UNDERWRITING REALLY ISN’T THAT MYSTERIOUS BUT IT’S NOT STANDARD BY ANY MEANS EITHER - Part 2

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Mortgage and Lending with Los Angeles & Ventura Counties in CA

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

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~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

 Donne Knudsen

Realtor® - CalState Realty Services

DRE#: 01364050 / NMLS#: 249822 

 

805.2069123

 

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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

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Re-Blogged 2 times:

Re-Blogged By Re-Blogged At
  1. Janice Roosevelt 05/22/2010 02:50 PM
  2. Donald Bradbury 05/22/2010 08:27 PM
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Charita Cadenhead
Keller Williams Realty - Birmingham, AL
Serving Jefferson and Shelby Counties (Alabama)

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.

May 22, 2010 08:22 PM #21
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Rob Lang
At Home Kansas / www.AskRobLang.com - Lawrence, KS
Local Expert in Lawrence Kansas Real Estate Homes

Thanks for sharing... I'm so glad that we all have ActiveRain to share and learn together!

May 22, 2010 09:04 PM #22
Rainmaker
212,353
Marney Kirk
Keller Williams Excellence Realty - Towson, MD
Towson, Maryland Real Estate

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!

May 22, 2010 09:08 PM #23
Rainmaker
502,453
Lori Cain
Chinowth & Cohen Realtors - Tulsa, OK
Midtown Tulsa Real Estate Top Producer

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?

May 22, 2010 09:50 PM #24
Rainmaker
598,882
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

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.

May 22, 2010 10:24 PM #25
Rainmaker
598,882
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

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.  :)

May 22, 2010 10:47 PM #26
Rainer
128,720
Therese VanderMeer
Midwest Properties of MI - Grand Rapids - Jenison, MI
Realtor-Greater Grand Rapids, MI area communities

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!

May 22, 2010 11:34 PM #27
Rainmaker
558,669
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

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! :)

May 22, 2010 11:39 PM #28
Rainmaker
598,882
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

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.  :)

May 23, 2010 12:39 AM #29
Rainmaker
978,242
Sharon Alters
Coldwell Banker Vanguard Realty - Fleming Island, FL
Your Fleming Island Relocation Agents.

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..........

May 23, 2010 12:51 AM #30
Anonymous
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Anonymous

Thanks for the interesting/great information

tom

May 23, 2010 02:57 AM #31
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Missy Caulk
Missy Caulk TEAM - Ann Arbor, MI
Realtor - Ann Arbor Real Estate

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.

 

May 23, 2010 07:10 AM #32
Rainmaker
598,882
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

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.

May 23, 2010 01:10 PM #33
Rainmaker
541,973
Eric Michael
Remerica Integrity, Realtors®, Northville, MI - Livonia, MI
Metro Detroit Real Estate Professional 734.564.1519

Thanks for the explanation. Too much info makes my head hurt, but I still need to know this stuff.

May 23, 2010 01:27 PM #34
Rainer
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Julia Odom
Select Realty Professionals - Chattanooga, TN
Chattanooga Homes for Sale

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...

May 23, 2010 01:31 PM #35
Rainmaker
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Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

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. :)

May 23, 2010 06:09 PM #36
Rainmaker
698,943
Gene Mundt
www.genemundt.com - 708.921.6331 - New Lenox, IL
Chicagoland Mortgage Lender - 37 yrs experience

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

May 24, 2010 12:10 PM #37
Rainmaker
598,882
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

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.  :)

May 24, 2010 12:36 PM #38
Rainmaker
128,113
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

I so miss the days of if over a 720 doing stated income.  It's a different world now.

Jun 12, 2010 10:37 PM #39
Rainmaker
598,882
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

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.

Jun 13, 2010 01:32 AM #40
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