When Lenders Talk, Borrowers Listen

A Look at the Changing Mortgage Application

Gone are the days when all you needed to get a mortgage was a solid credit score, enough money in the bank to cover a sizable down payment and earning power to combat the famed debt-to-income ratio. Times have changed and they have changed in a big way.

At one point, people could literally walk right into a mortgage lender’s office, sign their names on a simple form and almost as instantly be deemed a homeowner. Of course after years of hard-learned mistakes and some pretty big lawsuits, lenders are now so cautious that there may even be a form before you can apply for a mortgage. In fact, there is.

The very first thing borrowers are made to do for the most part is to go through a preapproval process. Talking (or filling out a form) about all the factors that make the candidate an ideal one, the lender makes the predetermination as to whether this is a viable candidate to consider lending to. How do they do that? Quite simply, a loan officer or mortgage professional tasked to “screen” whether or not you fit the bill as a borrower will ask you some questions and then confirm whether your answers can be vindicated.

In fact, the entire process of mortgage applications has switched gears toward whether or not a person can justify their eligibility as a viable candidate (and healthy borrower). It’s done through intensely scrutinized and highly detailed documentation.

Recent loan applicants will tell you that they have had to endure the most rigorous checking, double-checking – and sometimes even triple checking of the information they provided to their loan officers. It has all come down to one ultimate goal as far as lenders are concerned and it centers on making sure every possible i is dotted and t crossed.

What does all this mean really? And why hadn’t borrowers faced this type of focused scrutiny prior to the late 2000s? Going back to the time when our mortgage market crashed, most consumers were hit hard because of plummeting housing values. That extreme dip in values was a result of a serious oversight on a mass number of erroneous mortgages delivered leading up to when the housing bubble burst. The history of why those bad apples came to the surface lies in the changing face of mortgage delinquencies as they noticeably began to rise in number, inflicting many markets across the nation.

The country’s biggest mortgage insurers learned of fraudulent practices taking place over the years, resulting from inaccurate representations of borrowers’ capacity to really “make good” on those loans. Fannie Mae and Freddie Mac ended up making mortgage businesses buy back these loans, ultimately causing most small and medium mortgage businesses to close their doors for good.

Fast-forward to today and the apparent ripple effect of holding those responsible accountable has touched upon every mortgage application in the system, regardless of the size of establishment providing the loan. Lenders are operating under the notion that as long as a loan’s file is perfect, not much can go wrong. It seems that the most important aspect of underwriting a loan is to ensure that everything possible under the sun is done to make sure it does not pose a threat to the lender as a potential loss.

What can borrowers do to make this process easier? The answer is simple. Give lenders what they want. If they are requesting tax records that date back further than you can remember, make those tax records available. If there is a question as to how much money was in the bank and what source the money came from, clarify it. If your loan officer wants to know why there was an income gap from 1997-1999, show them little Johnny’s birth certificate.

In a nutshell, do what you have to do to make sure all those i’s are dotted and every single t is crossed. Once you have accepted that it’s the only way to find true mortgage obtaining success, things will only get easier.