Mortgage Documentation: It's not your LO's fault: )

The Truth About Mortgage Documentation: Why It’s So Hard and Why It Has To Be

The loan officer’s job is hard — really hard — especially when it comes to documentation requirements. There are guidelines, and every single deal is different. So please, don’t shoot the messenger. The more moving parts there are, the harder it gets.

When a client gets pre-approved for a mortgage, here’s the problem. Most lenders don’t gather all the necessary documentation up front because it would overwhelm the client at that point, and it’s really not necessary yet. A good loan officer can identify if the deal will work based on the documentation that’s been provided.

There’s nothing shady about this — it’s just the process. A good loan officer typically needs to see pay stubs, W-2s, tax returns, asset information, and credit. With that, they can run the file through the desktop underwriting system and know if the deal works.

And yes — some lenders actually issue pre-approvals without verifying any documentation at all. This is incredibly unprofessional, and most people don’t realize how bad that is. That’s not a real pre-approval — it’s a pre-qualification. A good lender knows the difference and takes the time to get it right.

Here’s the deal: a good loan officer will ask for everything necessary to be certain the deal will go through. If there’s a page missing or a signature missing, we don’t ask for it yet, because at that stage, it’s not necessary to put the client through all of it. But once the loan goes into processing, we’ll need everything. That’s why pre-approvals can be turned around pretty quickly — because we know what we’re looking for and we can see that it works.

But let’s be clear — nothing is certain until the closing.
If a borrower loses their job before the closing, that loan is done. It doesn’t matter if we already have pay stubs, W-2s, and tax returns showing what they used to make. It doesn’t matter if they used to make a million dollars and the loan amount is only $300,000. If they’re fired and now have no job, their income is zero. Period.

Even if they get a new job, we still have to wait for a pay stub to prove it before we can use that income. Those are the rules. There may be a few rare exceptions, but the bottom line is that these are guidelines we must follow.

Why the Secondary Market Makes Documentation Non-Negotiable

Another thing most people don’t understand is how the secondary market works. When a loan closes, it’s usually sold to investors like Fannie Mae or Freddie Mac, who act like clearinghouses. Every loan must line up perfectly with the guidelines the way the secondary market requires it so we can deliver it.

If the documentation doesn’t meet those standards, those investors can refuse to buy it. And when they don’t buy the loans, lenders have to keep them on their books. That’s what can make a lender insolvent — because their money is tied up and they can’t lend anymore.

That’s exactly what happened in 2008. The secondary market refused to purchase loans that didn’t meet the requirements, and banks and mortgage companies went under because they ran out of money to lend.

That’s why every single thing must be documented clearly. It doesn’t matter how strong the loan looks — if it doesn’t meet documentation standards, it can be forced to be bought back.

And when people talk about a “cost to cure,” it doesn’t mean we always get a chance to fix it. If a loan is missing a signature or has the wrong date, the investor doesn’t have to give the lender a chance to fix it. They can force the lender to buy the loan back, no matter how strong the borrower is.

That’s why lenders have to make sure every “i” is dotted and every “t” is crossed. It doesn’t matter how small or silly it seems — it needs to be in the file. There are no exceptions.

Why Some Loans Are Paperwork Nightmares

If a loan has a lot of moving parts, it’s going to be a paperwork nightmare. It doesn’t matter how qualified the borrower is. A simple single-family home with W-2 income and basic pay stubs is easy. But if someone is self-employed, has a gap in employment, owns multiple properties, has different streams of income — the more complex it gets, the harder it gets.

And here’s the irony: the people who are usually more financially successful often have more complicated loans. Being wealthy doesn’t make it easier — it actually makes it harder.

For example, if someone took time off work, switched jobs, or had declining income, it all needs to be documented. Guidelines say that if income drops more than 50% from one year to the next, it’s considered high risk, and we must show why it happened.

Here’s a real story. Back in 2001, I had a client buying a $5 million home with a $1.1 million mortgage. He was a hedge fund manager who made $54 million in 2000 and $24 million in 2001. That was more than a 50% drop in income. Did we know the loan would get approved? Of course. Did it make sense to ask for documents? No. But we had to document it because that’s what the guidelines required.

And there’s no Wizard of Oz in underwriting who can just say, “Oh, that makes sense — skip the docs.” It doesn’t work that way. No one can override the guidelines. There’s no special stamp of approval or exception authority. Everything must be documented.

Why the Patriot Act Makes It Even Stricter

After 9/11, the Patriot Act required lenders to verify all large deposits that don’t fit the borrower’s normal income pattern. When terrorists were funded, that’s one of the ways it happened — through lump-sum deposits.

