The biggest mortgage fraud red flags relate to phony loan applications, credit documentation discrepancies, appraisal and property scams along with loan package fraud.
Social Security number of the pay stub does not match the borrower's Social Security number. Amount of income is not reasonable for the position held. The paystub from a major employer is handwritten rather than computer generated. There are inconsistencies in deductions when more than one check is present.
The mortgage approval process consists of four phases which are often confusing to borrowers: Pre-Qualification, Pre-Approval, Conditional Approval, and Clear to Close.
Mortgage Fraud Red Flags: Occupancy Fraud
To anticipate occupancy fraud, lenders should be on the lookout for appraisals that include expected rent payments, buyers who provide evidence of living “rent-free” in their residence, and very large down payments.
You Have Too Much Debt
As part of the underwriting process, lenders will look at your debt-to-income ratio, or DTI. This ratio reflects how much of your income goes towards debt each month. It's calculated by dividing your total monthly debt payments by your income.
The most obvious real estate red flag is a listing price that is simply too good to be true. This usually indicates that the sellers are extra-motivated, which should certainly make you wonder why.
How often do underwriters deny loans? Underwriters deny loans about 9% of the time. The most common reason for denial is that the borrower has too much debt, but even an incomplete loan package can lead to denial.
While the underwriter and loan officer can be located in the same office, the loan officer may not attempt to influence the underwriter's decision. The loan officer may provide information to the underwriter and ask questions regarding reasons for approval or denial.
The Three C's of Underwriting
Credit reputation, capacity, and collateral are things that your underwriter will use to access your loan eligibility: Credit Reputation — Your credit score, payment history, accounts, and more will help determine your loan eligibility.
Lenders will look at your creditworthiness, or how you've managed debt and whether you can take on more. One way to do this is by checking what's called the five C's of credit: character, capacity, capital, collateral and conditions.
The three stages of every loan are the application, underwriting and closing. Application. In the application phase, a loan officer will work with you directly to gather all information needed to prequalify your loan request. First, you will discuss your plan for the loan proceeds.
If you took a loan under $2 million, and it is flagged – this can be concerning. It could be that one of your employees is a whistleblower, and as a result is bringing an action against you – by helping the government identify theft and fraud. These cases are known as qui tam cases.
Having a mortgage loan denied at closing is the worst and is much worse than a denial at the pre-approval stage. Although both denials hurt, each one requires a different game plan.
When it comes to mortgage lending, no news isn't necessarily good news. Particularly in today's economic climate, many lenders are struggling to meet closing deadlines, but don't readily offer up that information. When they finally do, it's often late in the process, which can put borrowers in real jeopardy.
Lenders look at various aspects of your spending habits before making a decision. First, they'll take the time to evaluate your recurring expenses. In addition to looking at the way you spend your money each month, lenders will check for any outstanding debts and add up the total monthly payments.
An underwriter will approve or reject your mortgage loan application based on your credit history, employment history, assets, debts and other factors. It's all about whether that underwriter feels you can repay the loan that you want. During this stage of the loan process, a lot of common problems can crop up.
An override occurs when a decision made concerning a loan transaction falls outside of loan policy. Overrides can be policy exceptions for: Underwriting (approval or denial) or. Terms and conditions (such as pricing).
Flag Lot describes the shape of a certain type of lot, where the access to the road is provided along the long narrow “flag pole,” and the shape of the lot is rectangular, as a flag. Sometimes when a broker has difficulty locating a property, it can be because it is on a flag lot.
An underwriter may deny a loan simply because they don't have enough information for an approval. A well-written letter of explanation may clarify gaps in employment, explain a debt that's paid by someone else or help the underwriter understand a large cash deposit in your account.
Statistics from several mortgage bodies show that around 10% of all mortgage applications are declined each year. Furthermore, many of the declined applications are due to being placed with lenders that simply weren't suitable.
Depending on these factors, mortgage underwriting can take a day or two, or it can take weeks. Under normal circumstances, initial underwriting approval happens within 72 hours of submitting your full loan file. In extreme scenarios, this process could take as long as a month.