Notes From The Mortgage Insider

Note: This article is adapted from Margie Hofberg's Newsletter dated June 6, 2011.

Really, you would think that a large bank deposit would be a good thing...

In my last newsletter I mentioned that we are being inundated with new requirements and rules, and tougher interpretations of longstanding rules, many of which turn out to be traps for unwary borrowers and originators. Last week's problem resulted from an old water stain on the ceiling of my client's house, which turned out to be trouble even though the roof had been recently replaced. There was a happy ending but we had to scramble and my client did get dinged for a $250 "roof inspection."

In tongue-in-cheek fashion I mentioned what I thought was the "moral of the story," but in reality there is only one moral for ANY story involving mortgage financing: Be ready for them before they are ready for you.

There is nothing new about the underwriting requirement that we fully document the source of all large deposits* into the borrower's bank account which appear on any of the bank statements beginning 60 days prior to loan application. *Deposits which are large but regular in nature such as monthly salary do not require extra documentation. Unless they do.

The reason we have to document the source of these deposits is because there are other applicants (not our clients, of course) that do not disclose that they have taken out another loan to cover their down payment or other obligations. The payments on this loan will adversely affect their debt ratios and could jeopardize their ability to repay the mortgage.

With my clients a large deposit is typically the result of a transfer from a brokerage or savings account to their regular checking account in preparation for buying a house, or to pay their professional fees. In accordance with the "be ready" rule it is much easier to create your paper trail as you go instead of having to reconstruct the transactions.

Therefore I recommend that you tell your clients who expect to apply for a mortgage if they transfer any funds among their accounts that they must set aside copies of all statements, deposit tickets and receipts, checks, credit/debit memos, etc. which pertain to the transfer. Also, if the transfer is done by check they should be certain to deposit it separately from any other checks.

I promise you that your clients will thank you for this advice once they begin the mortgage application process!

Margie Hofberg, President, Residential Mortgage Center Inc

To contact Margie Hofberg email her at margie@rmcenter.com. If you wish to be notified when she posts her weekly Newsletter simply click on the Subscribe button below. To be added to her weekly Newsletter email distribution list email Renee Bourassa at renee@rmcenter.com.