In Part 1, I discussed the trials and tribulations of trying to buy and/or sell a condo in a complex where the homeowners association (HOA) is in severe financial and legal distress and how underwriting a mortgage loan package doesn't have to be this top secret process shrouded in mystery that no one but underwriters and MLO's are privy to.
While there may be a lot of lenders and even MLO's who may want you (Realtors & borrowers) to think that you aren't allowed to know what really goes on "in underwriter", I'm not one of those people.
I think it's our (MLO's) responsibility to inform our borrowers about what is going on with their loan application at all times. Furthermore, we're doing our clients, their agents as well as everyone else in the transaction a disservice by not educating them about the underwriting process as well as lender guidelines.
In my continuing effort to pull back the curtain on the underwriting process, in Part 2, I want to illustrate how verifying a buyer's employment can also cause hiccups along the way to the closing table.
The days of just stating where you work and how much you make with no verification are long gone. Working with borrowers who have long standing, stable employment with a small, local employer where we're usually dealing with a manager and/or supervisor or a human resources staff member is relatively simple and neat.
Issues with verifying a borrower's employment typically come up when dealing with a) third party verifications, b) multiple employers or c) employment gaps.
THIRD PARTY VERIFICATIONS: These are services that many large, national, foreign and/or government employers use to conduct employment verifications for their employees. The challenge of working with these organizations is that they usually don't provide enough info to complete a standard verification of employment (VOE) form and thus does not enable the lender to make a full assessment of the borrower.
What we (MLO's & lenders) look for in a VOE are employment dates, position, rate of pay as well as a breakdown of earnings (regular pay, overtime, bonus, etc...). We also want to know the likelihood of continuing employment.
Third party verifications often lack a thorough assessment of the employee's employment history. Moreover, with so many lenders now requiring a verbal VOE prior to docs or funding, not being able to get a verbal verification poses more risks to the lender and their investor because third party verifiers never do verbal VOE's - EVER!
MULTIPLE EMPLOYERS: In today's current employment market, multiple employers are becoming very much a reality with so many individuals taking on second jobs as well as new jobs. Furthermore, multiple employers are very common with independent contractors/consultants who may work for several employers at a time for various projects or for a specified period of time.
These employees may earn a different rate of pay for each employer creating even more challenges in determining an average income. Additionally, since they may have only been hired for a specified project and/or period of time, their continued employment with a particular employer may not be as secure as someone who is a regular employee.
EMPLOYMENT GAPS: Once again, today's current employment market has been very challenging on many individuals and having employment gaps is very common. Additionally, while unemployment benefits are a blessing to get us through a rough patch, they're doing borrowers no favors during a loan transaction. However, the ability to explain employment gaps so as not to jeopardize the loan transaction can get complicated.
While it's still possible to purchase a home if a borrower has one, all or any combination of these scenarios, there will be some hoops the borrower will have to jump through before getting to the closing table and this will most certainly require some additional documentation. This is where working with an experienced and diligent MLO will be absolutely vital because much of this can be addressed and resolved without delays to closing escrow.
However, having said that, some of these things will invariably hang up the process and when that does happen, some patience, understanding and cooperation from all parties would be greatly appreciated. What we (MLO's) don't need are a bunch of whiny, belligerent, agents hammering us about screwing up the entire transaction. SERIOUSLY?
Stay tuned for part 3 where I discuss some of the facts and fiction of getting an FHA loan.
UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 1
UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 3
UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 4
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
Donne Knudsen
Realtor® - CalState Realty Services
DRE#: 01364050 / NMLS#: 249822
805.2069123
Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance
Los Angeles County -- Ventura County
© 2010 - All Rights Reserved
And here I thought they shook up chicken bones and dropped them out of a back, springled them with goats blood, then read the Tea Leaves. Sorry, that is a credit rating.
Gene - LOL Now, credit reports are a whole other matter because they do vary from lender to lender. Furthermore, they can be a little mysterious simply because the bureaus want it that way. They don't want anyone, least of all MLO's, figuring out their insane complicated scoring nonsense methods. They would prefer to keep everyone in the dark.
Unfortunately for them (the bureaus), there are many smart and savvy MLO's who have learned the hard way of what consumers should and should not do when trying to clean up their credit report.
Thanks again for this explanation. I am getting wiser by the day.
Great explanations for that buyer who likes all the detail. I love detail and can roll around in it all day, so I would love this as a buyer. Definitely an improvement on slaughtering the goat and reading the entrails.
