Very helpful post on the biggest reason for mortgage delays.
Most people, even those in the Real Estate business would probably answer this question by saying Income and Credit issues are the the major reason for mortgage delays. However, they would be wrong. Income and Credit Issues are major reasons why Borrowers are not able to qualify for a Mortgage, but they are not the single biggest reason for mortgage delays once the loan is in process. So What Is The Single Biggest Reason For Mortgage Delays? The single biggest reason for mortgage delays are assets, and more specifically verification of assets.
Despite the recent relaxation of asset verification by Fannie Mae and Freddie Mac, Lenders in many cases are still requiring even small deposits and withdrawals on a bank statement to be documented and verified, if the origin of the deposit or withdrawal cannot be identified on the bank statement. For example, an auto payroll deposit can be easily identified on a bank statement, because it is labeled where it came from, or an online payment which states who it was made to. However, the origin of a cash deposit cannot be be identified on a bank statement, therefore, will need to be documented and verified.
Most people pay their bills online these days, so withdrawals that Borrowers have to explain are usually minimal. But cash deposits are still fairly common, and documentation is normally a problem. Just because the Borrower can identify what the deposit or withdrawal was for, does not mean they can easily provide documentation to support their explanation. When they cannot provide documentation to support their explanation, the solution maybe to not count the deposit into the available funds for Closing, causing the Borrower to be short to Close. Withdrawals on the other hand the Borrower can usually get a receipt, or statement from the creditor who received the payment to prove what the money was used for.
Another common problem with documenting assets is with transfers from one account to another. Why would this be a problem, when the Borrower should just be able to provide a bank statement for the account the money was transferred from? The problem is the Borrower some times is not on the bank account, so now we have a gift situation which will need to be documented. This is required even in the case of married couples with separate bank accounts.
When the documentation is finally provided many times there are missing bank statement pages, or gaps in the bank statement because the Borrower did not go back to the date of the last statement. All of this takes time to document, and Borrowers tend to not show much of a sense of urgency to provide the documentation. Meanwhile the clock is ticking on the date for Mortgage Commitment, everyone is getting testy, and unfortunately this leads to the words no one likes to here, "We Need An Extension".
I try to prepare my Borrowers during the time I Pre-Approve them for a Mortgage, on not only the documentation I will require at the time of the loan, but the documentation I will need to document the documentation. But no matter how much time I spend preparing them, most of the time they do not do what I advice them to do.
Lenders are tough on documentation because of the number of Mortgages Lenders are still required to buy back from Investors, because of insufficient documentation. Lenders can only buy so many loans back before it starts to create a major burden on their Warehouse Credit Line. If that happens it can lead to a Lender not having sufficient funds to fund new loans, and when that happens they are out of business.
So What Is The Single Biggest Reason For Mortgage Delays? Assets and Asset Documentation has been the biggest cause of mortgage delays since at least 2010, and continues to be the major cause of mortgage delays today. Assets and Asset Documentation will most likely continue to be the major cause of mortgage delays into the foreseeable future. So it is important for all of us in the Real Estate Industry to do all we can to prep our Borrowers/Buyers for the documentation needed, and motivate them to provide it as soon as possible.
Info about the author:
George Souto NMLS# 65149 is a Loan Originator 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, #Moodus, #Chester, #Deep River, and #Essex. George can be contacted at (860) 573-1308 or firstname.lastname@example.org