That is the mantra these days in the lending world.
Almost every week, lending guidelines tighten up and loan programs disappear. Minimum down payments are increasing, credit scores need to be higher. Stated income? Only if you have perfect credit and are willing to pay the price. Zero down? Sure, if you are a veteran.
These topics have been widely discussed. But there are even more significant changes going on behind the scenes. Changes which will affect how smoothly your loan is processed.
These days, the Secondary Markets (Fannie Mae, Freddie Mac and all of the private investors) are auditing almost every loan package that is sold to them. And many of those loan files are being rejected and sent back to the lender for inadequate documentation, mistakes or an assertion that the loan should not have been approved. That’s a bad thing. If a lender has to repurchase a mortgage, it becomes a drain on the books and takes away much-needed capital that could be used to fund other mortgages.
This phenomenon is affecting every lender out there and it’s making underwriters across the country very conservative. Very conservative!
The initial loan approval process is efficient and streamlined with most lenders. We run your credit, input your information and then run the file through an automated approval engine. A high percentage of loans auto-approve with a list of loan conditions that must be provided in order to fund the loan. Those conditions are typically a couple of pay stubs, bank statements and W-2’s. But in our new world, every document will be scrutinized to ensure that it backs up the information on the loan application:
- Does the income documentation support the income, and is it stable?
- Are there any unusual deposits on the bank statements that could indicate an unacceptable source of the down payment?
- Are there recent inquiries on the credit report that could indicate additional loans being taken out?
- For stated-income loans, does the income being stated meet a “reasonableness test”?
More and more often, borrowers will be asked to supply additional information or documentation to explain or support the initial information provided. Sometimes this can open up a can or worms. One document leads to another, which leads to yet another. We have to be able to defend every loan decision made.
The pendulum keeps swinging in banking. Over the last few years, it went too far to the “easy side” and now it is moving maybe a bit too far in the other direction.
Underwrite to Approve, Document to Defend.
