We have all watched and been affected by the rapidly changing landscape of lending over the last two years. Sometimes, the new restrictions and precautions can be maddening and sometimes, they are just laughable. More than once in the last two years, I have heard this statement come out of a buyer’s mouth, “Why does the lender need that information? It has nothing to do with the loan.” In most cases, that buyer is correct. The requests that come from the lender (more importantly, underwriters) have gotten more bizarre with each passing day and usually, they have nothing to do with the loan or the buyer’s credit worthiness. Here is a fine example.
A buyer had an 800-plus credit score, made well into the six figures, had no debt, and was placing 20% down payment on a moderately-priced home. The appraiser noted that the house had a breezeway between the home and a detached two-car garage. At some point, the breezeway was enclosed. The underwriter saw these notes and requested that a permit be added to the file, showing that a “permit” was pulled with the county for the breezeway enclosure construction. In fact, the underwriter would decline the loan if they could not produce a permit showing that the construction was legal and conforming. The problem was that the enclosure was completed two sellers ago. The current seller didn’t do the construction nor did the previous seller. So what did they do? The current seller went down to the county and thankfully found a permit that was pulled for the breezeway back in 1973, and was able to produce the permit to close the deal.
What did the permit have to do with this guy’s ability to pay back the loan? Answer: Absolutely nothing! You see, we are living in a paranoid state of lending. Every underwriter in this country is worried about approving a loan and maybe missing something. Missing something to the extent that the loan eventually goes in default, thereby reflecting badly (or termination for that matter) on the lender and the underwriter that approved it.
What’s the take home message here? Bizarre, weird, outrageous and yes, sometimes stupid requests for documentation from lenders will not end anytime soon. In fact, it may get even worse. I have started telling my buyers not to be surprised if the lender calls two days before closing and says, “We need you to bring a purple cow to closing to make this deal fly.” So be prepared for what the lender may ask from you to close your loan… it may just be a purple cow.
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