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.
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.
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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 added.
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.
How can a borrower blame the lending company for trying to protect itself from loans that may be considered "unpurchaseable" or repurchased anytime within the life of the proposed loan? How is a lender to predict the financial circumstance of a borrower 10-15 years from the date of the loan? Every industry has "clowns" and the mortgage industry is no exception. Borrowers should interview the lender to insure they have the knowledge and expertise necessary to handle their financing.
Don't beat the messenger because you don't like the message.
My days are spent reading your tax returns and campring them to what the IRS has on file. I'm mentally exhausted from reviewing your bank statements for unexplained deposits. I am tired of fighting with loan officers for additional documentation and underwriters that are "out of control." And then I am sad to say, after the "war" is over... the seller unexpectedly dies and it's all over.
Professionals in this business have the worst case of PTSD ever!
-Posted on behalf of SharonJ
I had made payments, on time I might add, since I refinanced my home in 2005. Last year I was deployed so I took advantage of the tax free money and paid my house down by $20k. When I returned this year I saw that the rates were about 2% lower so I tried to refinance my home. My wife was in the house and they asked me why I wasn’t at the house and she was. My question to them was why. She is my wife and our kids needed somewhere to stay and why I wasn’t at the house. That is where I reminded them that I was deployed. Then they wanted me to write a letter stating that she was in the house. This is where I asked again why does it matter who was at the house as my name is the only one on the deeds. I’m making the payments and I’m not behind. In fact I was two months ahead on my payments.
After two months of me telling them that some of the information they requested was not needed I told them that I will not be using their service. I told the person that I would just pay off the house in 100 days since they didn’t know how to conduct business. That was back in April and since then my pay has increased and if I would have told them that I was getting a new job that they would be looking for 2 months of pay stubs that I had not received.
I don’t know if they have been keeping an eye on my account but one more payment and the house will be MINE!!! PAID IN FULL!!! And from Dave Ramsey I’M DEBT FREE!!! FREEDOM!!!! I would say I’m sorry for going overboard but… no. J Just in case you are wondering I’ll miss my 100 day pay off by 7 days. That would be over $30K paid with less than $900 interest given away. I wonder if the grass will feel different when I run my toes through it?
With the above said I’m not going against checking pay history or debt but asking for information that is not relevant to the situation is my problem. My name is on the deed not the wife. Why do you need her information when she doesn’t pay the bills? Why ask if I can make lower payments when I ahead with the higher payment? Like some wrote on here I guess the banks don’t want to lose the money when lowering the interest rate.
Given the sketchy information in the article it is tough to support either the borrower or lender side.
The doctor may have been trying to do a straight refinance or taking more out to buy a BMW. Even with a straight refinance the bank has to consider whether his practice is stable, growing or belly up. The doctor could just have been run out of state on a rail for all the bank knows.
Asking for divorce papers makes sense if the person requesting a loan is relying on income from that divorce to support the loan. Child support does not go on forever. Most alimony does not either.
The banks use ratios like house cost per month and total debts payments including the house costs. Generally those are 29% and 41% of gross income. Both ratios are pretty generous, if you are a working person.
I am retired. I am subject to the same lending ratios. BUT My income is not subject to social security and Medicare. I don’t have to pay for transportation to work or invest in a 401K to save for retirement. To end up with the same adjusted gross income that I have a working person would have to make one and a half items as much unadjusted gross as I do. In my case that is 48K compared to my 32K.
No down payment mortgages are available under several programs in Texas. The Bond 77 program is state specific. The USDA requires that the house is located in what they define as a rural area. The VA requires that you meet certain military service requirements. Of the three the VA program is substantially more affordable. Currently (8/11/2012) their rate 3.5% with no Down payment and no PMI. PMI for FHA loans is 1.25%.
When you figure your cost of owning a house start with 7% of the house cost, add the mortgage and PMI interest rates and that will give you a decent estimate of your cost to run most homes under $200K. Housing costs include the usual that you are aware of Mortgage, PMI, property taxes, utility expenses, house regular and flood insurance, telephone, etc. Those add up quickly and cannot be avoided.
We went through this process 2 years ago and it was awful. I had to send the typical stuff, paystubs, taxes, etc. Then the bank wanted a copy of my marriage certificate (been married 10 years), explanations of all deposits that were non-payroll for 6 months - had to get copies from the bank of the checks that were deposited that were all non-payroll - cost quite a bit for the bank to provide this info. Had to submit info on all retirement accts and provisons of my employer pension acct and husbands. And this was for credit score over 800 - husband and mine both. The bank is punishing borrowers now for mistakes they made. If the only way a person can afford a house is to defer principle payments for 5 years and pay interest only, they probably shouldn't be buying a house. Oh yeah and don't forget our govt made the banks start providing loans to people who have no business buying a house because everyone has the right to home ownership. Really?? You have the right only if you can afford it and know how to manage your money. Our govt is half the problem - don't make banks lend to people who can't afford it.
