Should lenders verify a down payment source?

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Three industry insiders give their views on this contentious issue. 

Michele Hall, Mortgage agent, Mortgage Intelligence:

“Lenders do have the right to ask, and they do because of money laundering and fraud. Still, sometimes I think it’s gone too far. A cheque or proof of transfer should suffice as confirmation of a down payment as a gift. You don’t need to do background checks on the gift-giver unless there are red flags. I think you have to use your judgment.
We as brokers have to keep in mind that the clients who deal with their banks won’t have to provide the same amount of confirmation because the bank can look at account history and verify internally, and as brokers, we don’t have the ability to do that. We have to take that extra step.”

Jim Tourloukis, President, Verico Advent Mortgage Services:
“The lenders have the right to ask for whatever documentation they want because they’re lending their money. They set the rules of what they want to see.
Basically, they’re trying to get at this anti-money-laundering issue. That’s what they’re trying to prevent; they want the money to come from legitimate sources. I don’t think it’s unreasonable.
The good news for us brokers is we have multiple lenders we can deal with. If we’re not comfortable with some of the policies, we can move on. We have so many lenders to deal with that not one lender can dictate the policies of the industry.”

Sean Binkley, Mortgage broker, Key Mortgage Partners, Dominion Lending Centres:
“Absolutely. Verifying the source of a down payment is nothing new. What’s been happening lately, though, is lenders are asking for a second tier of verification when the down payment is gifted. So if mom and dad are gifting a down payment, some lenders request proof of that gift through 90 days of transaction history on mom and dad’s account.
Ultimately, lenders cut the cheque, so they have to mitigate the risk. Until we share in the loss, we don’t have much say in underwriting conditions for lending money that’s not ours. If we don’t like it, we [can switch] to a lender that we feel puts fewer roadblocks in the process.”
  • Broker on 2016-03-01 9:15:49 AM

    90 days of giftors account?

    I agree this is useless. If a giftor (mom/dad etc) wants to use a LOC or borrowed funds in order to help their child into home ownership, it shouldn't matter. The parents are not on the deal, they are not on title, and their borrowed money has no ties to the property.

    Now that we know the borrowed funds dont matter, why would they ask to see 90 days? The very worst case that 90 days can prove, is that the funds were borrowed, but if the giftor borrowing the funds has no change to the borrower or the subject property, then why would they be asking?

    Many conditions spawn from lender policies being created by people that actually dont fully understand lending. Sometimes they think they are doing what is right but when in reality they are requesting documents that have no relevance for the application.

  • LanceH on 2016-03-01 9:19:24 AM

    It's gone WAY too far. I for one, keep pushing back. I just had a client, bought her house cash 9 mos ago using a settlement to pay for it. She decided to do a credit line. The lender wanted triple confirmation of the settlement, proof of purchase (my Purview not enough?),
    Proof of transfer of funds from ins co to her, then her to her lawyer, then the lawyer to the seller. And no, there wasn't any "red flags" on this file. I had 2 lenders on separate files demanding T1's, NOA's on top of job letters and paystubs for a long term salary employees. To say they've gone WAY overboard is an understatement! They need to grow a spine and stop running scared like frightened little children!! FSCO is not forcing this on them. They're forcing it on themselves!

  • John Martin on 2016-03-01 9:21:59 AM

    These comments above are beautiful. It's all agreed then that it's the money laundering issue the lenders are concerned about. Let's be more specific as to the lenders, primarily the big banks. Let some thing important be explained. Reality check here. There is Billions sitting in accounts already in these same institutions that has come from you know where. Give you a glue a considerable amount is floated into Vancouver and Toronto real estate. So as for the banks this attempt to do what is mentioned above is all just smoke and mirrors. There is reality again!

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