Changing Rules in the Mortgage Industry

All of us have heard stories from friends and business acquaintances about some of the new difficulties in obtaining financing today for the purchase or refinancing of your home. A few years back we kiddingly would say "If you can fog a mirror, you'll qualify for a loan." Fortunately those days are gone and they probably never should have been here in the first place.

Lenders have tightened up on apparent loopholes and here are a few of them. Every lender will run a credit report on the buyer, usually fairly early in the loan process. In the past, that was the only credit report run. Today, some lenders are "refreshing" your credit reports by running them again just prior to closing. The purpose of this is to make sure that the buyer has not had any new late payments, hasn't run up a credit card bill real high, or the one that we see way too often is they went out and bought a new car. Each of those things can be a major issue with the lender.

Everybody is used to providing copies of their income tax returns to the lender as part of the loan process. Some people would actually turn in bogus income tax returns to make their income appear to be more or perhaps their business expenses less. Previously, in about 2% or 3% of the loan applications, the lender would contact the IRS and ask them to send a transcript or summary of the actual returns to compare with the ones turned in with the loan application.

Verifying a borrowers' employment is another step that is done early in the loan process. Now the lenders are required to call the employer just prior to closing to verify that the person is still gainfully employed. I actually had a buyer client call me on the day of closing, somewhat in bewilderment, thinking that the bank was doing a bad job if the day of closing was the first time they were verifying their employment. I assured them, it was actually the second time. If the person is self-employed, the lender is required to call the CPA or accountant to verify the profitable ongoing business is still being run by the potential borrower.

I spoke with David Fountain at Wells Fargo Home Mortgage here in Durango and asked him if this was overkill or were there really lots of problems before? "Some of this might be overkill, but lenders have to be ever so careful to make sure that the information that they provide to the secondary market is accurate at the time of closing. If somebody lost their job or even retired two days before closing, for most people that would certainly be a material change in someone's financial condition." I asked David if these rules apply with every single transaction or is it a certain percentage of them? "It varies. Let's use the example of the lender requesting a transcript of the income tax return from the IRS. Remember that number used to be 2 or 3% but today that percentage is well over 50%. The employment verification just prior to closing is required for 100% of the files."

Buying real estate is certainly a complex transaction and experienced professionals are certainly an important part of the process. I have worked with David Fountain at Wells Fargo Home Mortgage (970-385-9360) for years and truly appreciate his extremely professional service. Having a good experienced Realtor is also important in all of the brokers on Team Lorenz have that strong experience gained by successfully closing many transactions. If you or your friends are ready to make the move into the Durango real estate market please give us a call and we will hold your hand through the entire process. To take a look at properties for sale please click the following link: Durango Real Estate