Top 10 Stupid Mortgage Loan Officer Questions

I received this joke email and I thought I would share it. Although this is a joke email, these questions are asked by borrowers and loan officers on a daily basis. Moreover, some loan officers actually commit loan fraud by structuring deals with these bits of logic. Below are the “10 Stupid Questions” and reasons why they are not allowed by an underwriter.

#10. “Oooh, that property (undisclosed)? I forgot about that one.” (even though I closed it for him 6 months ago)

Why: The borrowers “debt to income ratio” or how much they can really afford is not accurate on the loan application. This is loan fraud and also places borrowers in a payment shock situation because they do not really see the gravity of their financial situation on paper.

This happened a lot during the refinance boom. New transactions often did not show up on the credit report for months on end as a result of the high volume of loans being funded. Borrowers were trying to close multiple purchase transactions and cash out refinances with multiple/different lenders at the same time to avoid underwriting approval issues. You may have read about this in the news as of late, some of these people are going to jail for mortgage fraud.

#9. “That mortgage late was on his rental property. So it doesn’t count.”

Why: A mortgage late on a rental is counted just the same as a primary residence. A late is a late. Mortgage lates are just about the worst thing an Underwriter can find in a credit report. Why would someone lend you money on a home if you have a bad track record.

#8. “He’s downsizing, the new property is going to be owner occupied.”

Why: Underwriters are not buying it. From their perspective, buyers does not move into a smaller home or less expensive home to live in when they have a nicer one. Especially when number #6 is evident. An underwriter will call this a second home or a rental depending on the proximity to the home already owned.

#7. “Those aren’t comps, those are short sales so they don’t affect my value.”

Why: This is a point that I will also elaborate on in a future article. #7 has become an increasingly important topic in this declining market. Bank underwriters are ONLY concerned with closed and recorded model matches within .25 miles to .50 miles or properties with same square footage, number of beds, and number of baths.

Underwriters will never give you extra value for a home being the nicest on the block even though your appraiser said so.. The bank does it’s own evaluation along with your appraisal. If the data is too far off they will cut your appraisal value every time in this declining market. This is something Realtors better learn to understand very quickly when it comes to purchase money transactions. The notion that purchase price always sets the value is out the window when their are myriads of foreclosures and short sales around the subject property.

#6. “I know the new house is a 3 hour drive (current is 10 minutes away), but he’s really going to live in it.”

Why: Underwriters will never buy off on this idea. If you buy a house in close proximity to another it must be bigger and more expensive for them to even consider it is going to be owner occupied. Second homes and rentals are not considered owner occupied.

#5. “Do they verify the VOE?”

Why: Yes. On every loan someone will call your employer to verify you work there or they will need a letter from your CPA to verify you are self-employed. If you are lucky enough to qualify for a true “ no Doc” loan then they will verify nothing. You better have perfect credit and a lot of equity if you want to go this route.

#4. “I need a stated, 90% option arm with a 562, but he’s got good credit….Oh, and I need no MI and no impounds.”

Why: Let me get this straight… You need a loan for a borrower that cannot document his income, only has a 10% down payment, wants a negative amortization Arm with the potential of the loan balance increasing more than 110% the value of the home, has horrendous credit scores, that does not want to have mortgage insurance, and does not want to have property taxes and homeowners insurance collected in the monthly payment?? I am not even going to begin to explain why this will not fly on so many levels.

#3. “My appraiser can’t get closer or newer comps…Those are all like, um, $100K less then the value I need to make the loan work.”

Why: I explained this earlier but here it is again. Underwriters are looking for sold and recorded comparables within .5 miles or less, similar square footage/ beds/baths, and comparables preferably within 3 moths old. Otherwise, look to have appraisal values cut by lenders.

#2. “contractor” is the borrower. “No, he doesn’t have a business license. Nope, no business bank account either.”

Why: Do I really need to explain this?.

AND …………..

#1. “Can I use a CPA letter as full doc if he puts how much the borrower made on it?”

Why: NO!!!! As silly as this sounds, borrowers and loan officers alike think that a full doc loan is the equivelent of someone with a professional credential vouching for them. Profit and loss statement, income statement or a bank statement is not going to work on a full doc loan to prove income. A full doc loan means the following and is without exception.

• Last 2 years w2’s and last 2 recent paycheck stubs for wage earning borrowers
• Last 2 years personal tax returns and ALL pages/schedules for self-employed borrowers showing AT LEAST TWO YEARS of self-employed income.
• Cash asset statements showing the necessary down payemnt and or at least 6 months cash reserves depending on the loan program. NOT THE STATEMENT SUMMARY PAGE 1 OF 4. ALL 4 PAGES. THAT MEANS PAGE 1 AND PAGE 2 AND PAGE 3 AND PAGE 4, ASSUMMING THERE ARE FOUR PAGES IN THAT PARTICULAR STATEMENT. “I gave you what I had” is not the answer an underwriter wants to hear. Yes this is a pain for a borrower but it is the only way it works on a full doc loan.

Of course there are other documents that you will need to qualify for a home loan but they are usually trivial documents. The ones listed above are really what get you approved for a loan besides credit scores.

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