The mortgage lending industry has gone through a transformation over the last few years, to put it mildly. In many ways the clock has been turned back. Do you remember the days when there was no such thing as stated income loans? Do you remember the days when just having a good credit score was not enough? I do.
When I began my career in the mortgage industry more than 20 years ago, we required applicants to prove their income and document their assets. Actually, I remember we used to request ORIGINALS of all loan documentation, a copy was not acceptable.
Then, home loan guidelines began to loosen up and before we knew it, if an applicant had a decent credit score, home financing was as good as guaranteed, no loan documentation needed. That was the beginning of our industry’s downfall.
Now, the media perpetuates the idea that almost no one can meet the current underwriting guidelines and that obtaining a mortgage approval is close to impossible. That is simply not true.
We have returned to the days of old. We may no longer request originals of all loan documentation, but you bet we are going to verify every aspect of the mortgage application and back up loan documentation. This change has been one that has been difficult not just for mortgage consumers, but also Real Estate professionals, and frankly, some mortgage professionals as well.
I can’t tell you how often I receive incomplete loan documentation from an applicant only to hear things like- “what I gave you should work”, “why do you need to see the other pages of my bank statement or (insert any multipage document), the first page should be enough”.
This resistance to provide all the requested mortgage loan documentation is what turns the process into a long, drawn out and frustrating experience
So why is so much loan documentation needed for a mortgage application? A recent article posted on Forbes.com titled“The Perfect Loan File” addresses that very question. I highly encourage consumers and Real Estate professionals to read that article. I think you will come away with a better understanding of the method behind the madness. A lender doesn’t request loan documentation simply to make the process more difficult
Short answer: complete loan documenation is needed because we need to verify, confirm and validate that every applicant has the means and ability to repay the loan that they are applying for.
The sooner that consumers embrace the “new” process and comply with providing the requested loan documentation, the more efficient and less painful it will become for everyone involved.