So even if we know the deposit isn’t suspicious, we still have to verify what it is. It could be a gift, a transfer, or a reimbursement — but we have to show it in writing.

Even something as simple as a wrong address, a wrong middle initial, or a number that got typed wrong on a report can trigger documentation issues. If a child has the same name as a parent, their information can accidentally appear on the wrong report. All of that has to be fixed and documented before we can close the loan.

It’s not the lender’s fault. It’s the system.

Realtors Comparing Loan Officers — and Why That’s Not Fair Unless You Know the Whole Story

Realtors constantly judge loan officers based on their last deal.
“He’s good.” “She dropped the ball.” “This lender didn’t need all that.”

We hear it every day. But unless you know the whole story, those comparisons aren’t fair. Every deal is different, every borrower is different, and every file tells a different story.

A multi-millionaire who owns four homes and runs a large company is much harder to process than a couple who both work at McDonald’s and have simple pay stubs. It doesn’t matter how much money they make — it all still needs to be documented.

What Actually Happens in the Loan Process

Here’s how it really works:

Pre-Approval

We gather enough to know the loan works. We don’t push clients for every single page or signature yet — because we already know it qualifies. That’s why pre-approvals can be fast.

Processing

Once the offer is accepted, we need updated documentation. The processor uploads and reviews it, but remember — processors usually handle 20 to 30 loans a month, so they can’t review everything immediately.

The loan officer and processor do their best to guess what the underwriter will ask for. We think ahead, but we never know everything. Before the underwriter sees the file, it has to go through Desktop Underwriting — a computer system that determines if it meets guidelines. If it doesn’t, we have to adjust it until it does.

Underwriting

After the computer approval, a human underwriter reviews it. They might approve the loan but will almost always add conditions. That means more documentation.

At the same time, the appraisal, title, and condo documents are being ordered and reviewed. If any of them don’t meet the program’s guidelines, we have to gather more documents and go back and forth with those third parties to fix it.

Condition Clearing

Now the client has to gather more documentation. We double-check every page, every signature, every deposit. If anything’s missing, it goes back to the underwriter, and we start again.

Before Closing

If anything expires — credit report, pay stub, bank statement — it must be updated.
If new credit inquiries appear, we have to verify that no new debt was added.
If a credit score drops, it can change the approval, the rate, and even force the loan to start over.

That’s the reality. It’s not nitpicking — it’s the way the system works.

So Much We Can’t Control

On top of all this, we have to make sure:

• The title is clean.

• The appraisal comes in at value.

• The property meets safety and code standards.

• The condo guidelines fit the loan program.

And while we’re doing all of this, we have Realtors and attorneys pushing us about the commitment letter. If it’s not ready, they think we’re not doing our job. But a lot of it is out of our control — we’re depending on other professionals to get us what we need.

And to make things even tougher, sometimes after all that work, the borrower decides to shop for a “better rate” with another lender. The truth? That other lender will face the same documentation requirements, maybe even worse, because it’s a different underwriter.

We do all this while trying to help people achieve the dream of homeownership. Good loan officers care deeply about their clients. If all we needed was your driver’s license and credit score, that would be great — that’s how it used to be before 2008. And we all know how that turned out. (Did you see “The Big Short?”)

A Common Real-Life Example

Here’s something that happens more often than you’d think.
We sent a loan through the system and it got an appraisal waiver. That meant no appraisal was needed — saving the client money.

Then new documentation came in, and it wasn’t accurate. When we corrected it, the system automatically triggered the need for a full appraisal.
Now we were two days from the commitment date and had to order a rush appraisal. That meant asking for an extension.

The Realtors thought we dropped the ball. But would it really have been right to charge the client for something they didn’t need just to be safe? That’s the dilemma. Sometimes things happen that are out of our hands, and we need to work together as a team.

The Hard Truth

Even when we do everything possible — chase down documents, beg underwriters for faster reviews, push appraisers, and work around the clock — we can still be blamed for delays that weren’t our fault. Clients and Realtors might say we did a bad job, even when we saved the deal.

That’s the truth of this business. It’s tough. But it’s real.

The Big Picture

The mortgage process isn’t easy. It’s a grind, and it takes time, patience, and teamwork.
We know it’s frustrating for clients, but it’s necessary. Every single document matters. Even if something doesn’t make sense, it still has to be in the file. We don’t make the rules, and we can’t waive them.

The guidelines are there to protect everyone and keep the system strong.

Every day is precious. We have details to cover and work to do.
When clients and Realtors understand what’s really going on behind the scenes, they can move through the process with less stress and more respect for the people making it happen.

Good loan officers are worth every penny, and Realtors who truly understand this process are the ones who rise above the rest.