Written By: Joan Ewing, Op-Ed Writer
to its “slow” time of the year!! In my opinion if this entire year would have been any slower there would virtually be no one left in the industry. As it is – the downturn of the market has caused brokers and lenders to flea in massive numbers. Those remaining are the die hards and they are working hard for their deals; which is all the more reason to do our due diligence prior to sending a package to the investor. It is easier to turn a borrower down prior to closing – then it is for a branch or broker to buy back an early default.
In the past several weeks we have talked about the 1003 (application); credit reports, employment verifications and what to look at for possible red flags. This week – let’s go over the Bank Statements and Declarations (Part VIII) on the 1003.
We have all seen large deposits on the VOD or bank statements and I am sure everyone has heard stories about how the money was obtained. It was a gift, cash under the mattress, my cousin gave it to me, my boss gave it to me etc. The problem arises when the source of the large deposit cannot be verified. When the loan officer takes an application, it is important that all accounts be included on the 1003 as well as very close estimates (if the bank statements are not readily available) of the balance in the account. Large deposits are an immediate Red Flag!!!
If you are looking at bank statements – and the borrowers pay bills writing checks, I always verify the sequence of the checks that have cleared. If you have two months statements, verify the sequence of all checks cleared and that the same check number has not cleared more than once. I have personally seen the same check numbers clear two separate bank statements with different dates – since this is one of personal experiences; it is sometime I am always tuned into. If you are dealing with a VOD, you do not have the luxury of verifying check numbers. However, if there is a large deposit on a VOD the source of funds must be verified. Many times the borrower will state, it was a paycheck. Well then I verify the net amount of the borrower’s pay check and determine if it could be reasonable that the borrower deposited his full paycheck and it makes sense. If the deposit is over the borrower’s pay check amount – you must question the borrower further as to the source of funds.
It is also important to note the date the bank account was opened on the VOD – if the account has been opened in the past 60-90 days with a large balance, it is important to verify the source of funds for opening the account.
If the borrower has given Earnest Deposit Money with the Contract of Sale, ask for a copy of the cancelled check. If the check has not yet cleared the bank and is being held by the broker – ask the broker for a copy of the check. Verify the bank account actually belongs to the borrower and that there are sufficient funds for the check to clear, since it has not been deposited.
If there is a sale of residence, verify funds with HUD1; if it is a personal loan repayment, ask for a copy of the promissory note; if it is a sale of a car, ask for a copy of the contract, copy of check received and deposit slip.
Verify that there will be sufficient funds to close on the transaction after deducting the amount of the Earnest Deposit Money. If a borrower prints a copy of his bank statement from the internet – it must contain the borrower’s name and account number; if the print out does not contain this information, it must be signed by the manager of the bank.
It is important to remember – never leave a question in your mind where the borrowers are obtaining funds for the closing on their property. Some times one answer to a question, will lead to 20 more questions. That’s OK!! Keep asking until you are satisfied with the answers.
Moving on to the Declarations section of the 10034 - I feel the question most often answered incorrectly in the Declarations section of the 1003 is – Are you obligated to pay child support or alimony? More times than not – the question is answered NO, no child support or alimony is paid. As an underwriter – I always go back to the borrower’s age; is the borrower married or unmarried; are their any dependents listed on page 1.
If the borrower is unmarried and has dependents listed - ask for an explanation of why there is no child support being paid. If the borrower is separated from the spouse, always ask for a copy for a copy of the separation agreement, if one does not exist you must determine the borrower is not paying child support, double check the borrower’s pay stub, maybe it is being deducted by his employer. If a borrower states there is no child support and has under- aged children – ask for a letter from the attorney or ask for a letter of explanation from the spouse who has custody of the children as to the child support.
It is just as important if a borrower is receiving child support and it is used for qualifying income and verification of three years continuance is absolutely necessary.
I hope some of these Red Flags will raise questions in your mind while processing. Keep asking questions.
About The Author
Joan Ewing - As an op-ed writer and active FHA DE Underwriter for the past 15 years, Joan Ewing is a proud NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). Joan brings years of FHA Government experience to her writings, letting her readers tap into her underwriting knowledge base.
