Why Your Mortgage Lender Needs All That Paperwork

Great article from Forbes magazine answering a question I am often asked by borrowers.  See an excerpt below:

“QM that’s why. The Qualified Mortgage became a thing in January, 2014. Proposed, promulgated and made law of the land by the CFPB (Consumer Financial Protection Bureau) as a safe haven for lenders that played by the rules. Unveiled and delivered to the mortgage lending universe in tandem with ATR (Ability-To-Repay) underwriting guidelines, QM protects lenders from loan buybacks if they follow the CFPB “how to” directions for assembling a mortgage loan file.

QM is a good thing. So is ATR. Together they provide a standard; a common sense (most of the time), make sense approach and framework for determining borrower wherewithal and then providing a schematic for how to corroborate that wherewithal. If lenders stay in the QM/ATR lane and deliver audit worthy loans to secondary markets like Fannie Mae and Freddie Mac, then even if a loan goes bad, the lender will not be at risk of buying it back.

And remember for you history buffs, bad loan buybacks led to the great mortgage collapse almost a decade ago.

The primary weapon in the lender defense arsenal to fend off the dreaded buyback is verifiable proof, mostly in the form of documentation. Pay stubs, W2s, 1099s, tax returns, bank statements, IDs, real estate contracts, evidence of this, evidence of that, letters of explanation, and on and on. Essentially any and every piece of information disclosed and used to make a mortgage credit decision, needs to have a bona fide and verifiable document trail that proves beyond a reasonable doubt that what you say and what you do is in fact what you said and what you did.

And just to clarify; paperwork, documentation, paper trail, document trail, pieces of paper, whatever you want to call it; in today’s space age world of virtual and electronic everything, these labels are more metaphor than literal. Most every lender uses electronic delivery and storage of every necessary and verifiable “document” used in the mortgage getting process. Some lenders have better document acquisition systems, but ALL lenders have the same set of verifiable documentation rules in their playbook, and while execution may vary, end goals are the same.”

Click here for original article.