“It meets the Guidelines, you have to approve it” – God I wish I had a nickel for every time I heard that from either the Broker, Lender/Client or the morons on Wall Street. Hell I came to believe that even a dead rat suitably stuffed and mounted could meet the guidelines, fog a mirror and you were guaranteed to get the loan – you met the guidelines, you were breathing. Between the time you applied, were approved and closed breathing truly was all that was required. 

Mind you there has always been some mystery to this manual/guideline “stuff”, really there is no mystery, they are manuals/guides to acceptable capacity (income) and the derivation of that capacity (income), acceptable credit standards, acceptable assets and acceptable sources and seasoning of assets, liquidity and collateral standards.  There are also the Automated Underwriting Systems – LP, DU, ScoreCard, AssetWise (Subprime AUS), Zippy (Chase), et al.  They merely spit out a set of conditions predicated on the data input into the system.  But, even with the Automated Underwriting Systems you must follow the manuals/guides on acceptable capacity and derivation of capacity, credit standards, acceptable assets and the acceptable sources and seasoning of assets, liquidity and collateral standards.   Additionally data integrity is an important facet of process, a fact that escapes a large number of Lenders. 

There are exceptions…..borrower did not have a history of overtime in 2005, same borrower shows overtime in all of 2006 and 2007 year to date, the borrower needs the overtime to bring the loan into conformance with the debt to income requirements of 41.00% from 44.00%.  The borrower has strong assets sourced and seasoned, with 10 months PITI reserves after closing, own funds, down payment of 10% of own funds, FICO of 690, with the current employer 5 years.  Use the overtime – annualize the year to date and 2006 overtime, that is take the year to date and 2006 overtime divide it by 24 months and call it reasonable and stable.  The borrower Debt to Income lowers to acceptable standards and it can be assumed that there is stability and expectation of continued overtime.  If you are still not entirely sure that there is a reasonable expectation for stability and continuation of the overtime, then condition the file for a letter from the employer explaining the reasons for the recent onset of overtime income when heretofore there was none, and that the likely hood of continuation is good or better. Determine that the letter is legitimate and makes sense upon receipt, use the income.  The borrower legitimately qualifies and move on, there are sufficient compensating factors in the file to allow the use of the overtime less than 24 months received.  Common sense should prevail, the borrower has a history of stability and savings, with willingness reflected.

That was a full doc file, under the old prudent lending man concept where you demanded fiduciary responsibility to the money you were entrusted to lending out, silly me, I forgot, those were passe – we had guidelines that allowed No Doc (no source of anything, well a credit report was required along with an appraisal) to 100% value.  We had NINANE – mouthful – translation No Income, No Assets, No Employment (no visible means of support or funds required, credit and appraisal were required) to 100% value, what ever they were thinking when they came up with this one is beyond me.  NINA was no income, no assets (no income, no assets reflected on the application, credit and appraisal required, employment verification varied from Lender to Lender, most often none was verified) to 100% of value.  No Ratio – we did verify employment with no income reflected and it did have to be reasonable (the line of work/job description had to support a reasonable expectation of enough income to make the payments) – but reasonable by prudent standards was seriously fuzzy and hard to grasp for most of the industry.  The problem that inevitably ensued, was it reasonable to expect that an Office Clerk in Bakersfield, CA was making sufficient income to support a house payment of

3243.00 per month along with two car payments totaling 630.00 per month and other ancillary monthly obligations, NO not in my book.  Then there were the investors with guidelines that did not even require reasonability of income on No Ratio products, astounding.  The whole gamut of remaining products became an alphabet soup – VISA, SIVA, SISA, every variation of verified this and stated that.

All of these products were offered to Combined Loan to Values of 100% (80/20 Combos), coupled with FICO scores down to 520 and those that had any income reflected either documented or stated were qualified on the start rate PITI up to a DTI of 55%, those with no income reflected – well no DTI was available. 

Suffice it to say that any idiot could have determined that these loans were doomed to fail.  Every prior prudent lending rule of the past had been thrown out of the proverbial window.  Credit and Income, Assets and Liquidity were out that window, who needs that to qualify for a loan legitimately – Wall Street is buying this “junk” faster than it could be closed, hell the loans were sold prior to final delivery of the closing package back to the Lender.  One shop only required that the borrower write a letter that they worked or were self-employed, where they worked and state their monthly income -the employer was never contacted for verification that they were indeed employed, the guidelines did not require verification of the data in the letter from the borrower.  These were the NEW GUIDELINES.

So, if you had just finished your bankruptcy, did not matter if it was the first, second or even third Bankruptcy, had a discharge, dry ink optional, could identify an employer (or not), come up with a dollar amount for income (or not), find a willing seller to pay all of the closing costs (plus as an added incentive give you a little cash back at closing) it was not like you had any money in the bank -you just completed a Bankruptcy, then get an appraiser to extol the virtues of the property and hyper inflate the value, and BREATH, YOU HAD A LOAN. 

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