I thought I'd done it all right: Excellent credit (782), documented income, 70% LTV, watched rates waiting til just the right time, applied and locked a great rate at the end of October. I'd heard of the troubles in the industry, but this is my 5th mortgage/refi, I thought it wouldn't be an issue for me. This one's been rough. The silliest things keep popping up. But I finally past the underwriter's test, I get the news, it's finally approved. I contact my title/escrow agent to deal with a signing appt, and she hasn't received the packet. This is my 3rd failed signing. This time the lender, GMAC, has found an excuse I can't fix.

I bought this land in 2008, cleared it and built it mostly as sweat equity in 2009. As I was doing this I did a quick look at my taxes for 2008 and verified that I would get a refund. Since there's no penalty for not filing if you're owed a refund, I put it off, thinking I'd deal with it when I had the time to maximize my refund- say, with my 2010 taxes. I'm sure you all know where this is going. I had to rush through my taxes for 2008, hand carry them to the IRS and send a copy with the "received" stamp to the broker. As a side note, I owed for 2009, so that return was filed.

Now they are saying that even though I meet Fannie Mae's standards, and have met all the other ridiculous obstacles they've thrown in the way, they won't lend without the TRANSCRIPT for the 2008 tax return. The IRS will take 4-6 more weeks and GMAC won't extend the lock that long.

I understand that the industry has been hit in the last couple of years, but this is BS. I believe rates have gone up by a full percentage point, and GMAC doesn't want to honor their lock. My broker says they want to renegotiate the rate. It seems that GMAC thinks locks only work one way. Does anyone have any advice, or failing that, the number of a good lawyer in Western Washington state?

I understand that it's their money, and they aren't required to lend it, but in this instance, there was a deal laid out, and I met my side of it. I have the credit, the income, the equity and all the documentation for them to sell this loan on the secondary market. I paid 3rd party fees in good faith, my opportunity loss is about $27k, (rates went up while GMAC has been shafting this deal) my direct losses are over $600 (appraisal and title cancelation).

How can they back out of a deal that meets industry standards at this point and not be liable? If GMAC can insist on their own arbitrary standards, they can just blow any loan locked before rates go up. At that point, why would borrowers ever lock? If rates go up, your loan falls through, if they go down, well- you're locked, so that's not for you.

This can't be common in the industry, can it?

Kenneth,

It is unfortunate, but "fair" and "logic" have left the building when it comes to the underwriting process. If they requested a 2008 return and nothing shows up when they execute the 4506, there are plenty of lenders who would have given you the same response. The only thing that does seem strange is that you cannot pay to extend the lock for the timeframe needed. It may cost a few bucks at the closing, but you should be able to do this.

What I would do is keep calling the IRS (800) 829-1040. You are actually able to access a transcript of your returns this way (by fax), and at least can monitor when they are available for the year 2008. I assume this may be meaningless if your rate has already expired, but if not I would do everything you can to get it extended even if it means incurring more cost at the closing. I say this because I fear you won't have any luck at all asking the bank to pay and you do not want to lose the rate if it can be salvaged.

Good Luck,

Jason

Thanks, I'm paying to extend the lock again. It was due to expire Nov 26th, originally, and brokerage delays forced short lock extentions til yesterday, paid for by the brokerage. I'm paying to extend to Christmas, in hopes this will still happen next week. According to the broker, GMAC won't extend beyond 30 past the first expiration date.

Thanks for the IRS number. I'll start harassing them today.

So you are saying it's standard practice to refuse loans that pass the Fannie Mae underwriting program, regardless of what the rates are doing?

I am saying that it is standard practice for banks to execute a 4506 as part of their underwriting/quality control process. If this 4506 does not meet their underwriting or quality control guidelines then they are likely to decline the file or ask the customer to comply.

Meeting Fannie Mae's eligibilty requirements does not in any way force a bank to issue you a loan, in fact many banks have internal processes and overlays that are far more restrictive than what Fannie would allow. As for the 4506, that is a fairly recent change made by pretty much every lender to execute prior to closing. I can safely say that many, if not most, would have handled your file in a similar manner.

The underwriting pendulum has swung in the other direction....it is hard for even the most well qualified borrowers to get in a loan in many cases. To avoid this very issue I ask every client at application of they have filed the last two years returns. If the answer is no, I get them started on the process right away to avoid the very issue you face now.

Thanks,

Jason

You can always ask the broker to run the loan Freddie instead of Fannie (not sure if GMAC sells to Freddie) and see if it gives you findings for one year tax returns....your broker should have done that in the first place if he was aware of the issue at hand...your profile sounds like one that would typically get those more relaxed findings....I have run into this before when I was a broker and the lender would always accept a stamped received copy of the returns that were hand delivered but I never dealt with GMAC...not dogging brokers but this is one of the hard parts about dealing with them..once you lock into that one investor you are stuck with that investor..good or bad.....how much did you pay to extend the lock and what is the rate?

3.25% on a 15 year fixed. 20 basis points for the next 10 days ($450). As I said, I was watching the market. I would have handled the tax return sooner had I thought it could be a problem.

