Written By: Bonnie Wilt-Hild, Op-Ed Writer
Regardless of the transactions type, I am underwriting, one of the thing that I always want to see is a borrowers’ bank statements. It does not matter the transaction type, cash out or rate/term or if or not the borrower will need cash to close, I still want to see the borrowers’ bank statements. Most of the time the processor or loan officer will ask me why, pointing out that the borrower does not need any cash to close and that the automated underwriting findings are not requesting them either but still I insist that I need them and usually provide this explanation.
Most people in the mortgage industry really believe that the only purpose of bank statements serve is to determine that a borrower has sufficient funds to close a purchase transaction or document reserves as they were provided to the AUS. It is true that we most certainly need to document this information in the event of these transaction types but honestly bank statements tell us so much more from an underwriting standpoint and really do give an underwriter significant insight into a borrowers overall financial behavior and determining overall financial behavior is what helps an underwriter determine overall case file risk.
Beyond basic documentation requirement every underwriter needs to assess the overall case file to not only determine that the case meets mortgage credit guidelines but to also determine if the borrower has demonstrated overall financial capacity where managing the proposed mortgage debt is concerned, because lets face it people, purchasing a home is one of the larges financial obligations an individual will ever take on and reviewing a borrowers bank statements will give us look into things like what the borrowers spends there money on, how much they spend on things like real life hard and soft expenses, average balances on a monthly basis and so on. Additionally, they help us to verify the borrowers monthly income and provide some protection against fraudulent paystubs as we can see a borrowers direct deposit or possibly undisclosed debts so as you can see, bank statements are extremely useful.
Let’s take the borrower who wants to complete a mortgage transaction which will result in an increase in the borrowers housing expense by $750.00 monthly. Let’s also assume that the case received an AUS approval and the borrowers ratio’s were for the most part in line, perhaps 34% HTI and 45% DTI. When reviewing the borrowers bank statements, the underwriter is able to determine that the average balance in the borrowers checking account is usually around the $350.00 mark and in a couple of instances the borrowers account balance went as low as $67.00 prior to a given pay period and in one instance the borrower took out a payroll loan to get themselves through to the next period.
Additionally, its has been noted on the bank statement that the borrower is remitting electronically to the IRS a monthly payment of $300.00 monthly which was disclosed on the application nor was it reflected on the borrowers credit report. Regardless of the transaction type in this situation, be it a purchase or refinance transaction, this type of information should really give an underwriter pause as to if or not he or she should approve the loan. The borrowers spending habits are clearly demonstrating that they are struggling to get from paycheck to paycheck so to assume that they will be able to absorb the proposed increase in housing is pretty questionable.
Regardless of the borrowers DTI or current credit history, this individual is clearly experiencing some sort of financial difficulty brought on by extenuating circumstance or maybe just financial mismanagement but regardless this is definitely a loan any underwriter should think about. Keep in mind everyone, a credit score is simply providing a snap shot in time over a borrowers overall willingness to repay debt so just because everything is being paid on time today, does not mean it will be tomorrow so other relevant factors to be considered and this borrowers bank statements have given the underwriter additional insight into what the borrowers current and future capacity to repay the debt is.
So, as you can see, bank statements are a really important part of mortgage credit analysis and in my opinion are relevant on any case or transaction type. They do help to support the borrowers’ capacity and willingness to repay debt. So, the next time you underwrite a case and request bank statements to further support your underwriting decision and the support staff ask why, you know what to tell them. As always, happy underwriting.
About The Author
Bonnie Wilt-Hild - As an op-ed writer, Bonnie has held many mortgage underwriting positions, including Senior FHA DE Underwriter for a major lending institution. With over 25+ years of senior-level FHA/VA Government underwriting experience, Bonnie is considered the "Queen of FHA Loans".