Tom Kelly: Can your lender challenge loan data after closing?

Lenders are more focused on the proper verification of a borrower’s assets. But just how long is the information stated on your home-loan application considered valid? If you retire or lose your job after your loan closes, can the lender demand payment in full?

Those questions, and others like them, were raised recently by a long-time nurse whose lender demanded that a “reverification form” be signed at closing. She was especially concerned because she had already given financial information – bank deposits, stocks, income – at the time of application. She was a widow and was planning to retire in the next 18 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 nurse also was confused when the mortgage broker told her that it would be necessary to recheck her credit and assets if their lender decided to sell their 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 percent 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. Most of the time, defaults occur because of serious illness, loss of job, divorce or the death of a partner.

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 or 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 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. In a remote situation, perhaps borrowers would be asked down the road if they were still living in the property. Typically, if the loan payments are made, no questions are going to be asked.

In the case cited here, the nurse was concerned that her background and asset information would become available to any lender or investor shopping the secondary market. She 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.

Remember, we have returned to a more stringent lending environment. Lenders definitely will want evidence of your ability to repay your loan.