Underwriting and Truth….. Part 2
Although it sounds relatively simple, the price we are now paying for the abuses that took place 10+ years ago are those damn HOOPS. Although the computer generated approval, and the specific (Fannie Mae/Freddie Mac/FHA) guidelines are pretty specific about what in needed (leaving very little to ‘underwriter discretion’), it can be pretty intensive. In many cases, to verify income on a salaried borrower, we will need to provide recent pay-stubs (covering the previous 30 days), W2’s (typically for the previous 2 years), tax returns (also covering the previous 2 years), and a verification of employment completed by the employer. We are also required to file a specific form (4506T) with the IRS to verify that the tax returns provided to us by the borrower match the actual tax returns that were filed. AND, if borrower has an occupation (teacher?) for which they are required to sign an annual contract, we are required to provide that as well. That is basically six different types of documentation to verify the SAME PIECE OF INFORMATION. Welcome to mortgage underwriting in 2016.
BUT WAIT- THERE’S MORE! The Patriot Act’s effect on mortgage lending requires that the underwriter carefully examine the assets used to purchase a home, specifically in regard to cash deposits. Although this has been loosened in recent years, depending on the type of loan, typically any deposit larger than 25% of gross monthly income needs to be SOURCED and SEASONED, which is basically a request for an indisputable paper trail. Since cash is basically impossible to source it cannot be used as any part of the down payment for a home purchase. As we know—in the melting pot known as the USA—typically those that have emigrated recently end up with the most labor-intensive jobs: i.e. landscaping, construction, housecleaning, pretty much anything they can do to make it work, and many of them get paid—through no choice of their own—in CASH. A hundred years ago these would have been people from Europe, more recently these may be people from Central and South America… and so yes, a young Hispanic man or woman in some situations would need to jump through more hoops, not as a result of discrimination (it is the same mortgage guidelines that everyone is subject to), but due to societal factors these same guidelines are harder for them to overcome.
Can—and should—this be fixed? There is ALWAYS room for improvement, but let’s not forget back in the 70’s and 80’s there was a HUGE discrepancy found in the mortgage approval rates between whites and minorities. Just like Hillary, politicians of BOTH parties, seeing increased home ownership as a way to strengthen our country economically, pushed HARD for reforms to make it easier for certain socio-economic groups to buy houses and remove those hoops… And they did! Lenders, with support and encouragement from Wall Street developed programs that resulted in MILLIONS AND MILLIONS of Americans achieving the dream of home ownership.
Those programs were called ‘sub-prime’.