Picking up Nickels

Friday, October 05, 2007

Mortgage purgatory: Home loans for the self-employed

While the subprime lending market troubles have continued to grab headlines, a USA Today article about the impact of the mortgage mess on home loans for the self-employed struck a chord with me.

After mortgage rates began to fall in 2002 (and cavalier lending practices were getting ramped up), I called a loan officer recommended to me by a family member and looked into refinancing my mortgage. I explained that I was self-employed and inquired about low documentation loan programs. After a bit of discussion about my S-Corp and my personal income, the loan officer assured me that I would have no problems qualifying for a conventional loan.

I put the $400 application fee on my credit card to lock in a 5.625% rate for a 15 year loan and filled out and returned the packet of information that arrived at my doorstep a couple of days later. I didn't think to do so at the time, but I wish I had made copies of these documents before I returned them to the loan officer.

The process was going well until one day when I received an unexpected call from the loan officer asking to speak to a representative of my company to verify my employment. I was confused by this because I had made it quite clear in prior conversations that I was self employed and was the only employee of my S-Corp. I called the loan officer later that day and was accused of misrepresenting myself and omitting information from my mortgage application. As a well-qualified borrower with a good income and credit score, I maintained that I had been upfront and honest about my situation from the beginning and expressed my displeasure at being misled. In the end, I did get the loan officer to refund my application fee, although not without some whining about it coming out of her pocket.

I had put my refinancing plans on the back burner until one day when I happened to mention my mortgage application experience to my CPA. He recommended that I contact a loan officer at a small regional bank that that he has worked with in the past. I kept an eye on the mortgage rates at the bank's web site and gave the loan officer a call when the rate on a 30 year fixed mortgage rate had dropped to 6%. We spoke about my situation and he followed up with a call to my CPA, after which he said that I shouldn't have any problem qualifying for the loan. Apparently, the bank plugged my information into their Fannie Mae qualification software, and the only thing that they were required to do was to verify that my S-Corp was a real company. The loan officer asked for a copy of my business card to satisfy that requirement, and after dealing with underwriting and a home inspection, the attorney came to our house for the closing about one month later.

Considering the difficulties that I had qualifying for a mortgage with a profitable S-Corp, a pristine credit report, and a good salary during the housing boom, I can only imagine what that process is like for self-employed borrowers in the current lending environment. Good thing I was smart enough to refinance with that regional bank for a second time in 2003 to get my current 30 year fixed loan at 5.375%. :)

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