So...why must you provide so much detailed documentation for your mortgage loan file?
The
creation of your mortgage is just the first in a series of processes it
goes through over its lifetime. Understanding the long-term nature of
your mortgage will shed some light on the reasons why lenders are so
scrupulous during the underwriting process.
Mortgages are created to be sold. Be aware that most
mortgages are created with the intention of reselling them. Mortgages
are bundled together after closing into what are called mortgage-backed
securities, and these securities are then sold to investors.
Fannie Mae and Freddie Mac are the intermediaries between
lenders and investors; effectively, investors forward money to lenders
through Fannie and Freddie. In turn, lenders send back mortgages to
Fannie and Freddie, who bundle them together (often thousands at a time)
and send them to investors, who then send more money.
Fannie sets the guidelines under which the mortgages are
underwritten, and the purchase of securities from Fannie/Freddie by
investors is based on specific guidelines.
This process explains why lenders are careful. Before these securities are sent to them, however, sample files go through what is called a re-underwriting.
In this process, loans that (for many reasons) are outside the guidelines may need to be repurchased from Fannie/Freddie by the
lender. Fannie and Freddie charge up to an 11% penalty to the lender ($22,000 on your $200,000 mortgage) for repurchasing. So in the event of a repurchase, the lender will face: receipt of a long term (in many cases 30 year) asset that they can't sell, reduced ability to lend further as lenders are restricted on loans receivable, and be required to pay a whopping fine to Fannie or Freddie.
This goes a long way to explaining why lenders check files
scrupulously and may make what seems like unreasonable requests for
additional documentation.
As always, we are available for your questions or comments at www.FirstAmericanMortgage.net
Thank you very much!
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