We really need to fix mortgage lending.

[Anonymous]

I think you're overestimating the absence of human touch.  It is still there.  What doesn't, and won't, exist is a human touch where they overlook the actual guidelines to replace it with a factor that isn't a guideline.   Why not play by the guidelines?  You'd get your approval and it would be easier than "fixing" lending. 

Let's rule some things out:

• Showing that you're a great renter would help you get a new lease.  Not a home loan. 
• Showing that your employer has kept you there shows that your employer kept you there.  The lender doesn't care.  They want to know if you have enough cushion to withstand being unemployed for a few months. 

A mortgage loan is nothing more than: Credit, Debt-to-Income, Equity and Reserves.  You said your loan was denied.  They don't deny it for debt-to-income at 15.  You indicated complaints over equity and reserves in your initial post.  What did the denial actually say on it? 

[ShanetheMortgageMan]

"Explain large deposits" - this is silly.  The bank statement clearly shows the source of any deposit, be that a check or payroll or whatever.  If I have a large deposit from a deposited check, who cares where I got the check from?  The check was valid, otherwise the bank would have bounced it.  Whether I got it from stock or gift funds or 401k should mean NOTHING to the bank.  All that matters is that the check was valid when I deposited it, thus it's valid cash.  Now, if it's a wire transfer from somewhere, that can be a red flag for money laundering.  That's fine.  But a check deposit is on my bank to make sure I'm not doing things dirty.

So because all fraud cannot be guaranteed to be detected - most fraud detecting measures should be removed?  It makes me wonder why someone wouldn't want to verify deposits if they were indeed from an acceptable source.  There were many lenders who didn't need to verify the source of funds, they were sub-prime lenders, and fraud was through the roofs.  Sure, if someone is dedicated enough they can find a way to commit fraud, and it may go undetected, but that doesn't mean current fraud detecting techniques don't help mitigate losses.  Seems like your complaint stems from having to provide some additional paperwork to source the funds, yes it's certainly annoying, but much less annoying then applying for a loan and not getting it.

FHA.  This one is huge.  It's stupid that I cannot apply for FHA directly with them and be approved with them.  It's stupid that I must trust my bank to handle that situation properly and request the amount of funds that I desire them to.  I should be able to get an approval for a certain amount of money to be issued to a bank of my choosing when I close; thus my bank needs do nothing but wait for a check.  The process is faster as a result instead of waiting on some $30k/year clerk to do the job right.

When a bank makes a loan, most of the time they need to be able to sell that loan on the secondary market (i.e. Wall Street), if FHA takes control and forces a lender to make a loan, and the lender has no outlet on the secondary market to sell a loan with those characteristics, then the lender has to hold onto that loan.  If the lender is forced to make enough of those loans, soon enough they have no more capital to make new loans.  Further, as has been pointed out to you, FHA/HUD is extremely slow, so you replace the bank employee with a government employee with a workload 100x the amount of the clerk, and you'll create a mortgage approval process that makes NACA look like a speedy alternative.

Down payment.  I might sound like a hypocrite here, but I think down payment requirements are way too strict.  Here's why.  If I'm renting a place for $1700/month and have paid that amount for 3 years without lapse, it shows three things: One, I have the capacity to pay that much per month on a mortgage.  Two, if I weren't renting for that amount, a down payment would be extremely easy.  Three, rental payments should require credit towards a down payment account so it's not a black hole. 

I don't follow how rent someone previously paid rent to Joe, gets transferred to a purchase from Jane.  Is Joe going to pay Jane the 3 years of rent payments that person has paid him?  Why would Joe give that money to Jane?

You realize that "down payment" spans the gap between the new loan amount and purchase price, correct?  So let's say you are renting from Joe, and also buying from Joey.  Why should Joe lose out on the down payment?

Out of all of your points, that one escapes me.

Mortgage payment.  Rental history should absolutely be a guaranteed approval.  Like I said above, if my rent payment  is $1700/month for the past 3 years and I'm trying to get a $1100/month mortgage, why do I need to provide any additional documentation?  I've already shown with my rental history the capacity to repay the loan AND THEN SOME.  That should be considered when I apply for the mortgage; it's not.  I've been denied before with a 15% DTI; it's silly.  Who cares that I have $300/month of credit card monthlys when I am already paying nearly twice the potential mortgage payment and therefore do not have a problem with it?

So someone renting at $1,700/mo, and is looking to get an $1,100/mo mortgage payment, but they just were recently demoted at their new job, at half the pay, and has a student loan going into repayment at $500/mo, without ever being able to afford that debt level with their income level, should have their mortgage approved solely on the basis they've paid their rent on time?  Does that sound like good lending practices to you?  Would you lend $100k of your own money to that person?

You are incorrect when you say rental history is not considered when applying for a mortgage.  Rental history is actually a very strong indicator, but not the only indicator, that someone will be able to make a new housing payment.  If you are renting at $1,700/mo and are looking at a $1,100/mo new mortgage payment, and underwriter is going to be very comfortable with that aspect of your loan.  If you are looking at a $3,700/mo payment, the underwriter is going to really question if you are able to afford that level of payment.

