The craziest refi requirements ever
Mortgage lenders' demands are sometimes ridiculous as they work to tighten their standards. What's your horror story?
Lenders are making some remarkable demands of borrowers looking to refinance their homes. The lenders aren't saving the third degree for risky loan prospects, either. They're subjecting even customers with sterling credit records and fat bank accounts to a previously unheard-of degree of scrutiny.
Syndicated real estate columnist Lew Sichelman catalogued (in the Los Angeles Times) some of the most unusual requests -- a homemaker who was required to verify her employment, for example, and a borrower who, although he'd finished high school years ago, needed to produce his high school transcript.
One woman who'd recently lost her husband was asked not just to submit his death certificate but also to explain why her Social Security income had dropped.
Sichelman says he found these and other horror stories on the (private) Facebook page of Karen Deis, publisher of MortgageCurrentcy.com, an industry newsletter.
Stories of demanding underwriters are not rare. What's your experience been? Do you think underwriters have become too strict?
Underwriters ask sometimes ridiculous questions in an effort to be more diligent after the freewheeling lending in the real estate boom years, experts say.
Originators -- the folks who take your application and get you your loan -- are being ultracareful, not only in whom they lend to but also in how they document their decisions. That's in part because lenders are losing billions of dollars -- billions -- in lawsuits over boom-years loans that have gone into default.
Originators typically sell the loans they make to investors. Investors and insurers, the U.S. government among them, have become aggressive in trying to recover their money from failed loans. Last year alone, banks were forced to buy back $20.57 billion of Freddie Mac and Fannie Mae mortgages, according to InsideMortgageFinance.com, an industry publication.
The originators are really on the defense in these lawsuits," says Jack Pritchard, the chief operating officer for The Mortgage Professor, an online retail mortgage marketplace.
Originators are extremely nervous about exposing themselves to bad loans, Pritchard explained in a phone interview. Even perfect loan candidates sometimes eventually default. If that happens, the originator can be held accountable if any documentation is missing.
"Unfortunately, it is getting more bizarre," writes Richard Booth, a certified mortgage banker with America's First Funding Group in Neptune, N.J. In an email, Booth described the demands his refinance customers face.
Zeroing in on a deposit
"I recently wrote a mortgage for a well heeled client -- he was applying for a $600,000 loan and was paying down his mortgage by $200,000. The home's appraised value was $3.4 million. He had a 780 FICO and great income and assets." By any measure, this would be an attractive borrower.
But the lender's underwriter focused on a $28,000 deposit in the borrower's personal bank account, reimbursement for business travel expenses. Booth, anticipating scrutiny, had included the borrower's expense report and expense check stub with the loan application.
Nevertheless, the underwriter demanded that the borrower get a letter of explanation from his human resources department.
Pritchard says that underwriters may be paid less than in years past. They may have less training and, as a consequence, may be less confident.
"They're afraid," he says. "Their management is much tighter."
Some bigger banks don't seem much interested in refinancing, he adds. "Their application processes drag along, sometimes for months.
"I've heard of refi customers who have their appraisals expire before they get to the closing table," Pritchard adds. When that happens, the customers has to pay an additional $400 to $500 or more to get a new appraisal, since appraisals expire after a few months. FHA, for example, rejects appraisals older than 120 days.
"That's a horrible scenario," Pritchard adds. "The rates could change drastically, and you'd have no recourse. You have to start all over again."
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