Mortgage Lenders

Need a Mortgage? Don’t Get Pregnant

Expectant parents shopping for a home are not the only ones concerned about the date of the baby’s arrival.

Mortgage lenders are taking a harder look at prospective borrowers whose income has temporarily fallen while they are on leave, including new parents at home taking care of a baby. Even if a parent plans on returning to work within weeks, some lenders are balking at approving the loans.

“If you are not back at work, it’s a huge problem,” said Rick Cason, owner of Integrity Mortgage, a mortgage firm in Orlando, Fla. “Banks only deal in guaranteed income these days. It makes sense, but the guidelines are sometimes actually harsher than they need to be.”

Back in the slapdash days of easy credit, lenders were more likely to overlook the fact that a parent was out on maternity or paternity leave. But now that lenders have become more conservative, they are requiring new parents to jump through more hoops to prove their income will be enough to cover the mortgage.

So before some prospective parents start spending their Sundays at open houses, they should be prepared to deal with some complications. They may have to delay the purchase, deal with the banks’ bureaucracy (and requests for extra paperwork) or buy a home they can afford on one salary.

“Maternity leave or any other leave of absence often prevents a person from obtaining a mortgage,” said John Councilman, president of AMC Mortgage in Fallston, Md. “There are some who long for the days when such strict proof of income was not required.”

The lenders’ new attitude can be traced, in part, to new loan quality-control measures that went into effect earlier this year. Fannie Mae and Freddie Mac, the two quasi-governmental mortgage giants that buy the bulk of conventional loans from lenders, have not changed their rules for qualifying for a mortgage. But the system of checks and balances has been tightened, making lenders increasingly skittish.

Fannie, for instance, now requires lenders to recheck a borrower’s financial situation right before the loan closes. That includes calling an employer to verify employment. Before, lenders required only a statement in writing. Fannie’s new rules went into effect on June 1. Freddie’s similar rule took effect in January.

Both Fannie and Freddie have always required that borrowers have enough income to pay for the loan on closing day — and the lender must document that the income is likely to continue for at least three years.

But here is how some lenders are interpreting the guidelines for, say, a new mother receiving short-term disability insurance for a couple of months (new mothers may receive disability payments while on maternity leave, though the amount and length depend on state law and company policies).

Since the disability payments will not continue for three years, these lenders will not count it as qualifying income, brokers said, and will require the new mother to reapply for the mortgage once she returns to work. (The same logic may apply to an injured employee receiving worker’s compensation.)

That is what happened to Elizabeth Budde, a 33-year-old oncologist who lives in Kenmore, Wash. She nearly lost her mortgage after a loan officer learned she was home with her newborn.

With stellar credit and a solid job, Dr. Budde said she had been notified via e-mail that she was approved for a loan on June 15. But that note prompted an automatic, “out of the office” e-mail reply from Dr. Budde’s work account, which said she was out on maternity leave.

The next day, Dr. Budde received a second e-mail message from the lender, this time denying her loan approval. Since “maternity leave is classified as paid via short-term or temporary disability income,” the e-mail message said, it could not be used because it would not continue for three years.

The message also said the lender could not consider her regular, salaried income because she was not on the job. “I was really shocked,” Dr. Budde said. “At the time, they didn’t know how I was getting paid for my leave.”

The lender suggested that she get a co-signer — her husband is a graduate student, so his income was not enough to qualify — or reapply after she returned to work. But with the help of a representative from her real estate brokerage firm, Redfin, Dr. Budde was finally able to explain that she was receiving her full salary during her time off since she was using accumulated sick and vacation days. Once she provided a letter from her employer, proving her case, she was able to requalify.

“The reason we were buying the house was because we were having a baby,” said Dr. Budde, who is now living in the three-bedroom home, bought for $300,000. “And now we got punished for having a baby.”

Janis Smith, a spokeswoman for Fannie Mae, said there was nothing in its guidelines that would prohibit a borrower on maternity or paternity leave from qualifying for a mortgage, as long as the borrower had proof at the time of the closing that his or her income would be adequate upon returning to work. Letters from a doctor (with a return date) and the employer (stating the return date and salary) should be enough, she added.

Loans backed by the Federal Housing Administration follow a similar protocol. Brad German, a spokesman for Freddie, said its guidelines required underwriters to make sure the borrower’s income was stable and could be expected to continue for at least three years.

But, brokers said, many lenders are clearly reading those guidelines through an increasingly conservative lens. “Lenders are picking and choosing what part of the Freddie and Fannie guidelines they want to use and how they will interpret them because one bad loan could put a company out of business,” said Jeffrey J. Jaye, president of the Upfront Mortgage Brokers Association, a trade group for brokers who disclose their fees upfront.

