More than I can count

| Today is Bastille Day in France. Off with their heads, I say. And no, I don't mean Louis and Marie — I mean bankers!

Earlier in our story: Two weeks ago, the purchase of my new house got really messy. The banker that I had been working with, QuickenLoans, supposedly had everything approved when they suddenly decided that I would have to wait 90 days to close escrow because the current seller had not owned the property for 90 days; the fact that FHA waived the 90-day rule back in February notwithstanding. Provident Bank, suggested by the seller for having completed financing on numerous like properties, was eager to take up the case. They didn't have any stinkin' 90-day rules, and of course they could still close escrow on July 16. I turned everything over to them — everything — completed loan package, proof of assets, etcetera, etcetera, etcetera. Great, we're good to go!

Last week there were issues about the appraisal. The appraisal had been done for a conventional loan, whereas Provident was doing an FHA loan, and the appraisal needed to be in a different format. Further, since the appraisal had already been assigned to an FHA "case number" the same appraiser would have to do the FHA-style appraisal. OK, we got hold of him and he agreed to go out on Sunday, complete the appraisal, and give it to Provident on Monday morning — which he assured my agent he had done.

But as late as yesterday the bank insisted they had not received the appraisal, and there were other "issues" as well, all of which stemmed from the arbitrary debt-to-income ratio. Never mind that that issue had been resolved already by QuickenLoans, by switching from a conventional to FHA loan.

Suddenly, there was an email requesting 7 items of documentation:

  1. Provide the schedule B for 2009 tax returns
  2. Provide all pages for 12 months of Fidelity statements
  3. Where are the funds to close coming from? We cannot use the Fidelity account as both assets and income
  4. Provide recent statement for Vanguard account. A statement from March was provided along with a recent transaction record that doesn't reflect an account #
  5. Provide June statement for Addison Ave account
  6. Provide strong motivational letter for purchase
  7. Provide cancelled check for EMD ("earnest money deposit")

I had already provided all of this same information once before: tax returns for 2009 and 2008; 26 months of Fidelity statements; documentation of the closing funds; the bank statement showing the EMD check had cleared; etc. Nevertheless, I bit my tongue and resent all the stuff.

And note the very unusual penultimate item in the list: "strong motivational letter for purchase." How many lenders ask you to justify why you want to buy a house? I wrote a short memo summarizing my "motivation": namely, I wanted to strengthen my long-term financial position: By selling an expensive house with lots of accumulated equity and buying a less-expensive house I could eliminate all mortgage debt from the financial picture.

Then there was the message headed "I enclosed a VOD, can you please source difference need to document thank you." The attachment was a "verification of deposits" form, that much I got, but "source difference need to document"? It turned out that they wanted me to explain why I had so much money in my checking account when the average balance for the previous two months was so much lower. Well, doh, that's the money for the down payment that I've already documented three times!

A short time later a new message popped into my inbox with the heading "Hi Paul I wrote a better explanation can you please sign and send back ... thank you." The attached "better letter" was all about how "I currently live in a Condo on a golf course that I will be renting out as I acquired equity through out the years and its time to upgrade" [sic].

I got on the phone: I am not going to rent out my current house, I am selling it, and besides, it's not on a golf course. Well, but we "need" the rental income to bring your DTI ratio below the limit....

You can call it what you will: creative accounting, fudging the facts, misrepresentation, making a silk purse of a sow's ear, or whatever. A plainer word is lying, also known as fraud. There are lots of situations in which a little white lie is OK, necessary, or even better than the truth. A mortgage application is not one of them.

I wrote back and said that I did not feel comfortable with the draft letter, it was factually inaccurate, and misrepresented what I was doing. I reformatted my original explanation to make it more formal and complete and sent it along, saying that I preferred my original explanation.

A short time later, I got a call: "We have your loan approved with the rental income," followed by the clear threat that if I didn't capitulate the loan would not be forthcoming. In any case, closing would not be until the 26th at the earliest....

Fine, I'll consider what you've said and let you know in the morning what I am going to do.

This really wasn't much of a moral dilemma:

I got on the phone and arranged for the wire transfer of enough funds to do the deal as an all-cash transaction. If I can't put the money back in 60 days there will be painful tax consequences, but in the long run I will still end up in a stronger financial position.

And that's how I came to write a check for $150,000.

Last updated on Apr 13, 2018



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