How Much Does A Mortgage Lender Know About You?
By Doug Goelz, Mortgage Services
If you have been through a mortgage application process, you may have thought you provided every bit of documentation possible about your finances and financial process. Even with all the documentation you provide, lenders go further and do a lot of independent verification and checking of public records behind the scenes.
You either provide authorization for the independent checks (you may not notice you are giving permission amidst the stack of disclosures and other papers you are asked to sign at the beginning of the loan process), or the lender is checking public records.
Here is a list of independent verifications a lender makes on a typical loan application:
- IRS Records – No matter the source of your income, lenders always obtain information from the IRS to verify that the income reported on the tax returns and/or W2s you provide is the same information filed with the IRS. This verification with the IRS can slow down the loan process if you are applying for a loan just after you have filed your taxes. You must provide written authorization before the lender can obtain IRS records.
- Social Security Number – All lenders will check with the Social Security Administration to make sure the social security number used on the loan application belongs to you. As with IRS information, you must provide written authorization before the lender can obtain social security number verification.
- Verification of Employment – If you have been salaried, lenders generally will check with all your employers in the past 2 years. The verification may be in writing, through outside services (one of the most commonly used is called The Work Number which charges $10 – $25 to verify you employment and salary), or a phone call to your employer’s human resources (HR) department.
While verification with former employers can be done in advance, it is typical for lenders to call you current employer just before funding the loan to make sure you are still employed. In general, if the lender is calling your employer, they will call a publicly listed phone number and ask for someone (often in HR) to verify your employment. If your employer uses a service such as The Work Number (this is typical with larger corporations), you have to obtain a personalized code and provide it to the lender before the lender can obtain your employment information.
Side note: NEVER change employment just before a loan closes; doing so can delay the loan process when the lender requires new documentation from the new employer.
- Division of Corporations – Lenders will check with the California Division of Corporations to see if you are a significant owner (25% or more) of a business. This is public information and you do not need to provide permission for the lender to search on your name. If you do own 25% or more of a business, the lender will require the tax returns of the business, and take into account the net income and short-term debt of the business when calculating your qualifying income for the loan. Hence, if you own 25% or more of your business, even if the business pays you a salary, be prepared to provide your business tax returns. If the business shows a loss, a lender will add your share of the loss (e.g., 25% if you own 25% of the business) to your salary to calculate your qualifying income for the loan.
- LexisNexis Search – Lenders will conduct LexisNexis searches on your name to see if anything interesting pops up. Again, this is public information and you do not need to provide permission for the lender to search on your name.
- Credit reports – Of course, one of the first things obtained in the loan application process is your credit report. In addition to your credit history, all credit reports may contain information about past and current addresses, employment, and public records of collections, liens, bankruptcies, foreclosures, and short sales. You should have to provide written authorization before a lender obtains your credit report. However, some aggressive lenders will obtain your credit report as soon as you provide sufficient information (full name and social security number, at a minimum) for them to do so.
Side note: Using information from a credit report or LexisNexis search, lenders occasionally ask borrowers to explain ownership of properties that are not listed on a loan application. Often the property is owned by a parent with the same name, but searches have identified the borrowers as the owner; in such cases, a simple letter of explanation satisfies the lender’s documentation requirement.
In the end, lenders obtain a lot of information about you, from you and independent sources, before approving your loan. Many of the independent verifications are relatively new to the loan approval process. Prior to 2007, most lenders did not do any of the verifications listed above. The discovery of rampant mortgage fraud with the economic downturn of 2008 caused lenders and regulators to change their processes and increase independent verification of all information key to approving a loan.
Questions? Feel free to get in touch with me at 415-730-4665 or email@example.com