I was thankful some years back when the OLD paradigms for approving mortgage loans resurfaced. Back then it looked like we were returning to the days of common sense in Underwriting and approving mortgage loans.
Yes, we were, but that was only part of the pendulum swing away from the days of “if it’s breathing it gets a mortgage” insanity. The pendulum hasn’t completed its swing in the direction of conservatism in Underwriting standards. Oh no. Apparently we have quite a ways to go.
Here’s what you should know as of this writing about the New “NEW” paradigm in OLD underwriting standards of “common sense.”
- Credit Score NOT enough. Having a good credit score isn’t enough to qualify for a mortgage loan anymore. A Borrower must have sufficient “Trade” accounts on the credit report. 2 trades with a minimum 12-month history, current and active, too.
- Rental History: I predicted over a year ago that some time in the future we would see Lenders asking for proof that a Borrower has shown respect to their housing payment: RENT. That respect means you paid your rent on time. There are only TWO acceptable forms of proof that your prospective Buyer paid rent on time: 12 months cancelled rent checks (not cash receipts or money order slips) OR an official verification from a recognized legitimate Management Agent. While it’s not the case that everyone needs that verification yet, we are seeing it being requested more often by Underwriters.
- Too many inquiries. The prospective Buyer who has had many mortgage inquiries in the past 90 days—even though it doesn’t affect the credit score—is now becoming suspect in the eyes of the Underwriter. The question being asked, “What is wrong with this loan application that there are so many people looking at it?” FYI: I often see too many inquiries when I am called in on a “911” call to help save a deal that’s falling apart. Last week, with two different clients who had been working with Bank of America and CITI respectively, I saw multiple inquiries. I don’t know why these bankers had to run the reports repeatedly, but they did.
- Home address. It’s great that so many folks get their tax returns done by tax preparers who manage to find HUGE refunds for their clients. But Married couples filing at different addresses with “Head of Household” on the returns, well, while that may help get a huge refund, it’s telling a mortgage Lender 2 things about the prospective Buyer: A) They don’t live together, so who’s to say they are truly both going to occupy the house they are buying and B) They don’t seem to have a problem with committing FRAUD to get a big tax refund.
- Unlicensed Loan Officers. When you are presented with a PreApproval letter from a Loan Officer, you can verify if this person has a License to conduct business as a Licensed Mortgage Loan Originator. Loan Officers who work for banking institutions aren’t licensed; they are registered, but you can verify that, too. Visit www.nmlsconsumeraccess.org and enter the person’s name to verify. There are people walking around out there pretending to be licensed when they’re not. They are wasting your time and they are committing a felony.
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