I'll bookmark this for future use, thanks.
Jane - I'm glad you liked it. I hope that it helps clear up a few things about what can cause delays in the underwriting process.
Leslie - I'm pretty detail oriented too. Good thing too since this job is all about the details. The bummer is that so many people that I work with aren't interested in the details. The thing is that it's the details that can often hang up a transaction.
I understand a lot can happen in underwriting and that delays are inevitable. It's difficult to always accurate predict what types of items an underwriter might call for prior to docs or as funding conditions but give me a break on something so simple as a tax return. I've had mortgage brokers forget to get a tax return, for example, and then that item comes up in underwriting, causing delays that should never have happened in the first place. However, I doubt that you would ever forget such a detail!
Elizabeth - LOL I can most certainly relate to the frustrations of agents for things that seem really silly. For example, all of the things I mentioned here can cause a delay in the transaction if the MLO didn't do their due diligence. Don't even get me started on the MLO's who wait until the last minute to order the 4506T reports (verification of the tax returns). If my statement offends any MLO's reading this so be it but not ordering the 4506T until PTD or PTF is just laziness - PLAIN & SIMPLE!
I just recently had a hang up with one of my files because of a third party verification service. After conducting the VOE with the verification service, I knew from the get-go my lender did verbal voe's and I knew the third party verification service didn't do them. Furthermore, the on-site managers and supervisors had been trained and warned that providing unauthorized verbal voe's was grounds for termination.
So, I provided an LOE when I submitted the file asking to have this condition waived. The underwriter and I went back and forth on this one PTD condition for days and she had the audacity to ask me to have my borrower ask one of her co-workers to to give her a verbal voe. Ask one of her co-workers to jeopardize their job so that my borrower could buy home. SERIOUSLY???
Needless to say, I escalated the matter to management and finally got the condition waived. Thx for stopping by Elizabeth; I always appreciate your comments and perspective.
Great comment by Gene:)
I never really understood those folks who want to keep everything a big secret when it comes to underwriting. The more the customer is educated on the process, the greater the chance of a smooth, educating, and "feel good" transaction.
Continue to be a good educator you fly MLO:)
Donne-This is some really great information and Kudos to you for sharing it. I will never understand why people just don't take the time to explain what is going on. All I get is, it's in underwriting, that's where the hold up is. Then, what happens is we get all paniky and start freaking out because no one will explain anything to us. Then sets in resentment and then....well, it becomes your fault :),(Not Yours persay, but you get what I am saying). It is nice to be educated first, then we can educate our clients and then, even when there are hiccups, understanding and calm can set it.
Thanks again and I'll be looking forward to your Part III!
Jason - I too don't understand the MLO's that pretend that the no one but them are allowed to know what goes on "in underwriting". That attitude just seems so arrogant and ridiculous to me. By educating everyone in the transaction on the loan process, we actually can make our jobs a little easier by showing everyone how a little cooperation can make the whole process smoother.
Thx for stopping by; I always appreciate your feedback. Have a good weekend Jason. :)
Brenda - This is my exact point! Not educating everyone as to what the process is and what is going on does make it harder for everyone in the transaction. Knowledge is power and the more that everyone knows, the better off we'll all be.
Sometimes, I could use the help of the agents in getting additional documentation and/or information. By explaining to everyone what I need, then we can all work to resolving the condition and moving forward towards the closing table.
A lot of the hiccups that come up don't have to be deal breakers. Quite a few of the hiccups that come up in some transactions could have avoided with some due diligence in the beginning either at the pre-approval stage or when escrow was first opened, which I try and do as much as possible before getting into escrow.
Granted, there will still be those conditions that come up right before docs and/or funding that are from the underwriter but once again, with everyone working together, the process doesn't have to be so difficult and combative.
Thx for stopping by Brenda; I appreciate it. Have a good weekend.
Donne: Thanks for the post. I will be sure to read part I and Part III when published. Have a great weekend. I'm glad you're taking good care of your clients. It gives us all a good name!
Donne: great post and information! There needs to be more transparency and esy to understand information about underwriting - Thanks!
Donne: I agree .. keeping everyone aware and educated about what is going on in a transaction is vitally important. My only problem is with the participant in the deal that has been told .. has been educated .. multiple times ... and still somehow things the process doesn't somehow relate or effect them. Somehow it just shouldn't apply ... they're special, you know? Those are frustrating because you can't reason .. you can't make them see .. with any amount of explanation or education. They don't want to understand. Like a petulant child ... they want what they want ... when they want it!
