Did you hear about the loan underwriter who demanded a letter from the borrower's doctor stating the borrower had been healed and his illness would not come back? How about the underwriter who wanted a verification of employment from the borrower who listed her occupation as "homemaker"?
Yes, things are tough out there. And despite some evidence that lenders are easing up just a tad, in the new world of "prove everything -- and prove it twice," there have been some unusual demands, to say the least.
For example, lenders like to determine the source of funds that are deposited into applicants' accounts. They want to make sure that money for a down payment is the applicant's, as opposed to loan from a friend, relative or other lending institution.
That makes sense. After all, if it's not the borrower's money, he has no skin in the game. And it becomes too easy for him to walk away from the mortgage later if he should not be able to pay as promised. Or he might not be able to afford to pay back two loans, one from the bank and the other from some unknown entity.
But in one case, the underwriter -- the person who is responsible for reviewing all documentation for your loan to make sure it conforms to the lender's requirements -- asked for a letter of explanation on a $6 deposit from a borrower who earned $10,000 a month. And in another instance, a borrower who had deposited $235 from a garage sale was asked for an ad proving she did, indeed, have the sale.
Yes, despite the need to know, some requests are just plain ridiculous.
"Absurd," says Karen Deis, who operates MortgageCurrentcy.com, a website that keeps loan officers, processors and underwriters current on the ever-changing regulations and guidelines for FHA loans, VA loans, Fannie Mae and Freddie Mac.
"I don't know whether to laugh or cry," says Deis. She collected these and dozens of other anecdotes on her Facebook page after asking her clients to report the most absurd conditions they have seen. "People are scared. All you hear about are buybacks, audits and people losing their jobs" because they didn't verify this or confirm that.
These silly requests notwithstanding, Ellie Mae, the electronic mortgage processing system, reports that the average FICO scores of closed loans fell slightly in March, for the second month in a row -- from 745 to 743. That's the lowest since Ellie Mae began tracking loan profiles.
But according to FICO, the company that builds the algorithms on which the all-important credit scores are based, only 37 percent of all people with credit records have a FICO score above 750. That doesn't mean the other 60-plus percent didn't have a score high enough to obtain a mortgage. Rather, as Ellie Mae president Jonathan Corr explains, his company's benchmark is an average, so people with lower scores are obtaining financing. But they have to jump through hoops to do so.
"Even though there has been some loosening," Corr says, "what they're asking of people is not changing. It's still pretty comprehensive, and we're going to continue to hear stories like this."
With that in mind, then, would-be borrowers should be ready for anything, as these other unusual underwriting requests collected by Deis demonstrate:
-- A borrower who had been out of school for several years was asked to produce his high school transcript.
-- The underwriter asked for proof that the borrower was no longer under house arrest.
-- The underwriter wanted a letter explaining why the year-old child listed on the application was not named as a dependent on the previous year's tax return. Then, when the borrower wrote back that the child was not born until after the tax return was filed, the underwriter wanted a copy of the infant's birth certificate.
-- A borrower was asked for a death certificate for her recently deceased husband PLUS a letter explaining why her social security benefits had been reduced.
-- The borrower, a teacher at a Catholic high school, was asked for a letter testifying the school was part of the local Catholic school system.
-- A single father who had custody of his child was asked for a letter saying he did not have to pay child support.
-- The underwriter wanted verification that the borrower, who had written a $167 check to a local grocery store, did not have a loan with the grocer.
-- An updated appraisal was requested because the picture accompanying the original one was deemed too old. It must be old, the underwriter reasoned, because the evergreen trees in the background were still green and it was the middle of winter.
-- The underwriter demanded a letter from a borrower explaining why she changed her name after she married.
-- A borrower was asked for proof that he does not own a home he sold a decade earlier.
-- The underwriter wanted a letter from the U.S. Postal Service verifying that the borrower, whose mailing address was a post office box, actually owned the 10-inch box and that it was the borrower's primary address.
-- A borrower who worked for a well-known major company was asked for a letter explaining why his office was in a different location than the headquarters address listed on his pay stub.
-- A borrower who listed her occupation as "prostitute" and declared her income on her tax returns was required to obtain affidavits from her regular customers saying they were, indeed, her clients.