My understanding is that Fannie Mae is not the problem, that they require 2 years returns, but only one year's transcripts. My broker says it is GMAC that is insisting on actual transcripts- instead of the transcript for 2009, and the stamped copy of the return for 2008. Honestly, if 2 most recent years transcripts are truely required, how would anyone close a loan in May/June?

If there were other issues/complications, I could see this, but I have the credit/income/equity/documented history down. As a transcript shows nothing more than the return, the only conclusion I can draw is that GMAC is trying to get out of this loan because the rates went up.

*

Tom,

GMAC is not trying to 'get out of' honoring the rate you had locked.  Yes, rates have risen, but the receipt of your income tax transcripts (4506 Transcript) has become an underwriting requirement & industry standard nationwide.  If your loan had been locked with Chase, Wells Fargo, Bank of America, etc. you would be running into the same issue.

You have to realize the position GMAC is in - they want assurance that your 2008 Taxes had been filed and paid accordingly as if they had NOT been and you had over due / past due taxes, the Government (IRS) could potentially place a Lien on your home which would supercede GMAC being in 1st lein position on the property; and thereby putting the collateral for the loan they are extending (your home) at jeopardy.

Continue to try and work with the IRS to have your filing processed; unfortunately it is time consuming, but once those returns have been filed through the system you should be totally in the clear.

It is unfortunate you had to go through this process.  As previous posters have stated this is a result of the "Underwriting Pendulum" drastically swinging to the side of caution.

Alright, maybe I'm operating under false information. What does a transcript show, that a tax return doesn't? I've never seen a transcript, and just assumed it was pretty much a printout of the form 1040.

It doesn't show anything different, in fact it shows less. It is really just a copy of all of the totals from each schedule of your 1040. It is a quality control measure to make sure that everything you have provided is legit. The biggest thing that it catches in my experience is a schedule C loss. For example, if you run a side business and claim a loss how would the lender know about this if you are also a W-2 employee and tried qualifying with just that income? What about if you were self-employed and decided to hop on Photoshop and make your numbers look a bit better with some doctored tax returns? They want to make sure the income info you provide jives with what they get directly from the IRS.

Thanks,

Jason

Ok, so I guess there is just a bare minimum reason for the delay, then. Talk about underwriter overkill.

Well, I think I'll just have to write this off. I knew that there was a chance of this loan not going to funding, but I was worried about the appraisal. Everything else has blind sided me. I don't think I'll ever see rates like that again, and I don't know that I would go through this nonsense again if I did. How you brokers make a living with this going on, I don't know.

This industry is screaming out for well done regulation. Unfortunately, out government isn't in the well done regulation business. Your associations should jump on this before the Guv does.

When I say well done regulation, I mean to come up with a standard package, with listed commitments from each side. Something that doesn't through regulation preclude any deals, but allows anyone to come in and see what the package loan requires, go down the list, and verify for themselves that they meet all the requirements before paying anything up front. all the paperwork requirements, minimums, and ratios. Better for the borrower. Better for the LO who doesn't have to chase anything down but credit scores and ordering an appraisal. Better for the underwriter who can just look at the list and give a pass/fail. Better for the lender who has a standardized package to resell.

As long as I'm ranting, the rate/term/points thing is ridiculous. Borrowers should be able to go online, and play with a term/rate/points calculator with all the compensation built in. Everything on the GFE. Nothing to commit to, but updated with the newest rates as they come in so it's gonna be close. Most people will be alot more comfortable with sliding scale transactions if they can play with the numbers themselves. This is what computers and the internet are for. It wouldn't cost much, and your computers already have all this info. All that would be necessary is to make the interface user friendly, if it isn't already. A borrower who has educated himself with the calculators, and watched the rates will require less hand holding and sales pitching and will pass the word around. I know there are some online lenders already doing something like this, but their calculators aren't very accurate, don't factor in the details like rate lock extension pricing, etc. Set up your system to update at the same time new rates come in as you do with your current systems.  You already have all this information, make it public. 

Lack of transparency will destroy your industry. You are already the scapegoat for all that is wrong with the economy and most folks' lives right now. "Everybody knows" there are junk fees, hidden fees and YSP. They don't know what they are, but they are always suspicious of the LO. In that position, politicians can make a career out of witch burnings. It's pretty clear that the Guv isn't going to make up something like this, why don't you?   

You are so right it is not even funny Tim. Unfortunately the Govn't beat us to it, which we can only blame on ourselves. As you very aptly put it "our government isn't in the well done regulation business"

I can only hope we work as an industry to do some of the things you mention to make the process more consumer friendly. We are so deep in the regulatiry process now and the bank's are so scared that every loan will go bad tomorrow that I fear we are a way's off on that.

Good Luck,

Jason

Jason has explained this very well.  The only thing I can add is that some states do have laws on the books that protect the consumer's rate lock.

In CT, as long as the consumer provides all the documents requested by the lender in a timely manner ( defined as 7 days ), the lender must provide

the rate as locked.

The new regulations will protect 2 consumers that would have been harmed and they hurt 3.

Sigh