Stated Income/Stated Asset (SISA) Mortgage: Meaning, How It Works

By
Alice Zhang
Alice Zhang
Full Bio
Alice Zhang is an Editor with Investopedia. She works on stories about business and impact investing. She is a Certified VITA Advanced Tax Preparer.
Learn about our editorial policies
Updated July 14, 2024
Reviewed by
Doretha Clemon
Doretha
Reviewed by Doretha Clemon
Full Bio
Doretha Clemons, Ph.D., MBA, PMP, has been a corporate IT executive and professor for 34 years. She is an adjunct professor at Connecticut State Colleges & Universities, Maryville University, and Indiana Wesleyan University. She is a Real Estate Investor and principal at Bruised Reed Housing Real Estate Trust, and a State of Connecticut Home Improvement License holder.
Learn about our Financial Review Board
Woman doing paperwork related to her stated income/stated asset (SISA) mortgage

FG Trade Latin / GettyImages

What Is Stated Income/Stated Asset (SISA) Mortgage?

A stated income/stated asset mortgage (SISA) loan application allows the borrower to declare their income without verification by the lender. These loans were designed to ease the application process for buyers with incomes that are difficult to document, such as the self-employed and those who depend on tips as a significant portion of their income.

SISA loans are one loan in a category of products called Alt-A. SISA loans are known as no income-no asset (NINA) and liar loans. Loosened lending requirements allowed the SISA loan to play an influential role in the 2008 subprime financial crisis.

Key Takeaways

  • A stated income-stated asset (SISA) mortgage is a type of Alt-A loan application that allows borrowers to declare their income without verification by the lender.
  • Initially, SISA borrowers faced stringent loan requirements, including higher interest rates, substantial down payments, and higher credit score requirements.
  • In the 2000s, SISA requirements loosened as lenders were eager to issue loans, and borrowers were happy to avoid documentation requirements.
  • Eventually, the ubiquity of SISA loans—and the foreclosures attached to them—exacerbated the 2008 financial crisis.
  • Today, SISA loans are used only for borrowers seeking to purchase investment properties.

Understanding Stated Income/Stated Asset (SISA) Mortgage

The SISA mortgage originated as a tool for potential homeowners in specific financial situations to apply for a mortgage. For example, self-employed individuals often maximize tax deductions to reduce their adjusted gross income (AGI). Thus, they have access to cash flows that may not appear on individual tax returns.

Usually, lower AGIs would make these borrowers less attractive to lenders. The SISA loan can also help buyers who earn their income from tips or other unconventional cash payments.

Initially, these loans had stringent conditions to offset the risk presented to the mortgage lender by lowered 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 might need considerable cash reserves available in their bank accounts. Additionally, the loan might limit the new monthly mortgage payment to a percentage over their current housing payment.

Loosening of Mortgage Requirements in the 2000s

Mortgage market conditions encouraged lenders to loosen mortgage requirements in the early 2000s. SISA mortgage and other Alt-A loans subsequently became popular.

These loans served both the needs of mortgage lenders and borrowers. Lenders wanted to book as many new loans as possible before reselling them in 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 led to unqualified borrowers receiving and defaulting on loans they couldn't afford. As a result, loan foreclosures increased in 2007, as the 2007-2008 financial crisis took hold.

In the wake of the 2008 meltdown, legislators and regulators scrutinized SISA loans, and the marketplace for these loans tightened once again. The 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act severely restricted SISA loans, making them unavailable for owner-occupied properties. Today, these products are the venue for borrowers seeking to purchase investment properties.

Mortgage lending discrimination is illegal. If you think you’ve been discriminated against based on race, religion, sex, marital status, use of public assistance, national origin, disability, or age, there are steps you can take. One such step is to file a report, either with the Consumer Financial Protection Bureau or the U.S. Department of Housing and Urban Development (HUD).

What Documents Can You Use for Income Verification if You're Self Employed?

Typically, pay stubs are used for income verification for hourly or salaried workers. However, the self-employed don't receive a traditional pay stub. As a result, lenders usually accept your income tax return, personal and business bank statements, an income statement from your business, or proof of additional income, such as rental income or interest dividends.

Can I Qualify for a Mortgage if I Recently Became Self-Employed?

Lenders are typically reticent to extend mortgages to those with little income history—many require at least two years of self-employment income history to get approved for a loan. However, every lender is different. You may find one that will consider prior traditional employment or accept a shorter period of self-employment. When shopping around for lenders, look for those that have less stringent standards if you're new to self-employment.

Can a Self-Employed Person Get a Conventional Loan?

Although self-employed people may require more paperwork to quantify their financial fitness, they're still eligible for conventional mortgage loans.

The Bottom Line

Establishing credit-worthiness is a big part of applying for a mortgage. Following loose lending standards for income verification that exacerbated the subprime mortgage collapse of 2008, SISA mortgages aren't available for residential use. Self-employed people can qualify for a mortgage loan. However, lenders require additional and different documentation to assess their ability to repay their debt.

Article Sources
Investopedia requires writers to use primary sources to support their work. These include white papers, government data, original reporting, and interviews with industry experts. We also reference original research from other reputable publishers where appropriate. You can learn more about the standards we follow in producing accurate, unbiased content in our editorial policy.

  1. Federal Register. “Bureau of Consumer Financial Protection.” Page 4.

  2. U.S. Congress. “H. R. 4173: Dodd-Frank Wall Street Reform and Consumer Protection Act.” Page 335.

  3. Federal Trade Commission Consumer Advice. "Mortgage Discrimination."

  4. Chase. "What Documents Do You Need for a Mortgage if You're Self-Employed?"

Compare Mortgage Lenders
×
The offers that appear in this table are from partnerships from which Investopedia receives compensation. This compensation may impact how and where listings appear. Investopedia does not include all offers available in the marketplace.