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 overlords, 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.
The details are that non-depository mortgage lenders (i.e. direct lenders) are now under the fold of the Anti Money Laundering laws, thanks to the myriad of mortgage protectors from the Dodd Frank bill to the Bureau of Consumer Protection. Now, so we can help the cash strapped federal government, 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.
We have to document all large non-payroll deposits no matter what, and 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 (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.
Following the above hypothetical, if you have 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.
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 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 need a copy of the check and the deposit slip from the cable company, 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.
You get the point. All this, so the UNITED STATES FEDERAL GOVERNMENT can make sure not to miss out on some asset seizures of those Columbian drug runners, who are doing their money laundering through mortgage applicants, giving them $50, $96 and $938 at a time to clean their millions in dirty drug profits.
Some will tell you that Fannie Mae and Freddie Mac (who, remember, are run by the federal government now) 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 (like 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; apparently now including 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.
image credit: David Goehring/Flickr