We hear a lot these days and read a lot in sales books about "the customer is always right". While I believe that is true from a customer service standpoint, it certainly doesn't transcend to mortgage guidelines.

I lost a deal this week. This is very rare for me. I have been doing loans for over five years and I have never had a buyer walk away simply because they were upset about the mortgage guidelines or because they refused to cooperate with the rules. I've had buyers walk away for things totally out of our control. The deals I have lost included:

1. A buyer's grandpa recently decided to buy her a house with cash! Good for her! Can't compete with that one.
2. A deal fell apart a couple years ago because the house was in probate and sellers couldn't agree on price or who had rights to sell after a purchase agreement was already signed.
3. A buyer was buying a HUD home and had an epiphany while waiting for the lead abatement that the home was a money pit and that it wasn't a good decision. Good for him that he had this "a-ha" before he closed!

But never have I had someone who outright just wouldn't tolerate or cooperate with the mortgage guidelines.

This young woman was buying a "flip" FHA. She needed 3.5% into the transaction. The seller was paying all closing costs. When she came in for her application, she had the 3.5% saved in her checking account. She never indicated she would be using a gift or retirement funds for down payment.

I have buyers sign a "Do's and Don'ts" document (http://activerain.com/blogsview/917658/top-dos-and-don-ts-in-the-mortgage-process-). This spells out that the buyer should call prior to making unusual large deposits! After this experience, I have instructed my processors to add a line to that document that states "unusual deposit is any deposit over $50 that is not obvious from payroll".

All loan types that require a down payment require that we prove where the down payment came from and that the "giftor" had sufficient funds to gift. In this young woman's situation it appears she spent her down payment. So, she decided, without telling us, to use retirement funds. So, we needed proof that she got the money from retirement. She also got a gift for almost $500 from her brother. She said she had "lent" him the money and he paid her back. So, in her mind, it appears she felt it wasn't a gift. But that isn't how underwriters would see this- unless we could trace the money she originally gave him, then we'd have to have him fill out a gift letter and prove he could gift money to her.

The FHA guidelines say that the 3.5% down payment can come from:

• Buyer
• Gift of a relative, friend, or a grant program
• Employer

And the guide also says we must prove they could gift.

It's kind of that old adage, "don't shoot the messenger". I had an underwriter once say, "I don't write the mortgage guidelines, I just read the regs." Good point!

Sometimes people get frustrated, and it's our job to try to teach them the logic. What I learned in my loan officer classes was that ultimately, the reason we have to prove where down payment came from was that the government can seize a home if they believe it's a drug house. And then the buyer could get foreclosed. This might be extreme, but let's face it, an underwriter's job is to see the worst case scenario. If a person can't prove where the money came from then the underwriters will wonder what they are hiding. And with the collapse of the housing market, I say, who can blame them. The banks want to be sure that a buyer isn't obligated to repay gifts, so they want to be sure that the giftor was appropriate, i.e.- a relative and that they could gift the money.  

 It's unfortunate, but in an effort to prevent this in the future, I thought I'd write about it.