MReport November 2019

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24 | M R EP O RT FEATURE and qualifying income may include boarder income, acces- sory apartment rent, income from non-occupying co-borrowers, and extended household income. It is important for originators to provide applicants with detailed information regarding verification steps and procedures. Ask what language they would like to have additional explanatory informa- tion, and offer to set up additional meetings or calls with relatives to explain verification steps and required supporting documents. Mortgage applicants need to demonstrate, together with any partners, that they have the strength and capabilities to re- sponsibly finance a home. It is the lender's job to acknowledge each area of strength, and explain how compensating factors can offset a weakness. Whether it is for a job, or college admission, every potential applicant wants to be re- assured that all of their strengths and capabilities were considered. Suggested best practices are dis- cussed separately according to the following four factors: • Property and transaction • Income • Credit and debts • Cash and assets Factor #1—Property and Transaction W hen interviewing ap- plicants in person or by telephone, focusing on the topic of the property helps establish a positive dialog. Originators can quickly determine if the subject property meets investor guidelines based on loan purpose, occupancy, and property type. For lower- priced homes, rural properties, or manufactured housing, originators should clarify a few additional items, such as property square footage, type of foundation, type of heating, plumbing, and land ownership need answering. If the property does not meet any requirements, your customer may very likely contact you again with an application for a different home. Factor #2—Income W hen discussing the topic of income, it's important to use the phrase "qualifying income," since it conveys the message that although the lender recognizes their hard-earned income, qualify- ing income must be from verifi- able and acceptable sources. The new Uniform Residential Loan Application (URLA) includes 20 different types of acceptable sources in Section 1e, Income from Other Sources. One-third of Americans today have non-salaried sources of income. They are self-employed, independent contractors, and work on farms or ranches. Applicants need to hear that you accept a wide range of income sources, and that if they are willing to spend some time gathering supporting documents, it will expand their available loan options. Factor #3—Credit and Debts T elling a consumer that they are being offered a loan at a higher interest based on their credit score or lack of history sounds negative. Perhaps the non-QM program is the ultimate choice, but it must be their choice. The originator's job is to get the applicant actively involved in building their credit profile. They need guidance about gathering supporting documents that prove at least 12 months' timely repay- ment history on items that are not included in bureau reports, such as utilities, cable TV, cell phone bills, car insurance, health insur- ance, child care providers, etc. The phrase "non-traditional credit" is not relatable to consumers. People who pay their bills in cash have the longest tradition in history, and this needs recognition. Factor #4—Cash and Assets S ometimes applicants are discouraged from including liquid assets on the 1003 if they are not needed for transaction funds. However, if the loan is denied, an applicant might ques- tion whether they would have been approved if all of their assets were disclosed. If the asset is not needed to cover transaction funds, it will not be verified, nor will it be included on the final 1003 and transmittal summary. For exam- ple, additional months' payment reserves might be required if the LTV-percentage is adjusted, or the credit score falls. Consumers who are not engaged in mainstream banking sometimes find the veri- fication steps and documentation requirements a hurdle, especially if older generation relatives are in- volved. It is important to keep the conversation relatable and show respect for the customer's culture and traditions. To narrow the gap in borrower fall-out rate in multicultural mar- kets, lenders need to consider the lifestyle, culture, and demographics of their marketplace. There is a reason behind every loan applica- tion that is closed for incomplete- ness. If three or four reminder letters and/or lists of outstanding documents were ignored by the applicant, at least the lender has an audit record. On the other hand, if minimal follow-up communica- tion is noted, this may be viewed as discouragement in a fair lending examination. There is a reason behind every LAR reason noted as unverifiable information. These situations can sometimes result from inadequate instructions given to the borrower. Consumer outreach, such as homebuyer seminars and face-to- face interaction, can boost produc- tion in multicultural markets. The one trust-building advantage lenders can offer is a letter of pre- approval. This type of pre-approv- al would entail full underwriting except for the property. First-time homebuyers should be encouraged to meet with your representative several months prior to beginning their home search. This will give them the opportunity to begin gathering supporting documents. This is the time to tell them their employer will receive a telephone call, and that their landlord will receive a verification letter. It is the time to tell them that because their grandfather is giving a cash gift, they also need to provide a copy of their bank statement. In some cultures, asking for this type of proof is a trust issue. As long as they are told their credit report and verifications, including telephone calls to their employer, might need to be updated after they find a home, they will be fully prepared. During this time, the trust-building journey begins, and you might just receive a few more referrals along the way. ANNA DESIMONE is author of Housing Finance 2020, New Mortgage Programs for the New Generation of Homebuyers (Hipoteca 2020 in Spanish). She has written over 40 profes- sional handbooks on the topics mortgage best practices, fair lending, and regulatory compliance. She is the former owner and founder of Bankers Advisory, a mortgage compliance and quality control company, acquired by CLA (Clifton Larson Allen). To sustain trust, there can be no surprises. Applicants need to know up-front that verification letters will be sent to their landlord, their employer, their union administrator, or to their neighborhood savings club.

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