Money Matters: Be prepared to explain those large deposits

Robert Nusgart, The Daily Record Newswire

Pity the poor loan officers.
All they want to do is make their customers happy. Make their builders happy. Make their real estate agents happy. Make the company that they work for happy.

But to magnify the saying that “no good deed goes unpunished,” many times all they do is get beaten to a pulp.

A loan officer’s primary job is basically to sell money. Ten years ago, it was relatively easy, with a multitude of programs that would solve just about any scenario that a borrower could fall into.

But now, five years after the mortgage meltdown, all you are basically left with is Fannie Mae, Freddie Mac and FHA government insured loans — and a dizzying multitude of guidelines and bank overlays that are ever-changing and evolving and tightening that work on the premise that a borrower is guilty until proven innocent.

Heaven forbid you are a successful, self-employed borrower.

Heaven forbid your income as an entrepreneur takes off like a rocket.

What the mortgage business wants in every loan is no risk. Underwriters seek perfection. Therefore, sometimes a borrower will get caught in underwriting hell because underwriters underwrite for a guideline and not for common sense. (I can see every loan officer nodding his head yes.)

One of the most annoying and controversial guidelines that underwriters and loan officers have to deal with is “large deposits.” Some of you reading who have just gone through the mortgage process may know what I’m talking about. For others, be prepared.

Underwriters need to know the source of “large deposits” in a person’s bank account that do not come from payroll.

Your company reimbursed you $1,500 for expenses. Explain it.

Your brother owed you $750 that you lent him last year and now he repaid you. Explain this and show me where that money came from.

You deposited $5,351 in wedding gift checks. Prove it. And we want copies of every check and it better total $5,351.

Large deposits are a pain. It used to be that if you had someone with two months of bank statements that showed she had $130,000 in the bank and she just needed $50,000 to bring to settlement, you could just back out any large deposits from that $130,000 and what the new total would be is what you would use to qualify the person as long, as she had enough verified funds to buy the house.

No big deal. It made sense. Common sense. Let’s not bother and pester the borrower about a couple deposits that don’t affect the ability to purchase the home. Just back it out.

Today, forget about it.

“I know you have $200,000 in the bank and you only need $68,000 to settle on the home, but we can’t move forward until we know where this deposit for $1,300 came from. I will need a letter of explanation, the deposit slip, a copy of the check and maybe even the account as to where the check came from.”
Ouch!

Moronic! Stupid! And more times than not, a loan officer will then spend the next 10 minutes hearing those words coming from a borrower who keeps shouting in his ear: “Can’t they see I have the money!”

There’s the story of a highly successful borrower, an entrepreneur, who has several bank accounts where he regularly transfers money for his business or personal needs. He gets paid in lump sums from various institutions — large deposits: $15,000 here, $12,000 there.

The pattern of income and deposits are consistent, and if you consider the overall picture, it’s easy to conclude that there is nothing sinister about how he goes about earning a living. He’s not borrowing money to bulk up his account. He’s not banging his credit card for cash advances.

And as he explains and shows where one set of large deposits comes from and reveals a particular account, it spawns another set of questions as underwriters look at the new account and discover that there are large deposits going into that account.

And the frustrating cycle begins. The borrower gets angry because he has to keep explaining himself, even though it is apparent how his business works. The loan officer gets beaten up not only from the customer, but also from an inflexible underwriter who ignores common sense and just underwrites to a guideline.

Despite the borrower having excellent credit, income and more than enough money in various savings accounts and letters from accountants stating as such, the loan will not close because there is a never-ending cycle of explanations being required.

In many cases, underwriters have to be skeptical of where a person’s money is coming from, especially if the funds needed are just barely there. But in cases where it is apparent that a borrower has more than enough money to settle on a home — who cares where some large deposits come from?
Without question, this is the No. 1 complaint from borrowers, and there is no relief in sight.

So if you are getting ready to apply for a mortgage and go through the process, take a quick look at the bank statements you are giving to your loan officer. If there are any non-payroll deposits going into them, make sure you can explain where they came from and have the documentation to back it up.
And don’t yell at your loan officer too much. It’s just his job.

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Robert Nusgart is a loan officer with Mortgage Master Inc. in Baltimore. He can be reached by email at rnusgart@mortgagemasterinc.com.

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