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The Eggshells of the Mortgage Process

Sullivan County Real EstateWe are seven years post Lehman collapse, and the real estate market nationally (and locally) has without question rebounded off the lows. Buyers have confidence once again that purchasing a home is a fiscally sound move, and what they buy today won't be worth less tomorrow. Second home buyers are buying again here in Sullivan County. Short sales, and REO sales for the first quarter of 2014 are down. It has been four years since these numbers have been down. We are climbing out of the worst housing crash in thirty years–slowly but surely.

The problem is the powers that be in our various lending institutions still have a nasty hangover from the care free subprime days of the 2K decade. And in a classic case of over-correction have tightened lending restrictions and have introduced policies that make you scratch your head, (or hurl mental obscenities) it really depends on the day.

Last week I had a buyer get turned down for a loan from the underwriter. The last step of the mortgage minefield. The whole notion of the underwriter annoys me. I know it is probably some hard working guy (or girl) with a family and a mortgage of their own, but this aura of anonymity and secrecy that banks keep around their underwriter is irritating. It reminds of the silhouetted figure that Howie Mandel would call in "Deal of no Deal." The Banker, sitting in a windowless room denying loans with a gavel and a cackle. The mortgage Nazi. No loan for you.

Anyway, the reason my buyer got turned down for his mortgage, was because a friend paid back a loan from a few years ago in the amount of $5,000. My buyer deposited it into his account. Seems harmless enough right?

Now keep in mind this 5K was not needed to cover the balance of the purchase price, or closing costs, or anything else. He was going conventional on a 250K property, and hadmore than enough. He did want to furnish the place, and had asked his friend to repay the loan so he could by furniture. Innocent enough.

The problem arose when the underwriter asked for proof that he had lent the money three years prior. My buyer had lent the money in cash, from a now closed investment account, and there was no way to prove he had lent him the money. The underwriter classified it as "gift money" and slammed the proverbial gavel. No loan for you.

This is after appraisals, surveys, inspections and endless paperwork– all the hoops that the bank asked him to jump through. All for naught because of a stupid 5K deposit, THAT MAKES NO DIFFERENCE IN THE NUMBERS. It is beyond absurd.

My buyer is not totally dead in the water. On Friday he spoke to another bank who told him this is not an issue, and he is moving forward with the new lender.

But if the underwriter could just look at the big picture for a minute. Even if his friend lent him 5K for furniture, how does that suddenly make him a bad candidate for this loan? As soon as the deal closed, the buyer could have bought $5,000 worth of furniture on a high interest credit card, or on a department store card, or borrowed the money then. The bank has no control over that. It is the lack of common sense that is so aggravating.

So I guess the lesson here is be VERY careful about what goes into and out of your account during the mortgage process. Do not make any large purchases, and do not deposit any large amounts of money. Big Brother really is watching–at least for that brief period of time.

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