By Anessa V. Cohen
If ever I were contemplating taking out stock in the paper industry, now would be the time to buy in. Applying for a mortgage these days requires more paper than ever, and probably even two pens to sign everything, as opposed to the one black pen that used to be shared by everyone at the table. Consider all the forms and disclosures that you must review and read before signing and applying for a mortgage—either for a refinance of an existing mortgage, or for a new mortgage, perhaps while purchasing a new house.
There was a time when, along with advertising a competitive rate, it was not unusual to see banks advertising, “Come in and apply with us—Reduced Paperwork!” I laugh when I think of those ads. Today, if any bank advertised “reduced paperwork,” probably they would be cited for RESPA violations and fined for even attempting to reduce the paperwork required by Dodd-Frank of all lenders offering financing.
Reduced paperwork has gone with the wind, together with No Income Mortgages (although a few of those have survived in private bank portfolios) and Stated Income Mortgages. To show how far the Feds have veered away from No Income Mortgages, one of the disclosures that must be signed today when applying for a new mortgage is a disclosure that the borrower signs promising not to commit mortgage fraud.
Loan originators are peppered with disclosures, reminding them that they must provide proof that the borrower that they are assisting in obtaining financing has the ability to repay that mortgage (something that previously was not a burden of proof), and must in addition take all kinds of signed disclosures and back up documentation showing the capacity of the borrower’s income to carry the mortgage. They must also verify income with paystubs, W-2’s, and tax returns submitted by the potential borrowers, and then re-verify that everything is really correct after another disclosure form is signed by the potential borrower, allowing the lender to check the tax returns submitted against the tax returns listed in the IRS database to really and truly make sure they match.
Not to be outdone, Homeland Security gets into the act of the mortgage application as well, to make sure no terrorists or “undesirables” (I love this term, since no one has really given an accurate description as to what or who makes up an “undesirable”) gets through the Homeland Security net and gets a mortgage in America. A Patriot Act disclosure must also be signed by each would-be borrower, and a government picture ID (usually a driver’s license or passport) must be submitted with the application by each borrower, so they can be checked against a database on the Homeland Security network.
Another disclosure form is meant to deter mortgage fraud, which played a large role back before the meltdown years. Together with this disclosure, credit reports must be scrupulously reviewed to check for inconsistencies in names and addresses, even in credit accounts that may or may not belong to the borrower applying for a mortgage. In the past, there have been cases where would-be borrowers would fraudulently change the spelling of their names, enter bogus addresses, and even put in different credit accounts that were not really their own accounts in an attempt to manipulate the credit-reporting data and throw a wrench into the credit-scoring system. In an attempt to stem this practice, certain practices have been introduced into the credit review process to discover inconsistencies and address them from the outset.
To this end, an explanation letter is required from each borrower explaining all addresses that appear on their credit report, no matter how old, even if it seems as if they were inserted in error. Explanations are also required for all inquiries that appear in a borrower’s credit report, together with a declaration as to whether or not new credit was undertaken as a result of each inquiry listed.
Although all of this has evolved into reams of paper needed for the actual mortgage application process, I do not see any slowing in the requirements for more and more disclosures in the future, as the Feds attempt to freeze out fraud of all kinds in the mortgage process. v
Anessa Cohen lives in Cedarhurst and is a licensed real-estate broker and a licensed N.Y.S. mortgage originator with over 20 years of experience, offering full-service residential, commercial, and management real-estate services (Anessa V Cohen Realty) and mortgaging services (First Meridian Mortgage) in the Five Towns and throughout the tri-state area. She can be reached at 516-569-5007 or via her website, www.AVCrealty.com. Readers are encouraged to send questions or comments to anessa.cohen@AVCrealty.com.