenders bypass much of the traditional underwriting process.
When you take out a loan, the lender assumes the risk that you might default on the debt. To mitigate risk, lenders typically require you to provide your pay stubs or tax returns so the lender can calculate your debt-to-income ratio. This calculation shows your lender how much of your income you spend on debt payments. You cannot get a loan if your DTI exceeds the lender's maximum limit. You also need cash to cover closing costs, a downpayment and upfront costs such as the appraisal. Your lender reviews your bank statement to ensure you have the cash to complete the deal. With a NINA loan, the lender skips these steps and you provide income and asset information verbally.
According to a report from the Mortgage Brokers Association for Responsible Lending, no verification loans first became popular during 2002. The loans were popular with the self-employed and people who relied on commissions, since some of these individuals had trouble proving to lenders that they had a reliable source of income. Other people like these loans because the underwriting process involves less input from the borrower and the loans are typically quicker to process. Interest rates are often higher than on standard loans -- the price you have to pay for hassle-free mortgages.
NINA loans do involve some checks and balances. Lenders order an appraisal of your property to ensure it holds enough value to support the loan amount. Additionally, lenders usually check your credit report and attempt to estimate your income based upon your current debt levels. If you have access to a lot of revolving debt but keep low balances on your cards, underwriters assume that you must be making enough money to cover your bills. If your credit report reflects a troubled history of missed payments and loan defaults, your chances of getting a loan are slim. You need a high credit score to get a NINA loan, according to Five Star Mortgages.
Almost inevitably, some people decided to start taking advantage of loose underwriting standards and exaggerated their income or assets in order to obtain loans. NINA loans earned the tag "liar loans" and government agencies including the Federal Reserve and the Federal Bureau of Investigation began alerting the public to the danger of these loans after the housing market collapsed in late 2008. You actually commit fraud if you misstate your income or assets on a loan application and you could face federal charges for the offense. The same applies to loan originators and brokers who inflate the figures that loan applicants provide. Due to the risks and close government scrutiny NINA, loans are harder to find than before the housing market crash. However, some investment firms and mortgage companies still originate these loans for people with suitable collateral and credit scores that are high enough.