The absurdity in the mortgage world continues. The lack of common sense in loan underwriting has been a frequent theme in this column for the last couple of years. Here’s one case that tops even the most nonsensical underwriting requests.
Some folks recently came to me for a refinance. The situation could not have been more straightforward. They were seeking to refinance their $300,000 loan from an existing 30-year fixed rate of 5 percent to a new 15-year program. I quoted a rate of 3.50 percent with no closing costs.
It was a very easy loan application. The borrowers are self employed, and they provided me with two years of tax returns that indicated very sufficient income of more than $150,000.
Besides their mortgage, they have no other debt. Their credit scores are excellent at 790. The property appraised for $550,000, which means the collateral securing the loan is worth $250,000 more than the requested loan amount. Finally, they provided me with bank statements showing that they have more than $200,000 in savings and retirement funds.
You can’t find a more perfect loan application. They have great income, great savings, great credit scores and plenty of equity. Unfortunately, the loan was underwritten by someone I’ll identify as the underwriter from hell (UFH).
The loan technically was approved - but only if certain conditions were met. I would be most grateful if any of my readers could explain the relevance of the following requested underwriting conditions.
c There was an unexplained deposit on the borrowers’ bank statement for $1,500. Mortgage giants Fannie Mae and Freddie Mac require that “large deposits” be accounted for to ensure the applicants didn’t incur any new debt or receive drug money from South America.
But where’s the common sense here? These borrowers have an income of $150,000 and $200,000 already in the bank. Is documentation of a $1,500 deposit really necessary?
c The UFH is requesting a copy of the original mortgage promissory note to prove the borrower is indeed lowering his interest rate and receiving a “net tangible benefit” from the refinance. This request is in addition to a form my borrowers already signed that spells out in detail their acknowledgment of the benefits of the refinance.
c The borrowers are senior citizens. The UFH somehow determined that the co-borrower’s Social Security card was issued in 1960, though she was born in 1941. The UFH wants a letter of explanation. Can someone tell me what this explanation letter has to do with determining whether the borrowers are a good credit risk?
c The applicants’ credit report indicated excellent credit scores. Despite this, it also listed a dispute of a relatively tiny sum of money - $700. The UFH is requiring that the dispute be resolved and acknowledged by the financial institution. She then is requiring that the borrowers go through the time-consuming and expensive process of getting their credit report rescored, despite the fact that their scores already are more than sufficient.
Folks, I’m not making this up. If the feds really want to get our economy moving and get credit flowing again, they had better find a way to eliminate these nonsensical details plugging up the credit markets.
Henry Savage is president of PMC Mortgage in Alexandria. Send email to henrysavage@pmcmortgage.com.
Please read our comment policy before commenting.