I want a mortgage, and you want my WHAT?
Be ready to provide reams of paperwork to get your loan approved.
© Jose Luis Pelaez Inc./Getty Images
As a homebuyer or refinancer, you’d expect to submit recent pay stubs and bank-account statements when applying for a mortgage loan.
But a copy of your divorce decree?
That’s exactly what happened to a recent borrower who was asked to explain a deposit of about $200 to her bank account, said Frank Donnelly, president of the Mortgage Bankers Association of Metropolitan Washington.
The borrower explained that the money was from her ex-husband, with whom she is raising a child, Donnelly said. The lender, in turn, asked her for a copy of her divorce decree — even though the two had been divorced for 17 years. (Bing: Should you get a mortgage without your spouse?)
Borrowers who have recently applied for a mortgage know how thorough lenders are now in documenting a person’s finances and ability to repay.
A big reason lenders are being careful is that they fear they’ll have to buy back loans from Fannie Mae or Freddie Mac if proper underwriting standards aren’t adhered to and the loans go bad after being securitized by one of the government-sponsored enterprises, Donnelly said.
For consumers, this means heightened scrutiny, more paperwork to get to closing and unexpected questions. To the average borrower, the questions can feel almost comical.
Dig out the paperwork
Like the person who was asked why his income went up 6% over the year, Donnelly said. His answer was simple: He got a raise. One retired borrower was asked to verify that his Social Security income would continue when he applied for a refinance.
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Credit inquiries commonly pop up as red flags for lenders, said Rhonda Porter, a loan officer with Mortgage Master Service Corp., in Seattle. A client of hers had an inquiry pulled at a car dealership months before he applied for his mortgage loan, and that invited questions from the lender.
"The buyer did buy the car, but paid cash. He had to prove he paid cash," she said.
Disputed accounts also can prompt questions, Porter said. For example, if a borrower long ago disputed a balance or a late payment on her Macy’s card and the dispute still appears on her credit report, she may be asked to get that removed before a mortgage will be approved.
College transcripts or diplomas might be requested when lenders are trying to establish employment history. For example, if a doctor has been practicing for a year but was in college for years before that, he might be asked for this information, Porter said. Lenders typically like to see employment history for the past two years.
"I have customers who know they’re a strong (borrower) and they’re still asked for documentation," Porter said. "Some of them get their feathers ruffled."
Indeed, some think the extra documentation is more trouble than it’s worth.
Case in point: A doctor who for years had his mortgage at the same bank and wanted to refinance his home loan with that company, said Phil Bracken, a mortgage-industry consultant and a close friend of the doctor. His friend ran into appraisal issues with the property, and he also was asked for a lot of extra documentation about his medical practice. Eventually, he reached his breaking point.
"He tried to refinance for quite some time and got so frustrated with the process he decided to stop," Bracken said. "That’s becoming rather common."
Are lenders going too far?
From the lender’s perspective, they’re covering their backs by requiring stepped-up documentation. "There’s no question that Fannie, Freddie and the (Federal Housing Administration) are tightening the screws on the extension of credit," Bracken said. In addition to the fear about buybacks, lenders are facing more scrutiny from the Consumer Financial Protection Bureau, he said.
But Stella Adams, a fair-housing advocate in North Carolina, said lenders are going too far. She said banks should use "solid, old-fashioned underwriting," such as the guidelines used before the housing boom. Right now, lenders are making it too difficult for people to get financing, she said.
"We’re treating every loan as if it’s the riskiest loan on the planet," Adams said.
From the borrower’s perspective, requests for a mountain of documentation also mean taking some precautions to protect yourself from scams, said Christie Alderman, vice president, new products and services manager for Chubb Personal Insurance. For example, if you’re asked for a piece of documentation during a telephone call, make sure you know whom you’re speaking with, she said. If you don’t recognize your loan officer’s voice, call the company before following those instructions, she said.
"If you feel terribly uncomfortable with (providing the requested documentation), it is fine to take your business elsewhere," Alderman said.
Adams suggests that borrowers frustrated by the application process reach out to community banks. Since they have a vested interest in the growth of the community, they might be more willing than a big bank to work with you on your loan, she said.
We had a Home Equity Line of Credit for the past 20 years with Bank of America. Lo & Behold it showed a date o Feb 14th 2014 as of the day we would no longer be able to borrow from it. We are so good about it, owe very little and we like the convenience to have cash available if an emergency comes up like installing a new furnace or central air.... or if one of the kids need to borrow.... We never owe for a long time because we pay quickly back with funds from a brokerage account.
We were treated like we were planning a Bank robbery when I asked to renew it. Oh, no, no, no! No way renewing it!!!!
You have to do a new application all over again. 2 hours on the phone being interrogated what I plan to do with the funds.....credit background check.... even telling them nothing changed they just do not trust anyone. Eventually we were treated as "elite" because of our 800+ credit rating....and of course they have a lien against our house.
Yes the Banks are going to far. Just the credit rating check and looking at the Bank account can tell you what they need to know. No need to invade the customer's privacy.
This proves to rely less on banks and more on yourself. Minimize your savings account with banks, minimize borrowing for cars, boats, etc from the banks, use another source or use the manufacturer financing.
Pull and use as much cash as possible each month, don't allow the bank to have your money for loans and for their benefit, leave enough cash in to pay basic bills, then pull your cash and use that for purchases, its also a great way to budget. When cash is low stop spending.
Always pay extra on any loan, I paid off my home 11 years early and made more money from paying off the home loan early as well as made more money than putting that money into a 1% savings account.
Screw these banks and credit cards and financial groups that try to run your life when they cant even run their own business. They can kiss my butt for business. I don't need them anymore and if I do, it will be on my terms.
Do more for yourself and do less for these idiotic banks and their fees and their bad lending practices. Just because they used poor judgement doesn't mean you have to pay for it.
My credit union put me through a ringer for 2 months and then declined my mortgage. Credit unions
These are about the same hoops we jumped through in 1982 to get a FHA loan at 13.5% AND 5- points. You read it right. 13.5% AND 5 points FHA. And were happy to get it.......