I don't see it often, but occasionally I'll run across a real smart guy. Someone who knows the in's and out's of the lending business, so much that they try to outsmart the system. There are certainly more than enough stories about loan fraud, but most often those stories involve an unscrupulous loan officer and a mortgage company. Not this time. This time it was about a mortgage company and a potential home buyer. And the loan officer was me. Only the name was changed to protect the potentially guilty.
During the standard processing of a mortgage file, when income, credit and asset documentation is collected and verified, sometimes things take longer than others. For instance, I can run a credit report on someone in literally about ten seconds. Or a loan applicant can email their most recent bank statements.
Other times however, the loan applicant simply doesn't have all his stuff together when he's supposed to. In fact, usually that's the rule rather than the exception. Most loans require a good bit of paperwork, mostly in the form of documentation. Face it, lenders ask for a lot of stuff.
A conversation goes, "Mrs. Borrower, we'll need your 3 most recent bank statements showing enough money to close on your new home." And the response is often, "Well, I have two months, but I'll have to look for the third one" or something similar.
Fair enough and easily understood. But sometimes the borrower doesn't have what the lender is asking for or is trying to figure out a way to get around the request.
I recently had some borrowers referred to me from out of state. They were buying a new home here in Texas and needed some guidance. They were moving back to Texas. We spoke, they told me that their offer had been accepted and they needed to get financing. So far, so good, right? They wanted to apply right away so I directed them to my website.
A few days later, the application came through. I printed it off, reviewed it and saw that everything looked okay. Except for one thing, their employment. They listed their income as coming from their current jobs on the West Coast. So I called them.
"Hey, this is David. I noticed you put your current employers on your loan application. Are you both being transferred here by your company?" I asked.
"No, actually we don't yet have jobs in Texas yet, but we'll find one fairly fast" he replied. "And we also don't want to put any money down. We have money, we just don't want to use it."
"Well, the lender will want to use income from your job here in Texas, they can't use the income from a job you'll no longer be working at and, yes, I can locate some zero down options for you."
"That's okay," he said, "we're not moving out there until next Summer anyway so that will give us plenty of time."
"That brings up another topic then, I can't make this your primary residence. I'll have to be a second home at minimum or an investment property which might be more likely. That will increase your rate a little bit, maybe about .5 percent or so. Is that okay?" I asked.
"Sure, that's fine, do what you need to do," he answered.
I then spoke to them about the documentation we'll need, such as bank statements, pay stubs and so on. I then ran their credit report and saw a couple of bankruptcies. Apparently they had both filed for Chapter 7 separately while they were still unmarried. There were also several late payments in addition to the bankruptcy filings, knocking down their credit scores.
I call the borrower, "Hi, this is David again. I'm afraid my zero down options aren't going to be as attractive as I thought, there appears to be a couple of bankruptcies on your credit report that are keeping our scores down. I'll need to have some down payment money to offset that if you want."
"Okay, I've got 5 percent down in the bank" he responded. "It will be on the bank statements that I sent you."
I asked, "And we're not seeing a mortgage on your credit report, but you checked that you've owned property before on the application. Do you own a property free and clear?"
"No, I must have checked that box by mistake, we've never owned a home before."
"Okay, we can still work with that. Fax me the statements and give me the name and phone number of your landlord so we can get a rental history on you."
"Uh, well, my landlord and I don't really get along all that well. He might not provide you with a good history." he explained. "But we've always been on time."
"Fair enough," I said, "We can get copies of cancelled rent checks showing timely payment."
So I waited a few days for a response, then one day I got a bank statement with, sure enough, enough money for 5 percent down but it was in one big chunk. An underwriter will want to know where that came from. So I called again.
"Hi, David here. Thanks for your bank statements. I see a large deposit of $11,000, did you transfer that from another account?"
"No, I actually had that at home," he said.
"$11,000? In cash?" I asked.
"No, I meant that I had a check at home that I had at home."
"From where? Another account?"
"Yes. Well actually, from my and my mother in law's account."
"Is your name on the statement from your mother in law's account?" I asked.
"Yes. Or no, maybe it's not," he said. "But I have a Gift Letter."
So the guy all along didn't have any down payment money on his own so he got a gift. No problem, it's just that that gift wouldn't be enough to match down payment, closing costs and cash reserve requirements. He was short another $10,000.
After a few more days, the listing agent called me and asked how things were going.
"Kinda slow, actually. Feels like I'm pulling someone's teeth here. But I'll track them down again."
I finally got hold of the buyer and asked if he had gotten the cancelled checks and he said that he sometimes paid in cash and the mean old landlord never game him a receipt. I told him to just give me the contact information and we could probably get it from him.
After a few days he called us back and said he found the contact information on his landlord but could we send the rental verification form directly to him so he could hand deliver it to the landlord. Yeah, that'll happen.
I said, "Look, I can't get you approved based upon what I've been able to see. We don't have enough money to close, our scores are too low for my best zero down options and we can't get a rental history."
"That's okay, go ahead and cancel my application. Somebody else has already approved me," he said.
"Okay, sorry we couldn't help." Everytime I peeled back another layer on this guy something else showed up. And I had no other answer for the Realtor other than, "I'm sorry, the borrower withdrew."
Is there some loan officer out there who will bend the rules a little bit to get this guy approved? Probably. But this ain't my first rodeo. And I don't intend it to be my last by trying to get a loan like this one through the system.
