December 21, 2022
The Consumer Financial Protection Bureau (CFPB) has weighed in on certain mortgage lending practices with an eye on reform; in 2022 it moved to require lenders to enhance loan approval policies related to a type of mortgage known as bank statement lending.
These are loans include rules that allow the lender to review the borrower’s bank statements as a source of income for the borrower.
Bank statement mortgage loans are, according to the publication National Mortgage News, offered to about 100 thousand borrowers per year, worth up to $25 billion in loans.
In October of 2022, CFPB revised its regulations for these mortgages. Lenders are now required by the CFPB to confirm the data on bank statements used to verify income.
Specifically, the lender is required to determine that the money in the borrower’s accounts as represented by bank statements show actual income rather than gifts, loans, or “non-income” type deposits.
FHA mortgages do not typically involve this practice, so why are we discussing it here?
In recent years, there have been moves to add more federal scrutiny on crucial aspects of the mortgage process. This added scrutiny is likely an indicator of more such moves to come.
And the added attention on gift funds mentioned above? That’s something lenders do already in FHA loan transactions, but in that context it’s more about the source of down payment funds and closing cost money.
Those funds must come from approved sources.
For both the CFPB requirements and FHA loan rules seek the same outcomes. The lender ensures down payment funds or borrower income is from approved sources only. The funds or income is NOT from credit card cash advances, non-collateralized loans, pink slip loans, non-income sources that aren’t approved, etc.
It also helps your lender to determine whether the borrower has accepted money from someone with a financial stake in the outcome of the sale of the home or the mortgage.
Reviewing the sources of income and down payment funds is not new in the lending industry. Don’t be surprised by more requirements to show the sourcing of your income or down payment.
The laws are being revised in different sectors of the mortgage lending industry to meet 21st-century challenges, and more revision is likely coming.
Are you concerned about a source of gift funds? Income? Often it may be wise to put something in writing for your loan officer.
A letter from someone providing you with a gift of down payment money is usually required. In cases where your income is in question, consider providing a letter from your employer. Ask your lender what you may need in order to properly verify both your income and the sources of your down payment.