Are All Underwriters the same?? What should you do if you get DENIED. This is the fear everyone who applies for a mortgage has. You read and hear the horror stories.
If you get denied for a loan what is your recourse? The answer depends on what type of lender you have applied for your loan with.
If you had applied with a Mortgage Broker, your broker will most probably submit your file to a different Lender, to try to get your loan approved. Remember, a Broker is a “third Part lender,” which means they structure and put the loan file together, but don’t make the decision; instead, they send the file to a bank that will ultimately make the decision to approve or deny a loan.
If you’d applied with a bank, a major bank, if you get denied, that is it. The large banks put you through there process and it is one-tracked. If the loan gets denied, they move on to the next file. There is usually no or very little recourse.
A correspondent mortgage lender is a lender like First Meridian. Our bank, like the large “major” banks, underwrites itself. So, ultimately it is our decision. If our underwriter denies a loan, and the loan officer feels the file has merit, the file goes to a credit committee where the merits of the file are discussed along with the risks that concern the underwriter. We then have the choice to bring in additional documentation so that the issues that were raised can be addressed. Ultimately, if our underwriter really has an issue with the loan, but the credit committee feels there is some merit to the file, we will send the file to another underwriter, either within our company or a contract underwriting service for a second opinion. If the file gets approved, we will close the loan.
Sometimes, the reason why a file is denied is because the file is missing an important element. An example: A mortgage loan that I closed for a client, who had been with a mortgage broker for 3 months and the file was denied by 3 of their banks. The client came to me distraught and desperate to get a mortgage and close on this home. I reviewed the entire file. The main reason that I found that the file was denied, was it was put together in a sloppy manner. The file was missing pages of bank statements; large deposits and inconsistencies were not explained. The main problem was the occupancy. The clients were moving from, what seemed to an underwriter, an equal house but on the other side of town, and the underwriter just didn’t believe that they were moving. I went through the file, and addressed every inconsistency. We backed up everything with solid documentation. We asked the client to write a detailed motivation letter explaining the move. The client did all that we asked. My underwriter had NO problem with believing the occupancy, but she was concerned about other issues in the file, which we promptly addressed. We closed the file.
Another reason why a file is denied is because different lenders have different guidelines regarding “layers of risk”. An example is a client that we closed 2 weeks ago. A large bank denied the file because of her “student loan payments.” These were deferred loans that the woman had co-signed for her son. We do have to count deferred payments in our income/debt ratios. We called the student loan company with the client and got the minimum payments that would be due. This was an investment property purchase. We have investors that qualify clients using rental income, even for a first time investment purchaser, like our borrower. We closed. Her previous bank did not use rental income to qualify the loan, which was why she was initially denied.
So are all underwriters the same? The answer is NO. An underwriter doesn’t just “validate “ the file, making sure all the points required to close the loan are properly documented; an underwriter also has to look at the file from an objective point of view and weigh the layers of risk on every file. Different underwriters weigh different issues differently.
So if you get denied, what should you do? It depends. If you are with a major bank, apply a second time with a different lending institution. If you are with a correspondent lender or mortgage broker, find out the reason for the denial and see if you can correct the problem. Many times something in your file was not structured properly. Once the item in question is addressed, very possibly, you can reverse that denial into a successful mortgage closing.
If you have any questions regarding any mortgage issue, contact Ann Zeilingold,Lic# 41850, Branch Manager of First Meridian Mortgage Corp. Licensed Mortgage Banker NY, NJ, CT, banking departments. 1609 Route 202, Pomona NY 10970. 845-354-9700 or email@example.com or www.annzeilingold.com
It came to my attention recently that it appears many folks possibly aren’t being taught properly what you, as the borrower should, and more importantly, should NOT be doing, before, during and after the mortgage application process. Here’s some important information with regard to potential fraud on a mortgage application.
It’s important for borrowers to understand that any change they make to their current credit, financial, or employment picture could have a negative effect on their ability to secure the financing they are seeking. I’m sure the last thing that any borrower wants to hear, several weeks into the lending process, that their loan was declined due to lending policies and protocol they weren’t even aware of.
In light of this, and hoping to save anguish and grief to those seeking to obtain a new mortgage loan, and want to avoid any potential fraud with regard to the mortgage application, I’d like to offer the following example:
I recently spoke with a potential client who was unable to secure financing with the lender she had been working with for the past few months because her employment status had changed. Just weeks before the closing on the purchase, the borrower had gone from being a salaried wage earner, to being self-employed. You may ask yourself, “So, what’s the big deal? If there’s still a job, why can’t the bank still lend the money?” The answer to that may not be as simple as one would think.
In this case, the client remained in the same line of work. So simple, right? Actually, it’s not so simple. The rule of thumb when lending to a self-employed individual is that the lender evaluates two years worth of tax returns in order to determine income eligibility. So, in this case, because this client just recently became self-employed, there aren’t tax returns available to determine that newly self-employed earnings even exist. Again, you may ask yourself “I don’t understand the problem. If the client is in the same line of work, and they’ve been doing that job for a significant period of time, why won’t the bank lend the money?”
Here’s an example: Suppose that you’re a baker for a local grocery store in their bakery department. At the beginning of your loan application you provided your mortgage lender with current paycheck stubs and your W-2′s for the previous two years. Sometime during the mortgage approval process you think to yourself, “heck, I’m one of the best bakers here at the bakery, I bet I can make more money selling my cakes and cookies on my own rather than just working for the bakery department!” While you may be the best cookie and cake baker out there, merely having the skills to bake a cake, doesn’t necessarily mean one has the ability to run their own business. There are licensing requirements, food safety and health issues, and all of those things would currently be on the shoulders of the grocery store. That is their liability issue, not yours as the employee. So, from a lender’s point of view, they have no way of knowing or verifying how well this business is going to succeed, since there is no documented history of it. Make sense?
So, after the potential client understood the “why” obtaining financing would be most impossible due to the newly self-employed status, the client gave me reason to believe (verbal information provided over the phone) that documents could in essence be “manipulated” to indicate they were still salaried. The client wanted no one to be the wiser they were really self-employed.
So, several problems occurred because of this. Falsifying of any credit documents or providing misleading or false information on the mortgage application can be flagged as fraud. Regular pre-closing and post-closing audits are conducted on mortgage files. Should an audit determine fraud on the mortgage application was involved, not only could the lender call the note “due and payable”, but parties involved in the transaction could face prosecution.
The fastest growing fraud in today’s mortgage industry is Occupancy Fraud. The rates and terms are more attractive on a primary residence over an investment purchase. Consumers should be aware of that many lending and bank institutions’ employees are required to report any suspicious activity through the SAR (Suspicious Activity Report) or similar, reporting system.
I believe it’s the goal of all lending institutions and their employees to make the mortgage process as easy and seamless for all parties involved, and I believe the best way to achieve that is for the borrower to be educated in what’s involved. In addition, it’s important for the lending professional to successfully coach their clients as to potential pitfalls that may occur during the process, or even after the transaction has closed.
If you have any questions regarding any mortgage issue, contact Ann Zeilingold, Branch Manager of First Meridian Mortgage Corp. Licensed Mortgage Banker NY, NJ, CT, banking departments. 1609 Route 202, Pomona NY 10970. 845-354-9700 or firstname.lastname@example.org. www.annzeilingold.com