For the reasonable participant (professional and customer) within the deal, your post is marvelous. For those with blinders or earplugs ... aaaggghhhhh! Great job Donne! And congrats on the feature! Good to see one "of the fold" get featured ...
Gene
Congratulations on the feature - and thanks for opening the curtain to that mysterious shadow world of underwriting - LOL. Seriously - it is really helpful to have info like this shared so things are understandable and not mysterious. Definitely goes a long way to keeping calm thru requests or delays instead of going into panic mode!
Paul - I'm glad to liked the post. As I've said before, it's our responsibility to educate our borrowers as well as agents on the loan process.
Janice - Things do need to be more transparent and it's really not that difficult if we're all just honest and cooperative.
Thx for stopping by; I really appreciate it. Have a good weekend. :)
Gene - Ah, my fellow MLO, you know all too well the trials and tribulations of our business. I know the frustration with those who think the rules don't apply to them. I find them to most often to be the ones who have not only scoured the internet but they've talked to family and friends and they are convinced that they can get something that just doesn;t exist.
I've found that with those types I often have to resort to my "Come to Jesus" talks with. You know those talks, the brutally honest conversations where I have to tell they to either shape up and cooperate or they need to find themselves another MLO. I have no problem letting go of an unrealistic borrower.
The ones that crack me up the most are the ones with terrible credit and no money and think that they're not only going to get a great loan at a great rate but that they can then go out and get a great property in a great neighborhood for 30% below the sales price. ROTFLMAO!
Nancy - I'm glad you liked the post and I have always believed that the more that everyone in transaction knows about what's going on the less difficult that it has to be.
Thx for stopping by everyone; I really appreciate it. Have a good weekend. :)
Excellent explanation Donne. I like how you used the word 'unveiled' as most of the time the buyer is told their loan goes into this mystery department called underwriting. Usually where extremely crabby people hang out & make each other miserable.
Lyn - Well you got the crabby people making others miserable part right. Don't get me wrong, I know underwriters work very hard but I'm sorry, I'm going to stop short of sympathizing for them.
On another note, there's no reason why buyers shouldn't know about what goes on "in underwriting". As a matter of fact, the more they know, they better off they are. JMHO
Very good post. It's funny too, because whenever I explain the loan process to buyers, I always mention the underwriters, and have said they're like the Wizard of Oz. You never see them, and they call all the shots. Your post is like Toto running up to the curtain, and pulling it back!! GREAT!!
Donne this is an absolutely great post. But I would really like to see you write a (public) post about buyers who lie on the application and throughout the process. Emphasis would be on "you can't hide" because the truth will come out. One thing that comes immediately to mind is a married person who has been separated for umpteen years, but doesn't disclosure their marital status and doesn't have a clue that a spouse will show up in the title work.
Thanks for sharing... I'm so glad that we all have ActiveRain to share and learn together!
Donne, great post. It is truly imperative to have someone who knows what they are doing and diligent in getting the paperwork needed as soon as the underwriter asks for it. And yes, gaps in employment (even if it's because someone had a baby!!!!!!) make things harder!
Wow, Donne - I am definitely staying tuned for the remainder of this series! Thank you for such good informmation!!
I have a client who worked for a social agency for 5+ years. Several days after we submitted a contract she mentioned that she was changing jobs - she took a better job in the same field, but a supervisory position with better pay and better hours. Now we are having to extend closing because Underwriter wants 30 days pay history? Does this sound right to you?
Also, do you know if any more money will be available for RD loans?
Carla - I'm glad you liked it. I don't understand why more MLO's don't spend more time educating borrowers and agents on the process. Educating the people we work with about what we do is actually in our best interest because it will inevitably make our jobs easier.
Charita - Excellent suggestion! I will definitely give that one some thought. Even now, I'm thinking of a few scenarios. It'll be in the works soon.
Lawrence - I'm glad you liked the post and you're right, AR is a great place to learn new stuff.
Thx for stopping by folks; I really appreciate it.
Marney - It's true that employment gaps can be challenging but that's where a good MLO is vital because a good MLO can make sure the gap won't become a deal breaker.
Lori - Yep, it sounds about right, 30 days of paystubs. Once upon a time, we could use an offer letter from the new employer stating all of the employment info that we needed: employment date, rate of pay, position, etc...
