The Dreaded LOX

Mortgage and Lending with First Heritage Mortgage NMLS #: 938761

Has one of your clients been asked by his or her lender to write a letter of explanation or LOX?  This underwriter requirment is very common in the world of home financing today, and I find that it has a tendency to stump some borrowers and stall the loan process.

Reasons for a Letter of Explanation

There are so many reasons why an underwriter may request a letter of explanation.  Here are the most common ones I run across:

  • Overdraft on a bank statement
  • Employment gap
  • Bank deposits other than payroll
  • Reasons for a bankruptcy
  • Reasons for lates on revolving or installment debt

Helping Clients Conquer the LOX

I always instruct my clients to be honest and to keep the letter short and sweet.  At my blog, Loan Officer Lately, I've also written a model letter to help clients get started.  It's actually the most popular post I've ever written, so that goes to show you how often people are looking for help when the underwriter requests a letter of explanation.  With a little coaching and guidance, your borrowers/clients will navigate this stage of the loan process with ease and be handed the keys to their new home right on schedule!

For more detailed information on the letter of explanation, be sure to read my full blog post.




Comments (9)

Eric Kodner
Madeline Island Realty - La Pointe, WI
CRS, Madeline Island Realty, LaPointe, WI 54850 -

When I first saw your post on the blogroll, I thought it might be about smoked salmon :)

Seriously, this is an important topic.  Buyers need to refrain from panicking when they receive a request for a letter of explanation.  It's not something that should be viewed as a rejection.

Apr 01, 2014 12:08 PM
Whitney Watson
First Heritage Mortgage - Henrico, VA

So true, Eric.  It can sometimes cause buyers to panic, but it shouldn't.  I try my best to let them know it's a very common practice in this day and age as we are required to document every last detail of their loan transaction.


Apr 01, 2014 12:11 PM
Amanda S. Davidson
Amanda Davidson Real Estate Group Brokered By eXp Realty - Alexandria, VA
Alexandria Virginia Homes For Sale

Whitney, great post. Letters of explanation are not something too worry about but, it takes a good loan officer like yourself to assure borrowers of that. 

Apr 02, 2014 03:39 AM
Whitney Watson
First Heritage Mortgage - Henrico, VA

Thank you for stopping by and for your kind words, Amanda!

Apr 02, 2014 04:21 AM
Suzanne McLaughlin
Sabinske & Associates, Inc. (Albertville, St. Michael) - Saint Michael, MN
Sabinske & Associates, Realtor

This is important information for borrowers, Whitney Watson.  Thank you so much for making this easy!

Apr 02, 2014 04:52 AM
IRMA Beltran
Century 21 M & M and Associates-Turlock homes Real Estate - Turlock, CA
Your Real Estate Agent 4 Life Always there 4 You!

Borrowers, tend to panic over explaining anything. Great information 

Have a Blessed day

Apr 02, 2014 05:51 AM
Ron Marshall
Marshall Enterprises - Saint Michael, MN
Birdhouse Builder Extraordinaire

You have a great way of explaining this horrible occurrence in a the mortgage process, Whitney.  Thanks for making it less intimidating!

Apr 04, 2014 10:56 AM
John Pusa
Berkshire Hathaway Home Services Crest - Glendale, CA
Your All Time Realtor With Exceptional Service

Whitney - This is important information to know about reasons for a Letter of Explanation. Thanks!

Apr 06, 2014 01:38 AM
John G. Johnston
John G. Johnston & Associates, LLC - Westcliffe, CO
An Exclusive Buyer's Agent ~ Westcliffe, CO

Whitney  I see buyers getting frustrated because some underwriter asks for something they have already provided...I try to explain the loan process and the frustration is common to us as agents.  You picked a great subject to blog!  Enjoy your day

Apr 10, 2014 02:24 PM