Here is an interesting post by Jane Harford, FHA DE Underwriter writing for the National Association of Mortgage Processors blog.
She does a great job of listing the red flags that pop for her and what she would do next as a loan processor. As usual, what makes a processor nervous perhaps should have made the loan officer or originator nervous.
Jane and I both like to highlight potential red flags and then remind you that these are not deal killers for the most part. They need to get your attention so you can follow up. One or two, much less of a problem than eight or nine!
The Dirty Dozen
Here is her list with her comments and mine:
- Providing an incomplete or handwritten 1003.
- Jane: If the entire file is not put together yet, the processor might not notice ‘issues’ with the file as items come in piecemeal.
- Linda: As a RE investor, my 1003 was always handwritten. I think Jane has a great point, though. The ability to analyze a complete file instead of dragging info from the borrower every step of the way gives you a clearer picture.
- Employer’s address is
listed only as a post office box. - Jane: The business may not exist.
- Linda: My business address is a PO Box.
- Borrower’s education completed
differs from his/her job category and level. - Jane: Just because they have a pay stub to support their wage does not mean they did not fabricate it. Pay attention if the level of salary or type of job does not make sense for the education.
- Linda: Good call, Jane. I had not thought of that one. I would add to consider previous work experience as well. My husband, for example, earned a horticulture degree but ended up in construction.
- Borrower’s office phone
number is the same as the home phone number. - Jane: This could mean the borrower is self-employed or not employed at all.
- Linda: Even if self-employed, home-based ‘serious’ businesses have a separate phone number. If the business phone is answered by a kid who then yells ‘Mom, it’s for you!’ that would concern me.
- Assets don’t seem to
be consistent with the borrower’s disclosed income. - Jane: If the assets are not consistent with the borrower’s income or the recent balance in their bank accounts, recently opened, are significantly higher than their ‘average’ balance, Jane asks us what we think the red flags are.
- Linda: I am not sure what she thinks they are. I would guess overstating assets. Or perhaps Mom and Dad ‘lent’ her money just before the mortgage application so it would look like she has the down payment. I would add that frugal people often have assets that seem high compare to their income so, as Jane suggests, notice and follow up if you have a concern.
- The borrower’s
income is not consistent with his/her age and education status. - Jane: She did not add comments on this one.
- Linda: I agree, and also think that it is getting more difficult to guess what income should be based on age and education. The impact of the recession on job disruption has to be factored in.
- Borrower’s
home phone number has a different area code from the work phone number,
even though they are in the same area. - Jane: She did not add comments on this one.
- Linda: My kids are keeping their cell phones as their only personal line and often still have the number from when they lived elsewhere. Again, good to notice, and this may be the explanation.
- Borrower is purchasing an
investment property, but rents for primary residence. - Jane: She did not add comments on this one.
- Linda: Good call, again one that would not have jumped to my mind. I can think of good reasons, but it would be less likely to buy investment property before primary residence.
- Unrealistic
drive time between home/work for an owner occupied purchase. - Jane: In her comments, she added unrealistic distance between primary residence and second home.
- Linda: I continue to be amazed at how far people commute to work. That said, you would know what is realistic or customary in your geographic area.
- REO
schedule shows that borrower owns property, but no mortgages appear on
the credit report. - Jane: Did not feel the need to expound on this one.
- Linda: Neither do I. Cross-checking is one of the best ways to catch any kind of fraud. Check tax returns to financial statements. Check application to REO. Check REO to credit report. I own property free and clear. It is a reasonable question to follow up on.
- Debts listed on 1003 show no mortgage debt, but a
check of MERS shows that borrower is on an existing mortgage. - Jane: Check this out.
- Linda: Ditto.
- Borrower’s
answers to the declaration questions differ from the documents provided
and the profile that the borrower fits into. - Jane: This needs to be clarified, explained, and satisfactory documentation provided.
- Linda: If you are the person talking to the borrower (as opposed to looking at their file) add what they say verbally to this idea. Sometimes you catch fraud because the person cannot remember all the ways that they lied in the application and say something that is not consistent.