Those days are long gone and now it's 30 days of paystubs - PERIOD! Too bad she couldn't have explained to her new employer that she was in escrow and changing jobs would delay her closing. I would think that a new employer could grant her the time to close.
Thx for stopping by ladies; I really appreciate it. :)
Donna, Enjoyed this post and what great information! Your willingness to "pull back the curtain" in the underwritting process is truly appreciated and will be very helpful too many I'm sure. People handle things much, much easier and many a crisis can be avoided, with just an simple explanation and a bit of understanding. Thanks for sharing!
Hi Donne -- The loan process is a huge mystery to many home buyers and thanks for shedding some concrete info on one aspect, I'm off to read your other posts! :)
Therese - I'm glad you liked the post and I agree that if people just knew what was going on that they wouldn't be as nervous as knowing nothing.
Chris - I'm glad you liked it. I think it's important to always try and educate the people I work with.
Thx for stopping by folks; I really appreciate it. :)
Donne, the loan process woult never be a mystern with a loan officer like you. HOWEVER all loan officers are not created equal. Thanks for uncovering yet another mystery of underwriting..........
Thanks for the interesting/great information
tom
Interesting post, the more information the parties have the better.
We have had a few Medical Residents come in this year who have only had to show their VOE to the lender. Local lender who works with U of M Residents. They don't actually start until middle of June. But, we are closing end of this month.
Frank & Sharon - Yes, it's true, not all MLO's are the same. Some are educators and some aren't. I'm sure the same could be said for Realtors too. Like any professional in any industry there are good ones and there are not good ones.
Tom - I'm glad you liked it.
Missy - I work with a lot of young people, especially recent college grads. I used to have some lenders that would take an employment offer letter and was able to use that future income for qualification purposes. Those days are gone because the employment letter is essentially, stated income.
Lucky for you and your clients, you have a local lender willing to hold onto the loan for a period of time before selling it to the secondary market. While I don't have any lenders that will do that, I do find that my small, local lenders are much easier to work with than the large, national banks. The smaller lenders just sometimes have a little more flexibility with conditions with less overlays.
Thanks for the explanation. Too much info makes my head hurt, but I still need to know this stuff.
I loved Carla's comment about the underwriter equivalent of the Wizard of Oz. No one ever knows what it means when a file goes to that magical land of underwriting. And no one seems to know what will come out on the other side these days...
Eric - I know it's a lot of info but it's important to know this stuff. The more that Realtors know about the loan process, the better that they'll be able to help their clients through escrow without losing their mind when hiccups come up.
Julia - While it may seem like "No one ever knows what it means when a file goes to that magical land of underwriting", that's not true - MLO's know and they shouldn't be keeping all that info to themselves. As for "no one seems to know what will come out on the other side these days..." there may be some truth to that and unfortunately, there's not a whole lot we can do about that right now. Hopefully, we will someday soon.
Thx for stopping by folks; I really appreciate it. :)
Donne: I can commiserate with Lori's situation above. Just went through something very similar myself a week ago. You are right when you say ... 30 days .. PERIOD! Not one minute shy either. In my particular loan, the customer was completely right in taking the new position. What gummed it up was the manner in which she was going to be paid and just what the company decided to classify her position as ... as it was a newly created position. Made for a very interesting and stressful closing ... as attorneys in subsequent transactions effected by the outcome of my loan (and closing time) were scheduled (get this, Donne) ... not only the same day ... but exactly one hour after each other. Like a game of dominoes if my loan didn't close! 3 other closings ... bing, bing, bing .. all come to a screeching halt. No pressure there! Who in their right mind????????? In this day and age??????
We got through it ... but not without a lot ... LOT ... of blood, sweat, and tears ... Aaaaggghhhh .. the stories we can tell, huh?
Gene
Gene - Ah, my friend, the stories we could tell would probably scare the holy beejezus out of most people. Yours more so than mine, my friend. Your 30+yrs in the biz puts my measly 8yrs to shame.
It's been a wild and wacky 8yrs though and definitely the greatest learning experience of my life. Even more so than the two previous careers and marriages. I LOVE MY JOB! I LOVE MY JOB! I LOVE MY JOB!
Have a good week Gene and thx for stopping by: I really appreciate it and ALWAYS love your comments and feedback. :)
I so miss the days of if over a 720 doing stated income. It's a different world now.
Mike - There is so much I miss, I can't even begin. Right now, I just long for some patience and understanding for doing my job.