Because of its NIV origins, the No Doc loan is also a non-conforming program. A non-conforming loan refers to any loans that are sold to the secondary mortgage market, but NOT through Fannie Mae, Freddie Mac and Ginnie Mae.
Non-conforming loans are sold through more expensive private conduits because they do not satisfy or “conform” to the guidelines established by Fannie Mae, Freddie Mac and Ginnie Mae.
As indicated above, the No Doc program merely combines the NIV option with a no asset verification (NAV) option. The no income verification (NIV) option merely accepts the applicant’s stated claim about his or her income—within reason.
Although the NIV program will not verify the applicant’s income, it usually will require that the stated income makes sense: it is acceptable for a doctor, lawyer or other professional to state that he or she makes $100,000 a year; however, it is not acceptable for a janitor or clerical employee to state the same income level.
By the same token, the NAV option ignores verification of the source of the funds that the borrower will be using for the closing. Conforming loans require that assets used for the loan transaction must be verified and documented. Some borrowers are unable to document the source of their assets, particularly with down payments and savings.
The no asset verification loan still does verify that the indicated and required assets do exist. However, NAV programs simply will not inquire about the source of those funds.