I have found out another reason why documenting a mortgage loan application has become a nightmare. This story relates specifically to documenting assets and the bureaucratic, paper-laden gauntlet that it has become. Guess who is responsible? Come on, you only need one guess! The reason that documenting assets has become torture for mortgage applicants is the U.S. federal government. Yes, yet again, we have our nannies and protectors on Capitol Hill to thank for the latest round of insanity.
Every time I ask a question about who is responsible for the extra reams of paperwork being required for mortgage loans these days, the answer has always been the U.S. federal government. Of course, they do it in the name of consumer protection. But I don’t think the average consumer feels better protected. I don’t think the average consumer even thinks they needed more protection! I can tell you from experience the average consumer is irate and left feeling financially violated after the mortgage process! But, we are where we are. And you need to know why.
Anti Money Laundering laws
The details are that non-depository mortgage lenders (i.e. direct lenders) are now under the fold of the Anti Money Laundering laws. This is thanks to the myriad of mortgage protectors from the Dodd Frank bill to the Bureau of Consumer Protection. Now we mortgage lenders will be responsible for documenting and finding out where every small deposit on your bank statements that is not a payroll deposit has come from. And we will need to get a paper trail on it to prove it.
Non-payroll deposits are a problem?
We have to document all large non-payroll deposits no matter what. What is “large” is left to the interpretation of the underwriter, but they use logic and compare it to the borrower’s income. However, we have to document and explain all non-payroll deposits if the total aggregate of those deposits is above a certain threshold. This threshold is usually 10% of the mortgage borrower’s gross monthly income. So if you make $10,000 a month in income, and have over $1,000 in non-payroll deposits, we will have to document and explain every last one no matter how small.
Even very small deposits count?
Following the above hypothetical, let’s assume the below:
- a $50 deposit that was from a friend who paid you back some money he owed you on a silly bet,
- a $96 deposit that was a refund from a cable bill you overpaid,
- and a $938 deposit from a auto insurance policy you canceled
All together those total over 10% of the hypothetical $10,000 in monthly income. So all of those deposits would need to be not only explained, but also documented.
Won’t an email do?
You cannot simply email your loan officer and explain a friend paid you the $50 you won on a bet from the football game last weekend. You’d need a copy of the check and the deposit slip from when he paid you, along with an explanation letter.
You cannot simply email your loan officer and explain that the cable company refunded you $96 from an accidental over payment. You’d need a copy of the check and the deposit slip from the cable company. Also you’d have to include any correspondence from the cable company explaining the situation, a copy of the bill that shows the over payment and credits that were due you, along with an explanation letter.
Some will tell you that Fannie Mae and Freddie Mac require mortgage lenders to document all of these non-payroll deposits to make sure that the borrowers are not borrowing money for their down payment from a source that is not allowed. Examples are cash advancing a credit card, a family loan, or a an unsecured line of credit. I say no, I don’t buy it. Common sense says you do not cash advance a credit card for $50, $96 or $938 to get enough money to purchase a home or finalize a refinance. I think the federal government watches every financial step, of all that we do, and chases down every nickel of revenue to every corner of the globe. This apparently now includes watching over mortgage applicants to make sure they are not doing any money laundering. It’s so absurd on its face. I can’t even believe I am writing these words. But if you have gotten a mortgage lately, you know that the painful process of documenting assets is very true.
Brian Martucci is a loan officer for Capital Bank Home Loans, a division of Capital Bank, N.A. He has been in the mortgage industry since 1986 and has served in a number of roles, including loan processor, loan officer, mortgage broker, branch manager, and vice president. Brian Martucci – NMLS# 185421. His opinions do not necessarily reflect the opinions and beliefs of Capital Bank Home Loans or Capital Bank. Capital Bank, N.A.- NMLS# 401599. Click here for the Capital Bank, N.A. “Privacy Policy”.
Going through this process right now. I have had to go to the banks approx. 8 times now. I feel like I am a criminal with all the questions and verifications needed. Damn I shouldn’t have sold my stuff and deposited it! They won’t take that money as part of the down payment! The underwriter said …how do we know the stuff was really yours?
I feel your pain Audrey. I have a client who sold a guitar collection, and deposited the cash. The underwriter noticed the large deposit, of course, and is torturing the client for paperwork to show that he really sold his guitars. The Fannie Mae rules want the underwriter to ensure the client did not go out and borrow the money, which is not allowed. He does not really have a formal invoice/receipt, so we are cobbling together paperwork as best we can, and hoping it all works out. But do realize, these rules come from Fannie Mae and Freddie Mac, and are not dictates of any lender or underwriter. I personally think a bank or individual underwriter would use more logic and less rigid rule following, and it would be easier without the overbearing guidelines of the government agencies. However, right now, Fannie Mae and Freddie Mac are the only game in town 🙁 So we/you have to follow these ridiculous rules, sorry.