I have heard so many people ask why we wait until the last minute to ask them for certain documents for a loan approval. I have a few answers. Mostly it is because many times the mortgage borrower has waited until the last minute to give it to us! Fannie Mae requires certain documents, that get underwritten, that many times yield more paperwork needed. And do you know what happens when you submit last-minute document requests? You get last-minute answers. And there is nothing more frustrating than dealing with an angry client who has helped to cause their own problem. The last thing you can do is point the finger at them, so you end up taking a verbal beating without reminding them that they did not submit the documents in a timely fashion.
But the larger issue is the nature of loan processing and underwriting a loan. By default, it means that you get answers at the last minute. Here is a very simplified version of what I mean:
Step 1: The loan starts with a loan officer who reviews the loan application to look for red flags, but the loan officer is not an underwriter.
Step 2: The appraisal is ordered and the mortgage borrower is given a checklist of expected application documents needed, by the loan officer, a loan processor, or an assistant. These people are not underwriters.
Step 3: The loan processor collects the documents and puts them into the right order and submits the file to the loan underwriter. The loan processor is not an underwriter.
Step 4: The underwriter underwrites the loan, and many times finds things needed that no one else saw. This is the underwriter’s job. The underwriter is indeed an underwriter.
So you can see the nature of a loan is to take a hunk of time to process the loan, get the appraisal, do all sorts of internal compliance, and then underwrite the loan. And then usually ask for more documents.
It is not possible to make Step 4 happen at Step 1. We could hire numerous underwriters, and replace all the loan officers, loan processors and assistants with high priced underwriters. This way we would have decision makers at every step of the process, telling mortgage borrowers well in advance what they needed. But then this hypothetical lender with 100% underwriters would have to raise the cost of the loan to cover the much more costly underwriters, to the point no one would ever come to this lender in the first place.
So since the process is a process, and it has to flow in a certain order; it would help immensely if mortgage borrowers provided all the required documents immediately up front. But this almost never happens.
Another problem I get on the back end of a loan is not only anger and frustration for a paperwork request someone usually feels strongly they should not have to submit to, but then the documents they provide yield even more questions and more paperwork requests. Then I get yelled at by people asking if the requests will ever end. Of course they won’t, because we enjoy torturing people, it is a great way to endear clients to us (hear the sarcasm?).
Of course the paperwork will end! But this is the nature of paperwork. When you submit a loan application the underwriter may see three more things they want to review in order to approve the loan. When you submit those three, let’s assume one of them was a bank statement that the underwriter wanted to see in order to show your deposit check cleared your bank account from when you submitted the deposit check with your initial offer. Then let’s assume the bank statement you submitted to demonstrate that the check did indeed clear also showed a large deposit of $40,000. Is the underwriter supposed to ignore that deposit, or do you suspect the underwriter will want to see an explanation and a proper paper trail to document where the $40,000 came from? You got it, more paperwork! It’s Pandora’s box all over again.
And more importantly, these paperwork requests are based on the rules of Fannie Mae, not the dictate of any underwriter. Truth be told, the underwriters would approve loans without half the paperwork in the file. They are quite capable of making a good underwriting decision without the minutia that Fannie Mae makes us all go through in our industry. So if you want to complain, I would suggest you call your government representative, and complain about the rule makers we must all follow since the government now owns Fannie Mae.
So the anger and frustration should hopefully subside when people better understand the nature of how the transaction works. It is, unfortunately, designed inherently to yield last minute requests, and possibly subsequent requests when you send in responses to the first round of requests. Let’s all lose the anger, relax, breathe, and dig in and get the paperwork done. It has to be done in the end anyway, one way or the other. You can start the process by getting prequalified long before you want to make an offer, and we can walk calmly through the requirements together.