Underwriting: “Is My Common Sense In Here Somewhere?”

Every now and again I like to share a story where an underwriter has lost their mind, and gone way too far in questioning a loan. I have a doozy I’d like to share. I have seen some idiotic loan approval conditions, but this recent situation was a bit much.

I have a client who was refinancing his primary residence in Washington, DC. He had an 11% debt-to-income ratio (for those that do not know, that is very low). His credit score was very high. He was borrowing $250,000 against a property that had appraised for almost $800,000 (which is a 31% loan-to-value, very safe risk). And the borrower had a lot of assets as well, we had documented almost $400,000 in assets. This is a dream loan, right? Not so fast…

The borrower forgot to list on his loan application a small camp in West Virginia he was a part owner in, as it had no mortgage, is not worth much, and he simply overlooked it. This camp came up because the underwriter saw information on it in his tax returns. So we apologized for the oversight, and added the property to his loan application. Simple fix, right? This, somehow, became a big issue for the underwriter. Here was one of the last exchanges I had with the inside bank representative:

“The underwriter is working on signing off on the loan approval conditions now. However, non-disclosure of property is a HUGE issue in the lending community, enough to decline a loan. You may not see it too much, simply because you may not have run into it. It may seem minor, it isn’t though. I talked at length with the underwriter about it and the quality work you do; he went to the divisional underwriting manager who agreed to accept the added property. So I think we are OK. The underwriter may condition for a signed explanation letter from the borrower stating why this property was omitted from the loan application. Please be prepared to get this if needed.”

Wow. Divisional managers, explanation letters, drama and fear! Does anyone else get an eerie sense of Kafkaesque attitude running amok in this institution. Heil Banker! Your wish is my command! I won’t do it again Mom, I promise! Can I have dessert now?

Give me a break! After bowing to this ridiculous inquest, it got worse. This camp in West Virginia is in a rural location. The address on the tax return was something like 1002 Big Tree Avenue in Wayout, WV. The address on the insurance policy, which we had to get to document his expenses on this camp, did not match, it was something like “Rt. 2, Box 14, Highway 300 in Fartherout, WV.” Uh oh, that’s a problem. “Who cares”, said me, “its a small patch of land, the insurance is $300 a year, and its very rural and that is the way addresses are out there. They have multiple addresses and things don’t line up.” The bank response: “Well now Brian, that is a problem, we need to know the exact insurance cost and we need that insurance policy to have the exact same address as the tax return.”

I called the insurer and asked them to add the other address, they would not.

Then I had this fun exchange with the bank representative, “A number of people here at the bank have tried a multitude of online searches; I took over and found the name of the postal carrier at the local post office, Evelyn __. Evelyn comes in between 12-12:30 daily. I tried reaching her for several days. We thought she could confirm the addresses are one in the same, but after reaching her, she cannot.”

My response was, “well instead of hoping that Evelyn comes in from lunch with Aunt Bee, Opey and Floyd early enough to see if she can help us, and hoping she has an encyclopedic memory for rural addresses, how about we apply some common sense. Make the insurance cost $3000 a year to cover yourself, heck, make it $30,000 a year, the borrower still qualifies, so who cares!”

That did not go over well. I pulled the loan from that bank, and we are trying another bank now.

The moral of the story: you can’t make this stuff up, truth is stranger than fiction, and look out for underwriters with their heads shoved up the wrong place.