Hello...and Welcome to a Full Doc World!

Over the course of the last couple of months, I have witnessed changes to the lending process that have been more severe than all of the other changes since I have been in the business. This is in part due to fear...but let's face it, this is mostly due to money. When financial entities lose money...things change! When they lose large amounts of money...things change quickly!

I want to introduce you to the new world we live in...The Full Doc World. We as a Mortgage and Real Estate Professionals have a choice to make at this very moment, learn to live in our new world or find another career. You see in a Full Doc World, everything is on the table. Just when you think your done, something else may come up. Is it convenient, NO! Is it reality, YES!  If you choose not to face this reality, you will be doing a great disservice to your clients and yourselves!

Below I have outlined what a Full Doc World really means. Many of the items that I outline below are not going to sound very fair. Please understand that these are not specific to my company, this is an industrywide tsunami that is mowing us down as we sleep! Consider this post as the high rise hotel that may help keep you dry. If there is a broker or bank that is not currently playing by the following rules, they will start VERY SOON! Unfortunately, it may be at the tail end of one of your transactions which may cost you a closing or a client. Prepare yourselves folks because if you thought it was tough before, it is about to get a whole lot tougher!

I myself had to come to a realization recently. This change was going to happen whether I wanted it to happen or not. When I had my epiphany, a great big smile came over my face. I GET IT!...and because I GET IT, I will be better prepared to move forward in this world from here on out. My buyers and the Real Estate Agents that I work with will stand a better chance of getting their transactions closed. Some of these buyers and agents may walk away in the near term, but when their realization comes, they will understand and hopefully come back. Below are the dark and gruesome truths as I am finding them out. Read with caution and understanding...and welcome to The Full Doc World!

Buyer's Income and Asset Documentation:

These are the two most important pieces to a Full Doc loan. Please don't get these confused with the income and asset documentation from 1 year ago or even 3 months ago. A simple Verification of Employment and 1 paystub WILL NOT work in our new world. This documentation is required and must undoubtedly support the buyers income. If there is a discrepancy, the err will be on the side of caution. If a guideline states that overtime income must be supported by twelve months on the job, it needs to be twelve months, not 11 months and 25 days. There are FEW if any income exceptions in this world. For assets, we need to see them and they will be verified. There are no letters of explanations as to why a buyer's name only appeared on the most recent statement or exceptions for reserve accounts being a dollar short. In addition to these unnerving requirements, when these documents are provided to underwriting, EVERYTHING INCLUDED IN THESE DOCUMENTS IS FAIR GAME. Underwriters will not look the other way, if there is a large deposit that they can not identify, it will be conditioned to be explained AND supporting documentation provided.

Stated Income and Reduced Doc Loans:

These loans are all but gone. The FBI has reported that misrepresentation of income has been the most prevalent form of mortgage fraud over the last couple of years. Mortgage Banks and Lenders have seen their stated income portfolios deteriorate in terms of performance. Mortgage Insurance companies will no longer insure stated income loans in Clark County. In a Full Doc World, these loans exist but are rarely used!

Prior to Closing Conditions:

Expect quite a few of these conditions, prepare your buyers that they will be coming. If we catch these items on the front side, the conditions will be fewer on the back side. Before we could "wait to see if the underwriter will request it", now we must expect for it to be a need to close the transaction. If they don't catch it in the beginning, the second set of eyes will catch it in the middle. Should both miss it, rest assured the third, fourth or fifth set of eyes WILL NOT! Does it sound daunting, well it is! Some buyers may feel like they are being "singled out" and are continually being asked for more and more conditions. Please let them know that while they are special, they are not unique! All buyers will be going through the same level of scrutiny that they are.

Appraisals, Inspections, and Re-Inspections:

All are on the table and will be requested. "As is" is not an acceptable answer to an FHA inspector. "We don't do repairs on our foreclosed properties" is the mantra of an asset manager that does not want to sell his clients properties. If there is a safety, security, or collateral issue on the appraisal or any inspection involved in the transaction, expect the underwriter to request it to be corrected. This was not the norm 1 month ago today, but it is the new norm in a Full Doc World!

Closing Times:

What all of these things add up to is increased closing times. Before, 30 days was considered an eternity for a closing to occur. The new reality is that closing will best be determined by the work that Mortgage and Real Estate Professionals do in advance. Docs will be held for the i to be dotted, and funding will be postponed until the t is crossed. In a Full Doc World, don't worry about how quickly you are going to get paid just be grateful that you are receiving a check.

Our positions as Mortgage Professionals have just become astronomically more difficult. Your career as a Real Estate Agent has now become increasingly more dependant on aligning yourself with a true Mortgage Professional. Experience and knowledge will once again be King! Those that choose not to conform WILL FAIL. The ability to successfully identify landmines, hurdles, and challenges before they come to be is the most important factor in closing a successful transaction.  This WILL inevitably separate the best from the rest! Welcome to a Full Doc World!

Rey Gallegos

Mortgage Professional