Supporting documentation may not support the
borrower's case. I tangled with an underwriter defending a foreclosure caused by health issues. When
I classified it as a buy and bail, she pointed to sixty
pages of documentation on the borrower's medical
and legal expenses. Why legal bills, I asked. For the
surrogacy, she explained. Because the borrowers prioritized having a child and a larger house over repaying their mortgage, approval was not justified.
One gauge of authenticity is specificity. Generic
answers are unconvincing. The more specific the detail
and original the wording, the more believable it is. For
more critical decisions, supporting documentation
may be helpful. Bankruptcies are not the only events
that merit sorting into the extenuating circumstances
bucket or the financial mismanagement bucket.
A good rule of thumb is the more numerous the
untimely payments and the more extended the time
period, the more likely the borrower is responsible. A
cluster of late payments within a limited time period
is less concerning if sufficient time has elapsed since.
Least convincing are page-long letters summarized as
"not my fault, not my fault, not my fault."
Factual details in the borrower's own words tell
the best story. Loan officers or other assisters tend to
simplify. For borrowers who are too busy or unable
to write, the explanation can be dictated to the loan
officer or processor and certified by the borrower as
true before closing. Letters of Explanation should be
read for substance, credibility, and whether flexibility is
justified. This requires analysis, not a mechanical sign-off that the condition was received.
The lesson about inconsequential lapses was
learned from a feisty and highly qualified borrower
who wouldn't write one. When I learned of her refusal to address a single and dated thirty-day revolving
late, the condition was waived.
Anne Elliott studied mortgage risk throughout her professional career. Her upcoming book, Underwriting with
Thought, will be published in early 2017. Contact her at
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