There Is No Assuming In Lending

There Is No Assuming In Lending, it is document, document, and then document some more.  Assuming has always had a way of coming back to bit us. 

We have all heard of what the word ASSUME stands for when we break the word apart.  When you ASS-U-ME you make an ASS out of U and out of ME.  I do a great job of doing that to myself, so I don't need any help form anyone else in doing that.  What I do need help with is in eliminating all assuming out of every transaction that I do.

The assuming that gets most people in trouble is assuming what on the surface appears to be obvious.  The problem with that is what appears to be obvious to us may not be obvious to someone else.  This is particularly true in a Mortgage Transaction.  Underwriters  don't have the background information that those of us who have a more personal relationship with a Buyer/Borrower have.   All they see, and base their decisions on is the paperwork in front of them.  To an Underwriter it is all about black and white, there is not gray.  So those things that are obvious to us because we have far more involvement with our Buyers/Borrowers, are not obvious to them.  The result is in all those frustrating questions that Underwriters ask, especially the additional documentation they ask for to prove what is so obvious to ther rest of us.

Let me give a couple of examples.  I did a loan for a couple who went under contract on a house just before they got married, and the Closing scheduled for went they got back from their honeymoon. They planed on using money that they would be receiving from guests attending the wedding.  Receiving monetary gifts at a wedding is not only normal, it is expected.  So they ASSUMED that it would be obvious to everyone, that since the deposit for the money that they would be receiving would be within a couple of days after the wedding, that money came from the wedding. Seems logical enough right ...... wrong. 

If that deposit is made, and it shows up on the bank statement, it needs to be documented, and all the money sourced.  That means copies of all the checks, and possibly gift letters for everyone.  That could be a nightmare that was created out of an assumption, that it is obvious where the money came from and the purpose.  A copy of a marriage certificate, wedding invitations, and wedding pictures is not good enough.

Another Example of not being able to ASSUME what a Borrower may consider obvious would be a Homeowner who wants to refinance his/her property, but all their mail is sent to a different address, or a PO Box.  Even their Tax Returns, W2's, License, and Paystubs have a different address on them.  There are lots of reasons why the Homeowner would do this.  The Homeowner may be in the Military and could be deployed quickly, so they use a different address, for example their parents address, so that their mail is not going to a vacant property.  Another reason would be that the Homeowner is a frequent traveler, and does not want their mail held at the Post Office when they travel, or do not want to constantly do a change of address for the mail to be delivered at a trusted address. There could be a number of reasons, and each reason makes sense to the Homeowner.  In in their mind why would anyone question if they are living in the property that they want to refinance?  It is obvious to the Homeowner that they live in the property, but the Underwriter cannot make that assumption.  All the documentation that the Underwriter is looking at, indicates that the Homeowner lives somewhere else.  Based on the documentations that has been presented, the property is an investment property, and not the Homeowners primary residence.

To the Homeowner the Underwriter may seem unreasonable, may be even a little bananas.  But the Underwriter is just following the underwriting guidelines that she/he has to follow.  The Underwriter cannot underwrite on assumptions that others think are obvious, the Underwriter has to underwrite according to what the documentation states.

There are several other examples that I could use, but I think these two examples get the point across that There Is No Assuming In Lending, everything has to be documented no matter how obvious that situation may seem.  If the Lender/Underwriter does not document everything in a loan transaction, the Lender could find themselves with a loan that they cannot sell later on.  If a Lender has enough of those loans they will soon find themselves out of business.

There Is No Assuming In Lending, so documenting, and documenting, and then documenting some more is here to stay for a very long time.  We need to come to that realization, or continue to be frustrated over and over again.

 

*******************************************************************************

 Info about the author:

George Souto is a Loan Officer who can assist you with all your FHA, CHFA, and Conventional mortgage needs in Connecticut. George resides in Middlesex County which includes Middletown, Middlefield, Durham, Cromwell, Portland, Higganum, Haddam, East Haddam, Chester, Deep River, and Essex. George can be contacted at (860) 573-1308 or gsouto@mccuemortgage.com