Silly Reasons To Deny A Loan

December 20th, 2010

Sometimes underwriters and bank rules are just silly. Many times I feel I am talking to a professional clown, rather than a mortgage professional, because there are times I laugh until I cry…

However, as I have said before, many times there is a Fannie Mae rule an underwriter has to follow, and its not their call. But sometimes an underwriter should use a little logic and common sense, and make a judgment call to avoid mandating reams of additional paperwork from a mortgage borrower. Here are some recent doozies I have heard, that left me scratching my head:

A loan was rejected because a check box was not checked that was supposed to be (this was a minor item, pertaining to the property tax escrow account for the loan).

I had a loan rejected because the maximum debt ratio was 45%, and my client had a 45.01% debt ratio. The additional .01% was equal to about $31/month in debts.

There was no activity on a file within a time frame the bank prescribed as important (10 days) so they canceled the loan without any warning (we were waiting on the appraisal to come in, which was delayed due to weather).

I had a loan rejected because a client had a 6 week gap in employment. The client was simply between jobs, and relocating across the country, and took a vacation. But the underwriter made it sound as if it was a real concern, seemingly tantamount to being unemployed and seeking work for a half a year or more!

I had an underwriter have a problem with a self employed mortgage borrower taking a small amount of cash out of a business account from the business they ran. “Wouldn’t this negatively impact the business?”, the underwriter wondered. They had $200,000 left in the business account after the withdrawal, in a home based business that had expenses of no more than $10,000 a year. A little common sense would have gone a long way here.

An underwriter questioned the large deposits on a client’s bank statement. “Did they borrow money for their down payment?”, which is usually a big no-no in the mortgage world. One of my client’s had a recent inheritance due to a parent’s death, that was the reason for the large deposits. We had to get a copy of the Will, the death certificate (I kid you not) and evidence of the transfer of assets out of the estate and into the client’s personal account, before they’d reconsider the loan.

I had a client who wanted to borrow about 15% of the appraised value of their home on a refinance, they had a drop in income from 2008 to 2009, and the bank was worried about the decline so they would not do the loan. Not only was there 85% equity in the house, the borrowers had millions of dollars of assets, and excellent credit. But that did not matter.

I had a loan that almost got rejected because the underwriter counted 5% of a recent American Express balance as a monthly debt. “But they recently took their long planned vacation of a lifetime”, I said, “their Am/Ex account balance is never $14,000, this is not fair, I can show you a year’s worth of Am/Ex statements showing their balance is regularly $3,000 to $4,000, and no more.” And the underwriter said, “Does not matter.” Yes it does! Common sense matters! Or it should, at least.

I found answers to every single one of these “problems” and ultimately got loan approvals for all. I could go on, and on, with more stories. But it turns from silliness to anger pretty quickly, so I had better stop. Imagine being on the other end of these gems on a regular basis, and getting screamed at by angry clients who wonder what in the *%!#!%?@# is going on at Fannie Mae and Freddie Mac, or what the *%!#!%?@# the underwriter is thinking. And my clients want to now what bunch of clowns are writing all these silly new rules! I never seem to have a good answer to those questions.

It is not a fun time to be in the mortgage business, and it is not a fun time to get a mortgage. It is stories like the above that make it more and more important that a mortgage consumer shops experience over price. Certainly make sure you are getting a square deal on the rate and terms, but when you shop too hard, you are begging for trouble. Keep in mind the above, which are a small sliver of stories I could tell you, and make sure you deal with only very experienced mortgage providers who know how to respond to the current silliness in the mortgage industry.

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”.

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2 Responses to “Silly Reasons To Deny A Loan”

  1. Monty says:

    I have a small business grossing $10,000 a month. I do all the bookkeepings myslef. I applied for a home loan and the lender asked me for an audited profit and loss statement. What is the difference between a regular and audited statement, please and how do I go about getting the profit and loss statement ?

  2. brianm says:

    When they ask for an audited profit and loss statement they’re asking for an accountant or other financial professional to review all the income and expense records and prepare the profit and loss for you. They expect that financial professional to certify the numbers. Confirm with your lender first to make sure they don’t have any other requirements, some lenders may not allow anybody but a CPA to prepare it, for example. So better to ask your current lender what they expect.

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