For some lenders, that may mean approving a loan only after the borrower is back at work “There is no real assurance that the new mom will come back to work after she has the baby,” said Marc Savitt, president of the Mortgage Center, a brokerage in Martinsburg, W.Va. “It’s just prudent underwriting to go ahead and approve the loan, but she has to be back before closing.” (Lenders cannot ask a woman if she is pregnant, brokers said, but they can ask borrowers if they expect their employment or income situation to change.)

Indeed, if Fannie or Freddie learn that a loan does not meet its underwriting requirements, it can require the lender to repurchase the loan. Both companies are performing more quality control checks on the loans they buy or package and sell as securities. And, perhaps not surprisingly, the number of repurchase requests has risen sharply.

The companies said they required lenders to buy back a total of $3.1 billion in loans in the first quarter, up 64 percent from the same period last year.

“While repurchase requests have always happened in the past, it’s never been to the degree that is happening now,” said Kevin Iverson, president of the Reed Mortgage Corporation in Denver, acknowledging that the repurchasing is obviously driven by the high level of defaults. “The end result is lenders are running a bit scared. So when in doubt, they just reject the loan.”

Dave Varni, a real estate agent with McGuire Real Estate in San Francisco, recently learned about lenders’ nervousness about borrowers on leave while working with a couple expecting a baby within weeks. They wanted to make an offer on a home, but they needed both of their salaries to qualify. Ultimately, a mortgage broker told Mr. Varni that the expectant mother would not be considered “employed” when it was time to close the loan, which would probably disqualify her.

“It was eye-opening to me and my clients,” said Mr. Varni, who said the broker explained that lenders were skittish about lending to a new parent who might decide to stay home. “We are going to assess our situation and may have to shift our search to something where he could qualify by himself.”

Mortgage Lenders

Have Problems Paying Your Mortgage? Call Your Lender To Help You Out

With so many American homes going into foreclosure, it should be of no surprise that lenders are willing to go the extra mile to help you keep your home. However, you must act right away. The sooner you act, the better chance you have of keeping your home from going into foreclosure.

 Problems – Start With Your Lender

If you notice you’re having issues or will be, you need to speak with your mortgage lender. Stop procrastinating and make this phone call. They won’t judge you or yell at you for getting into trouble; it happens. Mortgage lenders make their money by your monthly payments; if you don’t make it and they have to foreclose, they lose money. It’s in their best interest to find ways to help you salvage your credit and keep you in your home.

If you wait too long, you make it harder for the lender to get you help. If the lender hasn’t heard from you after three months of no payments, the company will have to start the foreclosure process. Make sure you take the necessary steps to keep your home from entering the foreclosure process; not just for your home but for your credit too.

Before You Call The Lender

The first thing you need to realize before you call the lender is to swallow that pride and resign yourself to realize you need help. Give the lender the reasons why you are unable to make the payments and be truthful about it. You want to make a good impression so you need to answer as truthfully as you can to the questions being asked.

Six Ways Your Lender Can Help You

There are six ways that your lender can help you but it’s based on each person’s unique situation. These six ways include:

• Bankruptcy
• Debt counseling
• Deed in lieu of foreclosure
• Grace period
• Payment forbearance
• Sell the home

 Bankruptcy should be used only as the last resort since it can negatively affect your credit (usually up to 10 years). Bear in mind that bankruptcies are much harder to come by due to recently passed laws.

Debt counseling is usually offered when all the debt you have has fallen behind, not just the mortgage. Spending and structured repayment plans are typically designed to help you get back on your feet.

Grace periods are given to homeowners so they can wrangle with the problems on their own. However, if you don’t stay in touch with your lender during this time, they will start the foreclosure process.

Deed in lieu of foreclosure means you voluntarily return the home to the lender. However, you’ll still need to pay back the difference on what you paid for the home and what it was sold for. There are not many lenders who accept this arrangement.

Payment forbearance is when you have a bit of equity in your home, which allows you to rework the loan in order for lower monthly payment for a specific amount of time. Any past due amount could be added into a new loan.

Sell the home is an option for people who just don’t want the home any longer or have problems so serious that it cannot be resolved. The idea with selling the home is to sell it while paying off the mortgage balance and any back debt owed, keeping the home from going into foreclosure.

Four Questions Lenders Tend To Ask

 Question 1 – Why did you fall behind?

All too often good people get into bad troubles. Make sure you’re honest about why you fell behind such as losing your job, an unexpected medical expense, higher homeowners’ insurance and taxes, etc. Don’t embellish.
 
Question 2 – What is your current income?

Make sure you include all income that comes into your home; don’t forget to add in your savings and benefits.
 
Question 3 – What are your other debt obligations/expenses?

Make sure to list only the essential financial obligations such as student loans, child support, utilities, credit payments, etc.

Question 4 – What are you doing to fix the issue?

Make sure you brainstorm some ideas to help you fix your problems for the short-term and long-term. Be truthful if you think the situation is hopeless. Since foreclosure can ruin your credit for at least 10 years, it doesn’t hurt to explore all the possibilities.