Self-employed landlords battle harder for home-loan approvals
All Fullerton residents Scott and Tina Foley, longtime clients of mine, wanted to do was refinance a rental property. They did it before. Easy, right?
After an exhausting process, they thought they were finally at the mortgage funding finish line when one more phone call came. One more question.
The loan funder asked if Tina was currently employed at their jointly owned construction firm.
“Why would you ask?” the Foleys incredulously asked.
“Oh, let me look,” said the funder. “You got stuck with Detail Debbie (as your underwriter).”
Throughout the process, each answer just seemed to trigger more questions. Document this. Defend that. Notate and prove where the tenant rents were received on the bank statements.
Get written CPA explanations about the business tax returns. And, on and on it went.
“I was so stressed out I was ready to explode,” said Tina.
What was this all about? Why are mortgage loan originators, loan processors and underwriters digging deeper than normal, demanding more documentation, especially from self-employed borrowers and landlords?
Catastrophic economic fallout from COVID-19, that’s why.
For all the righteous and responsible reasons, nobody but nobody in the lending policy world, nor the mortgage manufacturing business wants to see a mortgage made today that is going to end up in default shortly thereafter.
For better or worse, jobs and company viability can be hanging in the balance, especially for vulnerable industries.
Like it or not, one way to figure out if a business is operating at a profitable level, currently viable and reasonably sustainable in the face of continuing COVID-19 economic damage is to put the screws to it. That is, go detective.
Your underwriter will consider the profit-and-loss statement against the cash-flow of several recent months of business bank statements. Do your numbers seem to fit?
The lender will ask to review recent billing invoices you’ve sent to your customers. They might call or Google your business and look at the website. Are you there? Are you operating?
Now, let’s consider rental income scrutiny.
Plenty of tenants are paying their rent. Plenty can’t pay because they’ve lost their jobs and don’t have the money. Some others refuse to pay because they are taking advantage of the eviction moratorium and their landlords.
How can any underwriter in his or her right mind just assume anything about current rental income — particularly regarding qualifying income? They want a paper trail to verify the rents you are currently receiving.
Underwriters get their new guidance and mandates from the likes of their internal underwriting policymakers (portfolio lenders), Fannie Mae, Freddie Mac, Veteran’s Affairs, Federal Housing Administration. If something is missing in the file, the mortgage may not be saleable to Fannie Mae, for example. And, worse, big misses could also mean employment termination.
Fannie Mae posted 139 COVID-19 FAQ’s. That’s 27 pages!
Even W-2 wage earners will be examined more closely.
If you are contemplating a refinance or purchase loan, consider the following:
" If you prefer to select one loan provider rather than spend time shopping, Mortgage Grader looks like a good choice" - Washington Post