Adventures In Mortgage Lending

As we have been working our way through loan
approval guidelines becoming tighter over the
last year or so, we are encountering some
interesting processing situations that can
serve as learning experiences.


Paperwork? More Paperwork?


When I meet with a client initially, I do
my best to ask for as much paperwork to support
their loan application as I can foresee.

In most cases this would include paystubs, W-2
forms for the last two years, bank statements,
brokerage statements and retirement statements,
and in some cases tax returns for the last two
years.

One client I worked with recently very computer
savvy, and did not collect paperwork. He made
it clear that pulling those items together was
a chore for him. But I was able to get the
most recent paystubs and statements to get the
file into the processing queue, and work toward
loan approval for him.

Processing times have lengthened as the lenders'
work loads have increased. We were previously
able to process a loan to completion in about
30 days, but now it takes closer to 45 days or
more to conclude.

The lenders are now expecting the file to be
completely up-to-date when it is ready to close.

This means that even after the loan is approved
that the lender wants the paperwork to be the
most recent possible. The last paystub, the
last bank statement, the last brokerage statement
that was received between the initial application
and closing was required.

My borrower was not pleased with the request. He
had borrowed several times in the past, but was
surprised by how stringent the documentation
requirements had become. And since he was not
the type to keep this kind of paperwork readily
available, it became an issue to get his loan
closed before his rate lock commitment was due to
expire.

THE LESSON: Understand that the lending business is
not as forgiving as it has been in the past. The
lender will want every last piece of paper so that
they don't have to assume anything. If a bank or
brokerage statement has a summary page and followed
by 10 pages of detail, the lenders are asking for all
11 pages.

It helps if we look at as a puzzle. The underwriter
is putting together a lot of pieces to paint the
picture of an approved loan. If there is a piece
missing, or incomplete, it keeps them from putting
the picture together. And, in the end, we need to
get them what they need to finish the picture.


I Didn't Mention It, But That Was Really Important
To Me!


I recently closed a refinance for a client. Through
the process, the borrower actually skips a formal
payment to the old lender or the new lender. But
the interest that was owing for the month in which
it closes is divided between the payoff of the old
loan for a portion of the month, and prepaying the
interest on the new loan to the first of the next
month.

My borrower had refinanced in the past and knew
the mechanics of how this worked. In his previous
transactions, he was able to finance the month's
interest, so he was able to keep the monthly
payment in his checking account.

This time however, he was reaching the maximum
loan in relation to the value of the home. The
loan amount was just sufficient to pay off his
existing loan and cover his closing costs, so
there was no room to finance the month's interest.

As we approached the closing, and again had a
time limit due to the rate lock expiration, we was
asked to deposit the month's interest into the
escrow so that they could close the transaction.

He looked at this as a "last-minute" surprise,
because he had assumed that the loan amount would
work out as it had before, and he could keep the
payment in his pocket.

After we had an opportunity to discuss it, he
understood what had happened and he was able to
pull the funds together and close the transaction.

THE LESSON: There can never be too much communication
about what is important to you. And, don't assume
what has worked before will work again in this
environment.

I prefer to have my clients ask as many questions
as they can early in the process, and I try to
ask probing questions to find out what is important.

It is always an uncomfortable situation to deal with
unexpected developments late in a transaction. Make
a list of mortgage-related questions and make sure
you get satisfactory answers as early as possible.