Dear Mr. Homebuyer,
Please be advised that your closing could be delayed. Stated income/stated asset and no doc loans are no longer available. This means that I am going to verify everything. Once everything is verified, I am going to do it again before closing.
If you tell me that you have been at your job for two years and I find out that it has really been one year and nine months, your closing could be delayed. If you say that you make $40,000 per year and I find out that $10,000 of that is from a part time Mary Kay business, your loan closing could be delayed. If you fail to tell me about that Mary Kay® business and you actually report a loss on your tax return, I will find out and your closing could be delayed.
If you change jobs or even put in a notice to quit prior to close, I will find out and your closing could be delayed. I am going to pull your credit at the time of application and then again right before closing. If you have purchased a new car, charged up your credit card or took advantage of a 10% discount at the Gap by applying for a credit card, your closing could be delayed. I am going to get a transcript of your tax return directly from the IRS so if you haven’t filed your tax return like you say you have, your closing could be delayed.
I am going to verify every penny you have to bring to closing. If you have large deposits in your bank account or plan on using cash or depositing large sums of cash, your closing could be delayed. If your loan amount or interest rate changes or anything from your original application changes from what was originally disclosed, your loan closing could be delayed.
Warmest regards,
John Q Loan Officer
Any Bank USA
The mortgage industry is rapidly evolving and constantly in the cross hairs of politicians and regulators. New rules and regulations are introduced almost daily which, at times, creates unexpected challenges and delays. Some of the more recent changes are having a greater impact on a banks ability to close on time.
First, Fannie Mae has introduced a new loan quality initiative which states that originating banks are responsible for a borrower’s undisclosed debts. As a manger of a mortgage division who originates loans and studies compliance, I find that statement rather confusing since the very nature of an undisclosed debt is that it’s undisclosed. Since there is no fool proof way to protect against this new “quality initiative,” most – if not all – banks are re-pulling credit prior to closing.
As you might guess, many people use or apply for credit between the time of application and the time of closing. If a borrower uses credit and increases their monthly debt load, they may have to re-qualify for the loan. New credit inquiries may have to be checked to make sure there are no new lines of credit established. These issues cause delays.
Another new policy is that banks must request a tax transcript for every borrower whether we have the actual return or not. The tax transcript is a quick snapshot of the borrower’s last tax return. These come directly from the IRS. The IRS is many things but fast is not one of them. They are also lacking in the communication department. If the borrower’s name and address does not match exactly to their last tax return, the request for the transcript is rejected and we are not notified as to the reason why. We then have to wait for the borrower to receive a letter from the IRS that states the reason why the transcript was rejected – or start guessing the reason why – and re-order the transcript in hopes that it arrives before closing. My experience is that the transcripts usually arrive without incident but there are many opportunities for delays.
Now let’s say that our transcript arrives on time. While reviewing the transcript we notice that our borrower, who stated on the application that they have one job and are paid a salary, is showing a Schedule C loss. Schedule C is the section of the tax return that reports self employment income or loss. We call our borrower to inquire about why they are showing a business loss and they inform us that they have a Mary Kay business on the side and write off a lot of expenses.
Now we all know that this is a great tool for lowering our taxes and that a loss on a tax return may not reflect an actual loss, but guess what? As a lender, we have to consider that loss and deduct it from their income. Lowering their income requires re-underwriting which causes delays and sometimes a loan denial at the last minute.
I’m not writing this to scare you or make you feel as if it’s impossible to get a loan closed. My hopes are to share with you what’s happening so you will understand there is a lot going on behind the scenes and in many cases it’s happening last minute and may contribute to loan closing delays. Lenders, Realtors, buyers and sellers are feeling the impact of these changes across the country. We will continue to experience more rules, regulations and changes to our industry and must adapt and work together to provide a pleasant experience for those that matter the most; the buyer and seller.
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