Without a doubt, and understandably so, mortgage investors are tightening the knot on guidelines. However, some mortgage analysts believe the investors are doing more than simply tightening the knot. Some feel they are putting a stranglehold on the mortgage industry.
One of the more recent standards, in particular, has many mortgage insiders scratching their heads. The scenario involves a single borrower who files tax returns with their spouse. This type of mortgage application is not uncommon, especially if the spouse has poor credit that will have a detrimental effect on the approval of the mortgage loan. So far, everything appears to be plausible and reasonably straightforward.
Now, if the spouse is self-employed and shows a loss on their tax returns, investors are requiring mortgage lenders to include the spouse’s income as part of the overall credit determination. Nevertheless, this situation is perfectly acceptable, at least from a rational point of view. Where this standard starts to become questionable is if the spouse reports a profit on their tax returns. In this situation, investors are requiring mortgage lenders to disregard the spouse’s profit and to make a credit determination solely on the borrower’s creditworthiness.
This sort of criterion is indicative of the latest trends being set by mortgage investors. It undoubtedly leaves many mortgage analysts to question if this is really a standard or is it more of a double-standard. Mortgage experts are left to ponder what’s next. Could it be that if a borrower is associated with someone who is unemployed that a mortgage lender would find that information sufficient to issue a denial? It may sound unreasonable now, but you never can tell what the future holds in the mortgage industry.
Regardless, mortgage lenders are now quickly adjusting to becoming preventative rather than corrective. A Form 4506T that was once regarded as a tool that could potentially be used to evaluate a borrower’s creditworthiness is now definitively utilized on every mortgage application.
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