The Real Reason Lenders Need So Much Paperwork

Hey guys, welcome back to another week of Mortgage Matters in Minutes. I'm your host Brent Rasmussen, owner of Mortgage Specialists. In my 25 years plus of lending, we get this question quite often is why do you need so much paperwork and why do you continue to need that paperwork updated throughout the process? So, we're going to work to explain a little bit of the wise today because here this summer, we've been getting that question a lot. is are you sure you need all this? I'm only borrowing this much. Once my house sells, this will happen. But I'm going to explain to you a little bit about where we've been at and why we're asking for this ourselves. So, our job sometimes, as I mentioned to people, is like adult babysitting. we are requesting paperwork and following up and refollowing up so I can share with you to get the best interest rate and to be the best client providing what we ask would be the simplest thing that you could do and not that I'm speaking on our process by any means but for the whole industry I've talked to individuals the other day that stated how do I get a best interest rate well I can get you a better interest rate if I spend less time on your loan if I spend less time on your loan you're providing paperwork as we're asking versus having a question about every single piece of form that's needed. So before obviously the credit crisis 2008, we did a lot of types of loans that didn't verify income, assets, credit, so on and so forth. So because of that, federal law changed to make it a requirement that we have this documentation. So, it's not by lender's choice that we want to ask for you for this documentation. It's either set by federal regulations or investor guidelines. And I think that's where the biggest take is that individuals kind of get forgotten about is that the money is getting put up for your home loan by some investor. Okay? might not be a person, might be a company, it might be a country, it might be someone that does have a large sum of money, but they are agreeing to say I am going to invest into home loans, but they want a certain rate of return and in order to get that rate of return on their investment, the investor themselves has to set certain guidelines and rules saying you have to have a job, you have to have a credit score of this, you have to have a down payment of this. And through the years of statistics, they created these guidelines and refined them so that when we give you a loan, you are going to make those payments over time. A lot of people will say, "Hey, I'm fine making that payment. No big deal." Later on, they don't. This is why the requirements needed for so much paperwork, whether it's paystubs, bank statements, driver's license. And what is most frustrating to consumers is throughout the process new more dated items come about like you get paid every two weeks, you get paid or you get bank statements every two months or every one month or every quarter. And for underwriting, they always want the most recent paperwork. And what is this underwriting that we talk? underwriters are there following the federal regulations and the investor guidelines to say yes, I'm a neutral party. I've reviewed it and they've met the rules so that when we give out money, the investor is going to gain their rate of return, which is a very small rate of return. Investing in mortgages is very conservative investment. You're not getting a 12, 14, 16% rate of return like you would on emerging stock or something else that you put your money into where you might receive a quarter a percent or an eighth a percent on your investment and you're putting up $300 billion, right? And so that's why there is so much paperwork. It's for the process to ensure that everyone is going to comply and make their payments. So, we understand the paperwork that's needed can be very frustrating, can feel like it's very repetitive, especially if you've done a pre-approval a month or two ago and then you find a house, there's going to be new bank statements, there's going to be new paystubs, and the biggest problem you run into is when individuals maybe are getting a gift from a family member or maybe are moving money around from a bank account to investment accounts. And there's a lot of federal laws that exist anti-money laundering to make sure that the assets you have are monies that you actually made and didn't just get from Bitcoin and it's not traceable because we learned a lot of this back in 200 I'm sorry in 2001 911 is that a lot of terroristic money came through the system. And so another situation that created more and more federal laws along the way. So as you can see again, it's not by choice. I don't want the extra paperwork, but the paperwork is structured so that money will continue to move through the system. If we didn't follow the paperwork, we'd be back to not offering as many loans to not to as many people and individuals would have to require a much larger down payment, such as everyone doing 20% down with a perfect credit score. And we know that's not the case. There's other options out there with individuals going down to a 620 credit score and FHA fills that void very well and so does conventional and so does VA. So when we are here to help you, we want to educate you the wise. Why are we asking for this paperwork, that's what I feel we are different with here at mortgage specialists in telling you and explaining the information, not just saying give us this, give us that. Here's the reason underwriting wants to verify how much income you make, how much your credit score is, how many liabilities you have, and do you have the money set aside for a down payment. Once we get past those items, we're great. But the process takes 30, 45, 60, 90 days, depending on when you do your pre-approval and when you're closing. So throughout time, if you can be organized, saving where you download your paperwork to, how you get that paperwork and where you save it is going to make the process much easier and stress-free for you. I'm Brent Rasmussen, owner of Mortgage Specialists. Here anytime to educate, answer any questions in the home buying process and especially in home loan financing. And reach us out to us at anytime at 402-991-5153 or check us out on our website at mtg-specialists.com.

Have a great rest of your week. We'll see you here soon.

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