Can your lender challenge loan data after closing?
Credit has become tighter and lenders are spending more time verifying a borrower’s assets, especially for investors. But just how long is the information stated on your home-loan application considered valid? If you work full time now yet plan to curtail your schedule soon, can the lender demand payment in full of your property if the reduced schedule is discovered down the road?
Those questions, and others like them, were raised recently by a long-time charter fisherman whose lender demanded that a “reverification form” be signed at closing of a small duplex. He was especially concerned because he had already given financial information – bank deposits, stocks, income – at the time of application. He is single and planning to sell his boat and work part time in an office and retire within the next eight months.
Although lenders sometimes disclose at the time of application that employment, assets and credit may be reverified again near or on the closing date for quality control purposes, a reverification form does not usually accompany the closing papers.
The fisherman also was confused when the mortgage broker told him that it would be necessary to recheck his credit and assets if their lender decided to sell the loan on the secondary market to another lender or investor. The broker said the new lender or investor would need to know if the borrower still had the means to repay the loan.
Post-closing verifications are done on about 10 to 20 percent of a lender’s loans to make sure the lender is meeting quality standards and not selling loans of lesser quality in the secondary market.
But there is no way of guaranteeing the borrower’s employment or specific assets for any significant time period, especially for the entire term of the loan. If it could be done, lenders would certainly welcome the practice because they would be funding what would really be no-risk loans.
The reason lenders require verifications of employment, bank accounts and credit before funding a loan is to determine if the borrower has the necessary down payment and can make the monthly payments at the time the loan is made. However, there is no way of anticipating the main reasons borrowers fail to make payments. Some renters leave without notice, yet owners try to find a way to make mortgage obligations. Owners who rely solely on rental income with no emergency cushion can find themselves in a hole quickly.
Deliberately falsifying statements on a home-loan application can result in stiff penalties and fines. Lying on a Federal Housing Administration loan application is a federal offense.
Reverifications are done to determine if there was any fraud or misrepresentation of fact at the time the loan was made. Lenders say post-closing verifications are not done to further investigate the borrower – they are done to ensure the integrity of the company originating the loan.
When a loan is sold to an investor in the secondary mortgage market, the investor expects to get what he/she pays for. If the borrower meets explicit down-payment, credit and income requirements, the loan is deemed worthy of being sold in the secondary market, thereby guaranteeing the investor a quality loan.
Lenders also want to make sure that their quality-control process meets all proper guidelines because they do not want to buy back loans sold to investors if discrepancies in the original documentation are found.
It’s extremely rare to see any post-closing questions directed toward the borrower. It is usually stated in loan documents if any of these kinds of questions can be asked once the loan is closed. Typically, if the loan payments are made, no questions are going to be asked.
In the case cited here, the fisherman was concerned that his background and asset information would become available to any lender/investor shopping the secondary market. He had significant revenue streams and was reluctant to again surrender personal information.
It turned out that not all needed assets were verified at the time of application. The mortgage broker’s supervisor intervened to clarify the form and the missing information.
State the truth on all loan documents. Lenders expect future job changes but their verifications are focused on today.
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