Mood of the Market
Mood of the Market
Real estate professionals are not doctors. Yet they can diagnose, at a glance, one syndrome in particular better than any other expert.
The disease? It's a syndrome I've come to know as suscribiendo impatienza irritablus, from the old Latin for "impatience and irritability caused by excessive requests for documentation during the loan underwriting process." Symptoms include teeth clenching, anxiety, panic attacks and leaving your checking account statement on the fax machine glass at work.
The best cure for underwriting anxiety is a two-part remedy.
Part one: Accept that he or she who doles out the cash makes the rules, and that you simply have to play the game their way if you want the lender's mortgage money. Simple, but not always easy.
Part two: Get educated about what requests may come, so that you're not caught totally off guard and thrown into a panic when a request comes in that seems strange to you.
Part one is simple, but not always easy, and it's entirely up to you to be OK with the short-term inconvenience and minor irritations that come with getting a home loan. But let's tackle part two together -- here are a few of the weirdest things that lenders regularly ask borrowers to provide:
1. Your driver's license and pay stubs -- five times. Buyers and refinancers are often rendered apoplectic by repeat requests for the same documentation. If you house hunt for a year, or your short-sale transaction takes five months to close, it's really not that bizarre for the bank to ask for updated versions of checking account statements or pay stubs. The need for an update, the need to make sure that you still have the same income you did at the start of your house hunt adventure -- that's what lies beneath the need for updates on these sorts of ever-changing documents.
But, why oh why, many a borrower has bemoaned, must they ask me for my driver's license what seems like 17 times? There are lots of answers to the question why: Your mortgage broker is drowning in paper and/or has shredded your sensitive materials since you first sent them; your target lender has switched several times; or it's simply easier and less time consuming to get you to send it than to dig it out.
But asking "why" will not stop this from happening, nor will it manage your stress around it. Best practice is to understand that repeat requests, even for the same documents, are a law of nature in the mortgage industry. Like gravity, they just happen – and like gravity, life gets a whole lot easier if you stop fighting it and just serve the documents up, as requested.
2. Sourcing your deposits. According to my own personal go-to mortgage pro, Yvonne Hemmingsen of Diversified Capital Funding, lender requests for documentation of the source of every single deposit over about $500 that shows up on your checking account statements for the two months prior to underwriting are the single most pervasive and impactful documentation change of the post-recession lending era.
Did you sell a home? They want to know that, and see the escrow check or statement. Did you write yourself a check from one account to another? They want to see that, too. Did someone give you a gift? Not only do they want to see a letter from that individual stating that the cash was a gift, they might also want to see the statements from the gift giver's account that issued the check or deposit to your account.
Loan underwriters want to ensure that neither you nor your benefactor are taking out loans that you'll have to repay after closing, and that no other sort of shady business is afoot at any point along the chain of your income or other cash you'll need to bring to close. There are potentially ways to minimize the burden on your gift giver, and on yourself, of this sort of requirement, if you plan ahead; sometimes, these requests can come in late and add unnecessary delay to your closing. Talk with your loan officer about where all your money will be coming from at the very beginning of your work together, and ask her to help you understand and plan for deposit documentation requests.
3. Letters of explanation. Letters of explanation can seem silly. Yes, you need to type out a letter explaining why you were late making a credit card payment, or the facts that gave rise to some other derogatory line item on your credit report. And there's no trick to it, really -- you just tell the truth, ideally running it past your loan officer while it's still in draft form.
It might seem weird to just write up what happened into a plain old letter, but loan underwriting is a process of i-dotting, t-crossing and paper trail-building. So just do it!
4. Hardship letters and financials supporting a loan mod. The above documentation requests are mostly the province of purchase and refinance loans. But many a loan modification application has been stuck in its own special purgatory of documentation requests.
From purportedly lost faxes to lenders who want to see evidence of every single bad thing that's happened to you over the last five years, the loan mod process can be inefficient at best and totally demoralizing at worst. The strangest documentation requests around loan mods are those for hardship letters and financials. These things might not sound strange, on the surface, but when you talk with borrowers who've had their applications rejected, weird themes emerge.
The long and the short is that lenders seem to want borrowers to prove that they are hard-up enough that they can't meet the existing obligations, but have enough cash flow to make a newly reduced monthly payment. And that can be much trickier a case to support than you might think.
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