Real Estate Attorney David Soble Reveals the 5 Things Loan and Modification Applicants Do to Sabotage the Approval Process and How to Fix It

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Proven Resource managing attorney states how loan and modification applicants are often the source of their own frustration. They share the blame with the banks for creating long delays in the loan decision making process. Learn how applicants create the problems that can easily be overcome. Get to a faster approval with less friction.

Since the "Great Recession" of 2008, banks and lenders have been criticized for their inability to lend or for the length of time it takes them to reach a loan or modification decision. While some criticism levied against lenders for slow turnaround is warranted, loan or modification applicants ("applicants" ) bear responsibility for their own frustration with they process. New loan applicants need to prove their ability to repay a loan, and modification applicants need to verify their inability to pay their under current obligation. In both cases, applicants often fail to adequately support their request either through their own poor documentation or make poor choices that jeopardize their approval right before a final decision.

Listed below are the 5 most common causes of frustration found on both sides of the decision -making process and how to overcome them:

1. Applicants should not "pick and choose". Providing "complete" statements or documents means that If you have 5 pages in your bank statement, provide all 5 pages. Don't pick and choose what you think an underwriter will want because an experienced underwriter is aware when someone is "holding back" information. Missing information just creates their need to ask for more information. If the pagination of documents includes "Page "1 of 5, 2 of 5" and so forth, don't leave out a page even if it's blank, unless you want to delay the process.

2. Don't supply unsigned or unrecorded legal documents. When applicable, it's common practice to ask for divorce decrees, separation agreements, and other court paperwork to verify a source of income or disbursements. But if these documents are not signed by a judge or not recorded, they are useless for verifying income and will cause delay. Real estate documents, such as a Power of Attorney, have no value to an underwriter if they are not signed and filed in the county where the real estate resides. Make sure to ask your adviser if you are unsure of what documents require recording or signatures.

3. Pay offs and closed accounts. An underwriter can require that a credit card account be closed in order to make one's total allowable monthly debt obligations meet the requirements of a specific loan or modification program. Failing to disclose an obligation is grounds for denial and could be interpreted as loan fraud. Also, don't be surprised when you are required to close out a credit card account or cut up a credit card, in order to obtain an approval.

4. Expired documents. The "file life" of one's documents is usually 90 days, so assemble and submit all of the requested documents to the bank at one time. Staggering documents over a period of time makes underwriting a file more difficult and frustrating because as soon as newly dated documents are submitted, other documents go stale and expire. It creates more work for both lender and applicant.

5. Maintain the Status Quo. An undisclosed job change or newly opened credit card account during the application process is unwise and will create delays. For instance, an underwriter could require the applicant to wait the 90 day probationary employment period before issuing an approval. Charging new items on a credit card could affect one's credit score or acceptable debt ratios for an underwriter's decision. They could insist that an account be paid down or paid off. Many a bank loan officer throws up their hands in disbelief and frustration when a client / borrower fails to disclose a job change or newly opened department store credit card.

A final and strong word of caution. If the financial meltdown has resulted in anything good, it has made lenders more aware of a certain element bent on committing loan fraud. Underwriting standards have become more conservative just as financial modeling software is capable of evaluating the veracity of everything from property values, work telephone numbers, and social security numbers. These days, an experienced underwriter armed with the latest technology is less likely to miss the required documentation needed to make her loan file accurate and complete.

David Soble is a real estate and finance managing attorney with the multi-disciplinary firm of Proven Resource, a legal and financial relief firm. He has over 23 years legal and practical expertise representing commercial and residential mortgage lenders, national banks, loan servicers, business and home owners.

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David Soble
Proven Resource
since: 07/2012
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