Over the last 5 or 6 years, approximately 70-80% of all of the files (a few thousand if my math is right) we have worked on were FHA files so we have developed a pretty serious competency around the ins and outs of FHA. We were doing FHA before FHA was cool!
When I was compiling the list of income-related conditions for this post, I noticed that the conditions that we see over and over again may not apply to the borrowers who make $150,000 per year and trying to purchase a $750,000 home – so as you review these, just remember that these are the main income-related conditions that we see in 2008 that we didn’t see in 2006 within our target market.
In 2008…
Lenders are requiring completed form 4506T (the document that allows UW to verify the social security numbers of the borrowers and confirm with the tax information about the borrower directly from the IRS). They still require a 4506T on each file and confirm income with the IRS regardless if you provided the borrowers copy of their W2’s and/or tax returns.
In 2006…
They used to take the borrowers W2’s or the borrowers copy of their tax returns.
In 2008…
You can no longer do an average of the previous year’s income and the YTD of this year with no further documentation. For example, if your borrower made 50k in 2007 and has made 60k through the first 6 months of 2008, you cannot just get a W2 for 2007 and the most recent pay stub for 2008 and come up with $55,000 in income.
The lender will most likely require that you get a full written VOE (Verification of Employment) from the employer and have it break down the income. It is amazing how many times an HR department can’t calculate/break down how much someone made – and it all adds up to quite a bit of time that a processor must spend on a file that they didn’t have to in 2006.
In 2006…
You could just average the previous year’s income with the YTD of this year as proven by W2’s and current pay stubs.
In 2008…
If your borrower has Social Security income or Disability income, you must get a 1099 from the IRS (borrower cannot provide it) and get the borrower to give you 3 months worth of bank statements showing 3 deposits to prove they are getting Social Security income.
In 2006…
You could just get an awards letter and a 1099 provided by the borrower.
In 2008…
It is very common for an UW to ask for “the most recent paystubs” – as in if your borrower got paid yesterday, get those.
In 2006…
You could provide income documentation where the borrower was proving W2 income with paystubs that were within the last 30 days.
These are some of the most common income-related conditions that we are seeing in 2008 vs. 2006. Did we miss anything? I am sure we did — Lenders, be sure to leave your comments as to what you are seeing out there!
{ 3 comments… read them below or add one }
Ver y good comparison. When you’re in the thick of things you don’t realize how much things have changed. Comparing just 2006 and 2008 is huge. Loan officers today have to work much harder, have to be more competent and keep track of more things.
@Shailesh — I think you are right — loan officers have to work *much* harder today than they did 2 years ago. If someone is a loan officer today and is still in the business, chances are that they are “one of the good ones” and probably do a great job. Most of the ex-car-sales guys are gone — or so it seems like.
I can not tell you how upset I am about the lending business right now. I get social security and have submitted everything and even worked on the house I want to buy. Spent money on inspectors and appraisers and now the bank tells me that if I am going to get reviewed by social security with in the next three years I will NOT get the loan. This was the very last thing I needed to prove or provide the bank before closing… Had I known about this, I wouldn’t have done all that I did and spent the money that I had before making a simple phone call to social security and asked when is my next review date? it’s like they totally took my money and set me up to fail, everyone gets reviewed at some point or another why does it matter, this is a 30 year mortgage not a 3 year mortgage.