Borrowers Face Greater Scrutiny from Lenders

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Lenders have a lot of questions for potential borrowers and they want detailed documentation when processing a mortgage application. Even applicants with stellar credit should expect extensive scrutiny when applying for a mortgage today, The New York Times reports. 

Questions over divorces, gaps in employment, and pending lawsuits are all fair game. For borrowers whose incomes rely heavily on bonuses and commissions, they may have to verify the history of that income over time — and tax returns, W2s, and pay stubs may not suffice.  

For borrowers who are on disability, they may have to prove that they are indeed entitled to receive aid for their disability and show the payout over the long term.

Any large, irregular deposit in the borrower’s bank account will also need to be accounted for. 

Borrowers who are counting alimony and child support payments as income are now required to show a year’s worth of canceled checks, according to new underwriting rules by the Consumer Financial Protection Bureau.

The increase in probing and documentation is all aimed at making sure the borrower has the ability to repay the loan. 

Federal law does limit lenders’ questions in one area: Asking the applicant whether she’s pregnant and her intentions to return to work afterward. Several lenders in recent years have been accused of discriminating against pregnant woman.

“A lender who doesn’t want to do business with a borrower, but fears being accused of discrimination, may also drag out the application process by not returning phone calls promptly and asking for documents a few at a time,” the New York Times article notes. For example, one applicant says she felt a lender was giving her the run-around since she was applying for a home equity line of credit as a single female head of household. In cases of suspicious delays, borrowers can contact a fair-housing center to ask it to monitor the situation. 

Source: “For Borrowers, Many Questions,” The New York Times (Aug. 22, 2013)

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