What Prompts Scrutiny From Mortgage Lenders?

• November 7th 2011

by Shilpi Paul

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This weekend, The New York Times published an article outlining several triggers that may prompt more intense scrutiny from mortgage lenders trying to sniff out fraud.

In addition to checking a borrower’s social security number, employment and credit history (and making sure you’re not on any government watch lists) lenders pay extra attention to your application if they notice any of the following, according to The Times:

• A large bank deposit on top of your normal income
• A home address hours away from your place of employment
• New or undisclosed debt
• Income irregularities, like a salary that differs from the normal range for your occupation or a sudden change of status from contractor to salaried worker.

UrbanTurf asked Wiliam Slosberg of Falls Church-based Acacia Federal Savings Bank to verify that the above actions would trigger greater scrutiny from lenders. Slosberg pointed out that while the article was framed around fraud avoidance, several of the triggers mentioned are simply standard loan guidelines that ensure that a borrower can meet their mortgage payments.

“The major reason that lenders have to ‘source’ large deposits is to make sure that the money comes from allowable sources,” like a gift from a relative or fiancee, Slosberg told UrbanTurf. “This is not necessarily a question of fraud, it is more a question of complying with the loan program guidelines which can be very complex. If there is a large deposit, a lender will want documentation of where that money came from.”

Slosberg felt that disparate work and home addresses wasn’t too much of an issue, especially in DC where many employees work for outposts of large organizations or the federal government, which rarely send payroll checks from a local office.

As for new debt, Slosberg explained that it is just standard practice.

“Fannie and Freddie instituted a requirement that lenders do a ‘soft pull,’ which does not affect a borrower’s credit score, a few days before closing to make sure that no new significant debts have been incurred. If there is significant new debt, the loan is not automatically declined, it is just re-underwritten with the new debt. This is not a usually a fraud issue but rather an attempt to increase the payment performance on issued mortgages.”

However, on The Times’ final point — income irregularities — Slosberg verified that it could reveal fraud.

“On almost every loan, a lender pulls a 4506T prior to closing,” said Slosberg. “The lender uses that form to obtain a transcript of your tax return from the IRS to see if it matches what you disclosed on your application. They are almost always used both to prevent fraud and to comply with the new federal and state guidelines that say that a lender should ascertain that a borrower can afford to make the payment on the mortgage before giving them the mortgage.”

This article originally published at https://dc.urbanturf.com/articles/blog/what_prompts_scrutiny_from_mortgage_lenders/4526.