I agree with your comments regarding a consumer being able to find out their exact scores that a mortgage lender would be pulling, not sure why the credit reporting agencies make it so difficult, and impossible from one of the bureaus, to get that information.  That isn't a mortgage related issue though, that is a credit bureau/reporting issue.  

As far as lenders using the "median" score, rather than using the credit bureau with the most "recent" information... as you know not all creditors report to all 3 credit bureaus, so just because one of the bureaus may have payment history for Nov. 2010, but the others have most of their data as of Oct. 2010, doesn't mean the one with the most recent data is the most accurate score.  The bureau with the most recent data may have not had a charge-off from June of 2010 reported to it, while the other two bureaus do... making the bureau with the most recent data not very accurate at all.

[ReVeLaTeD]

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@Anonymous wrote:

I think you're overestimating the absence of human touch.  It is still there.  

No, it isn't.  If it were we wouldn't have gotten into this crisis in the first place.

In any event, I want a system that is 99% human driven, 1% automated (request credit report MINUS score).  Human reviews report, reviews all docs, reviews rental history if applicable, reviews job history, makes calls to verify information, then issues the loan with a physical signature.  Takes a day at most.  Instead of our current system where a computer spits out a report with a negative decision based on a three-digit number that we KNOW is fundamentally flawed, which then skews the underwriter to not wanting to issue the loan and finding every reason not to.

 They don't deny it for debt-to-income at 15. 

They do and they have.  To me, telling me that I have to close every single line of credit I have in order to get a loan is the same thing as a denial, because it's not what I'm going to be doing.  I don't have to do it for a car loan nor any other credit.  Don't give me some bull about the amount of dollars involved.  I say again: MY RENT PAYMENT HAS ALWAYS EXCEEDED ANY MORTGAGE PAYMENT.  That should more than enough to greenlight me.

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Excuses about "what if you lose your job?  What if you get demoted?  What if you get disabled" And all this jazz are moot.  The same things could happen regardless of the mortgage payment or any other factor.  I say again - the current controls are NOT doing anything to make lending any more safe or secure than they had been prior to the crisis.  We have prime borrowers who are defaulting - why?  Because we have removed the human element.  We have removed the need for a human loan officer to make a solid decision based on OTHER FACTORS than credit scores.  As such we are trusting technology to think for us instead of using the technology to make human decision and judgment calls about creditworthiness.  That's the problem.  We know that credit scores can effectively be rendered null and void by people gaming the system with authorized user fraud and inquiry fraud and all sorts of other things.  That's another reason median scores are stupid - someone said "but it's the only way!" no it's not.  The most recent report shows the best picture.  The median is often the wrong credit report - Experian, most notably.  How ironic it is that Experian is the one bureau who does not allow us access to the FICO score.  Experian, who does not properly dispute accounts.  Experian who violates statutory account removal procedures constantly.

I don't know how many times I need to say this.  I AM NOT SUGGESTING THAT THEY DO NO VERIFICATION OR HAVE ANY FRAUD CONTROLS.  

What I am suggesting is, like TSA, the controls in place are the WRONG controls to mitigate the problems with the mortgage lending process.  Instead of trying to do everything in your power not to approve someone based on a computer's faulty algorithm, how about just doing a little more logical deductive reasoning and full HUMAN verification of all information and facts to make a decision whether to lend to a person or not?  That's a much better - though slower - process for handling this crisis.   That I filed bankruptcy 10 years ago is not an indicator of my payment history now.  A human can logically see that - a computer cannot.  That my income is unchanged in the past three years is not an indicator of my capacity to repay - given the salary has been higher than it's been since I started working as a teenager.  A human can see that - a computer cannot.  The fact that my account suddenly shows $20,000 should mean nothing to the process but that I have sufficient money to make the loan.  The purpose of the money should not matter.  The name of the company or person that gave it to me is fine.  The reason they gave it to me just does not matter - because again, no matter what that answer is, they don't verify it anyway.  The fraud potential is still there.  People lie about the source of large deposits all the time and there are NO verification procedures; therefore, why should I be treated like a criminal to try and fill a gap in a procedure for the bank who got a fat payout from Obama?  I don't think so.  I'll tell you the name of the company and/or person who gave me the money.  That's all you need to know.

And another thing - if my payroll is $10,000 a month they don't question it because it's payroll.  What if I'm laundering funds like Scarface?  Again, piss poor controls that are pointless.

That's why I don't agree with large deposit verification because they don't verify anything.  Fraud is still all over the place, and I'll not be treated like a criminal simply because they don't know how to deal with it.

[ShanetheMortgageMan]

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@ReVeLaTeD wrote:

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@Lel wrote:

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@ReVeLaTeD wrote:

If the idea is to verify no collusion between the buyer and the seller, then that negates the whole "past 60 days" theory.  Because a seller can list a house in March, give me the down payment in April, and just reject offers until October when I'm ready.  Because the bank is only looking at the last two months of statements, they don't see the large deposit.  How is that any different?  That's my point.

