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This article shows the pains in the mortgage industry....why there is frustration

http://online.wsj.com/article/SB10001424052748704799604575357183960027478.html

I know you’ve been experiencing “new lending” practices from all lenders around the country.  For a long time here at Bank of America, I thought it was just us tightening the lending requirements to this degree.  But as I talked to friends in the industry (Wells Fargo, Chase, and Citi) and watched other loans that are perfectly good loans struggle to close it became apparent that we are into this for the long haul.  I think from our team stand point, the best thing you can do to help the Buyer get through this “new lending” is from the beginning to set the expectation that …there is a new sheriff in town and the name of the game is  explain everything.

Income – two years….I know what the guidelines say, but two years same employer or same line.  Must document.  Verifications happen at the beginning of the loan process and yes, on the day of closing….someone could quit..and have.  I’ve been asked, why didn’t they verify the employment sooner in the loan process and the answer is that we do…we just do it again on the day of closing.  For self employed, two years of tax returns.  If they started their company in the middle of a year…you’ll have to be self employed for two full tax cycles so in this case 2 and a half years.

Credit – 620 (yes, 580 is possible, but beat your head against the nearest wall – this simply means when you are writing a contract for someone in this situation – give more time to close because it usually requires more than one level of underwriting.  And guaranteed there will be many letters written to the Underwriter. The article says that 75% of the loans purchased by Fannie Mae had 720 or better scores.  That means that FHA is picking up the rest…so yep, more FHA buyers on our plates (see why FHA 203K is becoming a popular loan).

Letters of Explanation – have become huge.  It used to be that we’d do a quick “note” to the Underwriter and call it a day.  Not anymore, we now have to write letters explaining almost everything:  deposits into the bank account that are not payroll, addresses on the credit report that the borrower never lived, or even explaining 10 year old derogatory entries on credit (got any documents to back that up?).

Paying for appraisals and credit reports – in the past I never collected money up front, I considered it a cost of doing business and in my  18 years I’ve probably paid for $3500 in appraisal costs over the years.  Not bad.  Not anymore.  Fees have to be paid upfront or the loans can’t go into processing/underwriting.   The reason for this is simple, the Appraiser wants paid whether the loan closes or not. 

30 day closes – I thought these were going to become a thing of the past, but not so fast.  I think the automation has caught up with the demand for 30 day closes on standard work flow.

You know how the saying for Realtors is “location, location, location”.  Well our saying is “document, document, document”.  The above article is great at explaining the buyback Lenders are experiencing and hopefully helps you to understand that when I ask the Buyer for a DNA sample, that I really do need it for loan approval; see the pendulum really has swung too far,  it will swing back, but for now to be successful we have to document, document, document.