I'll get off my soap box now. Make sure you vote this year.
It;'s getting rediculous requirement. I recently applied and got pre-approval for a
mortagage .I am also a disabled vet. and retired on social security. I had to show
the bank my award letter for disability and the letter I got proving how much I get on
social securtiy and also bank statements showing the auto deposits of those amounts.
I while back I wanted a short term loan and had to show a whole year of deposits to
my account. RIDICULOUS. Many years ago when I sold a house I also sold to a veteran
and I paid the closing costs so I could sell my house faster . One problem I never
received a refund of the taxes I had paid for the six months I was not there. Live and
Here is how you turn the WHOLE damned thing around! PAY CASH!
Instead of buying a home with a mortgage...which you end up paying 3 times the actual home price becaue of interest ...to the banks.
Why not just save your money...pay yourself a mortgage, it will grow due to interest! (even if so slightly) ..and in 15 years, you can pay for the house in cash!
Screw the banking system...the federal reserve. Take care of your own self!
Banks and mortgage companies do have to be careful and protect themselves from fraudelant applicants, but that is the extent of it....
Let us not forget it was THEY who created the huge housing market crash, and not the consumers!
Certain things are expected to be asked, such as banking records and such, but to go further and harrass people for documentation on family members, child support, miscellaneous one-time small deposits ($200. or less)etc, and other things is ridiculous, ludicrous, uncalled for, and a downright invasion of privacy designed around and focused on one thing only.... .since buyers are more cautious and alert to bank loan scams now, what other way can those institutions find to SCREW YOU out of your hard earned monies!
My gf went thru a similar hassle with her home we just got rid of thru the 'deed-in-lieu option. She owed way more than the house was worth because they re-fi'd her twice for upgrades and repairs without ever appraising the value of the property (which obviously wasn't there) to see if it was worthy of the extra money, so therefore after 10 years of on-time payments and no issues on her end, her payments were triple what they should be, and she was going nowhere and never going to get on top of it, so I made her see the folly in staying there any longer. The mortgage company tried to force her to stay in it so they can obviously keep raping her bank account for the next 100 years, but I made her stop paying them, and after 4 months of harrassing her night and day and making all kinds of threats, asking for all kinds of documents and information they did not need and were not legally required for the process, I then took over all communications, threatened them with court actions, had my own appraisal done, and got the 'State Office of Banking and Inverstment involved... the mortgage company then backed off and was expedient about settling the deal without any of the ridiculous personal records that they had been demanding!.. .there is a limit to **** you should allow yourself to be subjected to by the financial managers of this upside economy we live in... remember this folks...without your dollar, they all have to give up thier grossly overpaid salaries, so by that understanding it is YOU who are in control, not them..... so don't let them push you around...there is always another lender around the next corner and after turning enough of them eventually you will find the honest financier that wants to help you, so don't rush, and don't cave in to their pressure tactics or threats!
Here is another reason why this country is going into the pooper; the media, in this case the writer, Amy, is either trying to excite somewhat reasonable people into thinking they are getting the shaft by "the system" or she should not have been asked to write an article on real estate/finance because she is either too stupid or too lazy to research her facts!! All of the guidelines that banks have put in place recently ARE "old fashioned underwriting". A divorce decree is requested to verify child support will be recieved for, at least, an additional X amount of years. that way, the bank isn't qualifiing someone based on an income of $$$$ when all or a portion of which is going away when the child turns 18 in 2 months. college diplomas are asked for when someone starts a new job and has no previous work history to show what they were doing before. the cash for car purchase documentation is needed to ensure the borrower, who had recently looking for auto financing doesn't get a mortgage and then have a $700/mo car payment that hasn't hit their credit report.
Of course they are treating loans like each one is the riskiest one...imagine you loaned out $200 to 10 of your friends, who said they would pay you back at the end of the month. 3 paid you back on time, 3 paid you back halfway through the next month and 4 told you to go pound sand because they "didn't have it" (and, furthermore, they tell you its your own fault because "you shouldn't have lent it to them in the first place because if they needed to borrow it, they probably couldn't afford to pay it back to you") now imagine your mortgage company calling you because you owed them $2,000 at the end of the month and you only had $600...see how it works?!?!
at any rate it doesn't matter; its THEIR money to loan to you. this country is so entitled now, not only do we EXPECT people to loan us THEIR money; we EXPECT them to loan it to us under OUR conditions!!! Unfortunately, a lot of that entitlement gets beat into you by writers, like Amy, who don't do their homework and suggest that you SHOULD be upset about it!!!
This country needs a little more "coming together" and a lot less "pushing apart"! A good start would be with some responsible media.
The mortage companies are not charity. When you are borrowing money for anything, in this case we are discussing hone mortgages, a person appring for a loan on a house must prove they are financially able to make the monthly payments.
Your pretty face is not security enough. Home mortgages are not an entitlement - its a loan that must be secured and paid back.