The Paper Chase

Years ago, there was a lot of buzz about the future
of mortgage lending, and how we were going to see
the day when we would be doing paperless loan
files.

Ha!

Even when the loans were being created with
very little documentation, paper files still existed
but they were very skinny.

Now that the emphasis is on creating loans using
what we call full documentation, the files are huge.
We have to be careful in the office that the forklifts
moving files around don't bump into each other!

The files now need to document everything. This is
a list of the typical paperwork required by lenders.

Full Federal tax returns for at least two years.

If you have a corporation, two full years of the
Federal returns as well.

Bank statements for 3 months that include all
numbered pages (even if the pages are blank!)

Copies of drivers licenses, passports or social
security cards.

Retirement statements (don't forget all the
numbered pages).

Complete divorce settlement agreements.

Trust documents.

Proof that the earnest money check has cleared.

Paystubs for the last 30 days and W-2 forms
for the last two years.


In addition to the paperwork that the borrower
needs to provide, the disclosure requirements
are also paper-intensive:

The Good Faith Estimate that is required within
3 days of application for a particular property
used to be 1 page. Now it is 4 pages.

The Truth-In-Lending statement is still 2 pages,
also due within 3 days of application.

Now we have a form that the borrower needs to
sign acknowledging that they received the forms
and want to continue with the loan request.

If there are any significant changes to loan amount,
loan program, appraised value, or the terms moving
from float status to lock status, we need to send all
these disclosures again for each change to provide
up-to-date information to the borrower. This is
another 7-10 pages of paperwork for each updated
disclosure.

When the lender gets your loan file, guess what?
They have to issue similar disclosures from within
3 days from when they received the file. If they
make any significant changes, they have to issue
revised disclosures also.

The 5 page loan application form and preliminary
authorizations and representations total another
16 pages. These allow us to order the credit, inform
the client that they deserve a copy of the appraisal,
tell them who is responsible for dealing with fair
lending issues, etc.

Then we get to the offer to purchase which has
ballooned to about 20 pages with all of the real
estate contract provisions.

Escrow instructions and the preliminary title report
are also received and help pad the file.

In short, it has become an incredibly paper-intensive
proposition. And on top of that, much of the process
has become serial in nature. The file needs to go
through a step before it can move to the next step,
and so on.

With the increased scrutiny of every piece of paper,
it is taking a lot of time to get a loan through the
system. It is frustrating, because the underwriters
have become like CSI investigators, chasing down
every discrepancy until we can document it to their
satisfaction. And they are not easily satisfied.

The message I would like to leave you with is this:

Be prepared to produce a lot of paperwork to help
us prove your qualifications to the underwriter.

Be prepared to document and loose ends that are
part of our presentation to the lender.

Don't expect that things will move through quickly.
The underwriters are being judged on the quality
of their files, and for them that means that it is
thoroughly documented and that there is no oppor-
tunity for anyone to criticize their decision or the
paperwork that supports it. "Good enough" is not
a standard that they will accept.

I do my best to help you understand what to expect
and to quote time frames that are as accurate and
achievable as possible. Even then, I still get surprised
from time to time with the requests that the under-
writers make to feel comfortable with the file. But,
I will always try to communicate what is going on,
even though I can't control all elements of the process.