How would you handle a residential mortgage request that was phrased that the applicant "needs" to use a "no income" type product "because they have a cash business". This implies that not all income is being reported, which is technically money laundering. If the income is reported, you just do a regular mortgage using their tax returns or financial statements. So, the request itself is a flag that all is not kosher. Do you care?

I've had those requests in the past or heard similar stories when I decline for debt to income issues. "Cash" businesses are not verifiable and the bank loans on verified sources of income. Any bank offering loans without those peramiters is pretty much nuts. I'd love to see a safty and soundness exam result if that credit file were picked up!

The only time I've ever done "no income" loans were for a people who had very large cash asset estates. Income was not always verifiable due to the timing of receipt of the assets, but the cash was. Given the size of the cash/stock assets, a loan could be booked with no income information on file. That normally meant A LOT of cash not just the loan amount.

If they don't want to tell me, I don't want the loan.

Initially I thought this would be a HMDA "no income refi" question or a CD secured loan where income wasn't considered. We have many of the former and small home improvement types for the latter.

But in a cash business, you have no idea what they are doing if they don't want to report anything. The next worse situation is that it is reported on taxes as an income of $X, but we know it is $X times 2 so lets do the loan. Being under no loan volume pressure, I'd say, lets not.

"The next worse situation is that it is reported on taxes as an income of $X, but we know it is $X times 2 so lets do the loan."

This is exactly the situation. This concerns me because it seems to me that relying on income that was legally earned but untaxed is dangerous, if you really wanted to do no income loan (sometimes called "stated income" - unverified). Not knowing anything I don't even have a way of judging if all of their income is legal, let alone hidden to evade taxes.

The underwriting problem is that $X probably doesn't qualify. And we get greedy with $X times two, but you never really know. Loan review has to call this a "good ol boy" deal and those don't rate high.

Good luck.

Andy is right there. Who else but a gold old boy would loan on money they couldn't verify? No decent lender would! My standard line was "If you don't report it, I don't accept it" (but then I'm quite the witch when it comes to lending...my deals NEVER go bad or I find you).

If you are lending on "cash" income, not reported or verifiable in any way...I've got some oceanfront property in Washington DC to sell and I need some up front funds to get my advertising going....I make about, umm well heck you won't check....$30 mill in cash annually. Got some money for me?

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The underwriting problem is that $X probably doesn't qualify. And we get greedy with $X times two, but you never really know.

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That's the statement I use with the lenders in these situations. When they say his tax returns only shows X but I know it's X x 2, my first question is how do you know it's X x 2? Their answer is usually "the customer told me". Well HUDDDDDD!!! oh, that's DUHHHHHH!!!

If an applicant chooses to run a "cash" business -- and not report full income on taxes -- they have to accept the consequences when applying for a loan -- no loan. In today's AML world, this just isn't viable for a lender to do.