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This seems like a highly unlikely scenario.  First, it would require the seller to give money to a buyer without a signed contract. 

You act like this can't already happen.  I would submit it likely happens all the time.  Even if it didn't happen, it then negates the argument entirely (that sellers are giving money to buyers for down payments).  If what you say is true, then there's no way that's the reason for giving the source of the money.

That does not happen all of the time, not sure where you get your information from but in the 10 years I've been paying attention to real estate, I've not heard of one situation where the seller has given the buyer their down payment funds months and months ahead of the purchase.  I'm sure it has happened, and still goes on today, but not in any high frequency.  Sellers giving down payment funds to buyers did happen a ton, and it was with FHA financing, and when HUD did their analysis it found that there was a higher default rate on mortgages with seller provided down payments than there was with buyers coming in with down payment funds from their own money or gifts from eligible sources.  They bypassed HUD's (and mortgage lenders) guidelines by passing the down payment funds from the seller to the buyer through a 3rd party "down payment assistance" company.  However HUD has prohibited seller originated down payment assistance, so it is no longer happening to lenders knowledge.

Second, it would require the seller to reject offers that might be better than the original offer - perhaps an offer in which the seller doesn't need to give any money to the buyers. 

Not if the offers they're getting are lowball - which we know happens ALL the time.

Why wouldn't the original buyer be offering a lowball offer as well - if all future offers on that home would be lowballed?  And not all offers are lowball offers, most offers are in-line with where market values are.  Sure you'll have people who are trying to throw anything against a wall to make it stick, and admittedly there seem to be more of them here in California, but majority of offers are not lowball.  When we sold our home in suburban Orange County, CA earlier this year we received over half a dozen offers, none of them were lowballed, and to top it off it was advertised as a distressed sale (ripe for those lowballing offers).

Third, it would require the seller to continue to make interest payments, insurance payments, and property tax payments for several months on a home that he no longer wishes to own. 

They do that anyway.  I don't see this as a factor.  Homes stay on the market for months, sometimes years, because the offer they receive is not what they really want and they reject numerous valid offers because they want to walk away without paying a dime.  I don't see this as a factor.

They would not do that if they were to sell their home to another willing buyer who didn't need the seller to give them the down payment, they would sell the home when the new traditionally-qualified buyer would be able to close... not having to wait months for the "down payment" to season in the buyer's account.

Fourth, this delay could also preclude him from purchasing a new home. 

Assuming he/she does not already have another home OR might be moving in with a spouse-to-be OR joining the military or any number of other reasons for the sale.

Fifth, it would require either the collusion of the real estate agent, or the willful deceiving of the real estate agent, in order for the house to remain on the market.  If the agent is not privy to this agreement, he will continue to spend his money actively marketing the house, all the while wondering why the seller continues to reject perfectly reasonable offers. 

Which is exactly my point.  There's so many checks and balances that make the scenario described - a seller giving money to help a buyer buy a home - extremely unlikely, that the process for large deposit verification is, in my opinion, moot.

Not if everyone involved in the transaction was in cahoots with each other - and that is one type of transaction that sourcing funds into a bank account is trying to sniff out.  There was a higher frequency of those types of transactions in inner-city Chicago and all over Florida, billions of dollars were lost.  Certainly wasn't laughable, it was very serious stuff which lead to many lenders going out of business.

Sixth, because there would be no formal agreement between the buyer and seller, the seller would be assuming a tremendous financial risk.  In the absence of a signed purchase offer, there is nothing to prevent the prospective buyer from saying, "Well, I've found something better so here's your $10,000 back."  By then, the house will be "tainted", since it would have seemingly languished on the market for months without selling, and probably will sell below its true fair market value.

See above.  Lends credence to the idea that such a collusion is so extremely unlikely that verifying large deposits for that reason is moot.

While transactions like the one you are describing are not common, they still exist, and for a mortgage lender not to have checks & balances to make sure they aren't getting involved in that type of transaction would be irresponsible.

[Anonymous]

It seems to me like the reasoning behind your fixes are almost all tied directly to your own loan and not a widespread lending problem.  That's fine.  It's actually probably good.  Fixing your loan is a lot easier than altering a multi-trillion dollar business to meet your loan parameters.

Also, since this whole problem ties to "mortgage lending" I don't know if going to two lenders really proves an epidemic or that you chose two weird lenders.  Realistically, if you went to an undercapitalized firm right now, you'd think the whole industry is falling apart, but it would really just be indicative of them....heck, their denial wouldn't really even be about you. 

It seems to me like your loan would be approved as long as you didn't refuse to do what every other borrower provides.  It even sounds like it had been approved, but possibly by an odd lender that wanted you to close tradelines (btw, that is not standard...it strongly points to that undercapitalized lender scenario)

Denials have reasons.  You've cited items that you wanted to be compensating factors, but I haven't heard anything about the actual denial.   You have mentioned that it was due to a 15 DTI, a 10 year old BK, refusal to document source of funds, that the credit score is a three digit number...what was the actual reason for the denial?