Questioning Borrowers’ Income Accuracy & Prequalification Practices

Reviews and Scams
1

Hallo

Honest question for my fellow loan officers—why do so many borrowers lie about their income on applications? Do they really think we won’t catch it during underwriting?
For those of you doing prequals: do you actually write them without verifying income docs? From what I understand, a prequal letter is just based on what’s filled out on the 1003, right? Personally, I avoid doing prequals altogether and stick to preapprovals after reviewing the full application and supporting docs. I can’t imagine just trusting the numbers a borrower puts down without any proof—I’d be stressed the whole time waiting for underwriting.
Here’s a situation I just dealt with:
I had a borrower who’s paid hourly and said she worked full-time on the app. I even confirmed verbally with her that “full-time” meant 40 hours a week, and she said yes. But when I got her paystubs, two showed 38 hours, one had 15, and another had 24 hours. I asked her about it, and she said she takes voluntary PTO when things are slow. After looking at her 2023 W-2, it turns out she did this a lot last year too.If I had just gone off what she put on the application, I would’ve prequalified her for the $200k conventional loan she wanted. But after running the real numbers and following the variable income guidelines, she’s looking at maybe $165k with an FHA loan, and her DTI is maxed out.
So for those of you who write prequals, how do you avoid these kinds of issues in underwriting? I’ve only been in the business since March, but I’ve had multiple borrowers lie about their income on the 1003 already. Curious to hear how you all handle this!

Best wishes…

2

Are there any extra verification requirements for borrowers who work for themselves or have other sources of income? How frequently are checks for income verification updated, particularly for borrowers whose income varies?

3

Are lenders evaluating borrowers’ loan prequalification based on an extensive set of standards? Are these standards in line with the demands of the market and the law at this time?How can lenders maintain affordability while limiting their exposure to undue credit risk?

4

Are lenders exchanging data with credit bureaus and one another in order to identify trends in the false reporting of income? :unamused:Might enhanced cooperation among industry players aid in enhancing the precision of income verification and prequalification procedures?

5

Employ more stringent techniques for confirming income, such as tax returns, bank statements, and third-party verification services.

6

To handle new :unamused: issues with income verification and prequalification, tighten regulatory control and think about enacting new laws.