In the good old days, if you had a credit score of 700 or better, you qualified for 100 percent financing when you bought a house. Countrywide in their heyday (before Bank of America had to bail them out) had a mortgage program called “Fast & Easy,”which was literally just that. All you needed was a verification of employment letter from your employer (VOE) instead of tax returns and a verification of deposit letter from your bank (VOD) instead of bank statements.
The two documents were second in importance only to your credit history. The VOE showed your ability to qualify for a mortgage, and the VOD showed your ability to have saved enough money for a down payment and closing costs. Your credit history, of course, indicated that you were responsible in paying your bills in a timely manner.
Since anyone could, and did, complete these letters with whatever information they felt would help them qualify for a mortgage; you can imagine how these loopholes added to the collapse of the housing market.
So now we have gone from the old “Fast & Easy” to what I call “Slow & Treacherous.” In addition to a VOE from your employer (which is still needed), we also require copies of your last two years’ tax returns and your most recent 30 days of pay stubs. When all of that is submitted, the bank or the mortgage broker contacts the IRS and requests a transcript (4506-T) to confirm the accuracy of the paperwork. This leaves no room for error. The same process is also followed with your bank accounts, driver’s license, passport, property appraisal, title report, contract of sale, and so on.
The word on the street that banks are not lending is totally untrue. What they are doing is triple proofing every document they get. So the paper reduction act has gone out the window, but the new process works.
So that’s the “slow” part of the program. The “treacherous” part takes place during the process of proofing, when a number of things can happen. First, the borrower gets tired of constantly being asked for additional paperwork. The underwriter at the bank gets tired of waiting for it. Delays cause documents to expire, which will lead to the request for more updates and more delays. The seller panics and refuses to grant an extension of the contract. And everyone involved, from the buyer to the seller, the underwriter, realtor, title agent, attorney, and so on, gets tired of the whole thing, and in many case, the deal falls apart.
There are ways, however, to prevent this from happening. First of all, the borrower should understand that bank statements are good for 30 days, as are pay stubs. An appraisal is good for 120 days, and a credit report is good for 90 days. Most contracts of sale are good for 45 days. Keep careful notes of what you need to collect, the dates of each, and the dates each will no longer be valid.
In the past the Mortgage Broker earned their income by charging the Borrower a fee, now the Lender pays that fee to the Mortgage Broker. The Mortgage Broker deals with lenders on a wholesale basis and handles the complete application from A to Z. As a result of this process the Mortgage Broker can match the high street Banks with the rate and closing costs.
Brokers know from the onset what the lender wants and they know how to dot the I’s and cross the T’s. So when the underwriter gets the application, it’s a complete package right from the beginning.
For any additional information, or questions regarding other subject matter, contact Sean O’Sullivan at Arlington Financial. Phone: 914-793-1122, email: Info@ArlingtonFinancial.com