Tricking Underwriters

I had to trick an underwriter the other day. I am not losing sleep over it. It is a great story and one worth retelling so that others may use this trick.

The loan example

I had a refinance client who wanted to pay their loan down by $200,000 from $450,000 to $250,000 and then refi to a lower rate. They had $400,000 in a money market account to do this, and that account happened to be in their business’s name. They were self-employed, operating a consulting business from home.

The underwriting rule

When a business bank account is being used an underwriter will typically check to make sure the withdrawal of any business funds from the business won’t damage the ongoing stability of the business, since that is where the borrower draws their income from. But this client had a very high credit score, a low Loan-To-Value (LTV) on the loan, and had $200,000 left in the business account after paying down the loan. Further, the business they ran was a low-expense consulting business, run from home. Their self-employed tax returns showed their expenses were not even $20,000 a year, so the client had enormous cash reserves left to cover expenses for a decade, and clearly, neither the stability of the business nor the client’s income were not threatened.

Enter the rigid underwriter

However….enter the underwriter. This particular underwriter insisted on seeing a letter from the client’s accountant stating that the withdrawal of the funds from the business account would not negatively impact the business.

I told the underwriter the client did not use an accountant, and filed her own taxes. The underwriter’s reply was:

“I need a letter from the client’s accountant stating that the withdrawal of the funds from the business account would not negatively impact the business.”

I repeated, “They do not use an accountant.”

The underwriter said, “I need to see a letter from some accountant stating that the withdrawal of the funds from the business account would not negatively impact the business.”

I said, “No accountant will write such a letter, and speculate about the future viability of a business, that is inviting a potential lawsuit down the line.”

The underwriter said, “I need a letter from some accountant stating that the withdrawal of the funds from the business account would not negatively impact the business.”

I said, “So it seems you’re saying you need a letter from an accountant stating that the withdrawal of the funds from the business account would not negatively impact the business?”

No common sense can be used?

So I was being sarcastic, so what? I was infuriated. In the underwriter’s defense, I have been asked for these letters in the past, and have seen accountants write them before. But I felt in this case, with a high credit score, low LTV, and $200,000 in cash reserves, that anyone should be able to see that this loan was safe, the business was stable after the cash withdrawal, and there was no need for any extra documentation nor a letter from an accountant.

The trick

Now comes the trick. This particular bank has an email address they use for general underwriting questions. An actual underwriter will reply to a scenario and tell you if the loan should be doable or not. I emailed this email address, gave the exact scenario of my client (who of course was already in their underwriting department, which I did not state), and asked if the loan was possible with no exceptions. The same day reply was, “Yes, this loan should be no problem, and will not require a letter from any accountant, the withdrawal of the business assets is fine.”

I took this email reply, to the head underwriter, and asked why one underwriter would do this loan without exception and not another. The head underwriter reviewed the file, overrode the first underwriter, approved it himself with no requirement for an accountant letter, but did ask to see additional bank statements on the business account to review the cash flow. We went to settlement within one week.

Conclusion

Case closed, smart people win, underwriters lose.

This is the kind of service I give all my clients. Mortgage lock-in guidelines can change at any time, so always talk to an experienced mortgage loan officer who will help you understand the current guidelines and how they might apply to you.