As a result of the mortgage crisis, many layers of fact checking have been added into the mortgage process by regulators and by Fannie Mae, Freddie Mac and FHA (the national authorities who finance the majority of mortgage loans in this country).
Here is an outline of when in the process the consumer may be asked to provide additional information, documentation or clarification. There are 5 distinct steps in the process:
1 – Pre-Approval. At this stage the Loan Officer will require that the consumer provide all income and asset documentation to determine mortgage qualification. This includes:
A credit report
Most recent Federal Tax return
2 Months of bank and investment statements
Credit will be reviewed. The loan data will be put through underwriting and a pre-approval will be issued. Because it can be weeks or even months from the time the borrower is pre-approved to the time there is an accepted offer on a property the loan officer should address anything that comes up on the credit or in other documentation and educate as to what will be required once the loan is going “live”.
2 – Full Application. Now the loan is official and we have an address and the Loan Officer will update any documentation already submitted (documents cannot be older than 90 days). Borrower will be asked to address:
- Any credit inquiries or issues on the credit report,
- Deposits that appear on bank statements in excess of $1000 will require source documentation
- A full mortgage application package will be completed by loan officer and borrower.
3 – Submitted to Processing. At this time the Mortgage Processor will review the package submitted by the loan officer. The processor will order:
- A title examination/legal work
- An appraisal
- If needed a condominium questionnaire to be sent to the appropriate party for completion.
If the Processor sees something that the Loan Officer missed they will request this documentation now. Because of the complexities of the mortgage process a second set of eyes is very important to ensure that no documentation is missing and that all necessary information is obtained.
4 – Submission to Underwriting. Once the appraisal report is back the processor is required to order a “Fraud Guard” report. This report often runs 25 or more pages and reviews everything and everyone involved to ensure that no party engaged in the sale has been involved in fraudulent activity in the past. This includes:
- The borrower and their background,
- Property and real estate professionals involved in the transaction
The processor will also review the appraisal, the condo information and all documentation prior to submitting for full underwriting approval.
At this time any one of those reports may spur a request for additional documentation from the borrower.
5 – Underwriting. The underwriter is responsible for reviewing the entire loan package and issuing an approval. Once again another set of eyes is reviewing all the details for compliance to all regulations and guidelines as established by Fannie/Freddie/HUD and state and national regulators.
If questions or concerns arise the underwriter can approve the loan but make that approval subject to additional documentation. Sometimes the loan can be approved and is ‘clear to close’ at first look.
Even after the loan is approved, there are several more steps in the process where additional paperwork may be required.
1. After Underwriting – One week prior to closing the lender is required to conduct a ‘verbal verification of employment’ to insure that the employment status of the borrower/s has not changed. Of course any discoveries at this stage that differ from the mortgage application as approved will require documentation and verification and could delay a closing.
2. Days prior to closing the lender is required to run a ‘credit refresh’ to insure that no new debt or credit has been obtained by the borrower that may impact their mortgage qualification. The credit refresh may require additional ‘last minute’ documentation from the borrower.
3. If any of the documents at the time of closing are beyond 90 days old the borrower will be asked to provide updated documentation such as a paystub or bank statement. If the credit report is beyond 90 days old it will be re-pulled which could also require a request for additional documentation or clarification.
4. After Closing – the loan is re-reviewed internally and by the end investor and at this time there could be another request for documentation.
The mortgage process is complicated and intrusive and there are many time throughout the process when a borrower could be asked to produce more and more information. This can be very frustrating and annoying and make the borrower feel like the lender is at fault.
It is important for consumers to be educated about the process and understand the reasons behind them to relieve potential frustration. It is equally as important that Realtors and the consumer work with a thoughtful, thorough, smart and efficient lender to insure a quality experience and happy closing.