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We are in the middle of refinnacing to get a lower rate. We have ton of equity in our home but are taking out an additional 23k to pay down debt. Broker asked us to sign letter stating that the cash out is for "investment purposes" should I be wary of this? Would it be a problem if I changed the wording ot "debt consilidation"? Thanks for your opinoin
a person seeking to take cashout for 'investment purposes' may get declined. banks are wanting to know where you're taking the money to, and using it for what specifically.
I agree with renriq02. If you are using the money to pay off debt, only sign a letter stating that. Additionally, the bank would be glad to know you are eliminating other debt. So, change the wording to debt consolidation.
I just heard back from the broker and he says that leaving with the wording investment purposes is better. The debt consilidation would open a can of worms to underwriting...does that sound right?
I would have to agree with your broker being that I am also a mortgage broker myself. Sometimes the underwriters request what's called a, "Letter of Explanation" which basically allows them to know what you are going to be using the money for.
That being said, I don't see why saying that you are using the cash for debt consolidation would raise any more red flags than using the term, "investment purposes". They may want a second letter asking specifically what kind of investment purposes. But they may not ask for one at the same time. Underwriters are scrutinizing every single detail of a loan now because of the crisis we are now in.
I just heard back from the broker and he says that leaving with the wording investment purposes is better. The debt consilidation would open a can of worms to underwriting...does that sound right?
I would not sign. I am not sure if that letter is part of the agreement, or related to, etc. Regardless, I wouldn't sign it. My experience is that sometimes people like to take the easy way, the path of least resistance, etc. OK. I am sure there are plenty of people who will argue that all day long. Anyone who wants to, argue all you want about that. Good luck.
I use to underwrite and was a Direct Endorsement Underwriter for FHA - over a decade ago - and I never would take investment over debt consolidation UNLESS, it were to pay debt that was not disclosed. Another reason, and it's a lazy one, is the underwriter would want to see the debts paid on the HUD. That means your broker would have to get payoffs for all of the accounts.
The request is lazy. I can only guess he got burned once by an explanation and vowed it would never happen again, or he could have been simply trained that way.
It's a stretch to prove its fraud, once the money is in your hands, it's yours to do as you see fit. Now, if you really want to see him go into orbit, write in the letter you are taking cash out to purchase investment properties. Bet he has no problem with debt consolidation after that.
Last edited by SmartMoney; 10-19-2008 at 07:19 PM..
Reason: really, really bad grammar
The key words there are TO PROVE ITS FRAUD.The bart simpson theory.
This would be such a border-line case of fraud, if a case at all....even if shehad an email from the broker requesting the letter to state "investment purposes" and to please not say debt consolidation. That phrase is so vague, it could be interpreted in too many directions. Even if it landed in Quality Assurance's audit, it wouldn't warrant a flag.
However, I stand by my prior statement and believe the broker is taking a shortcut for less documentation. As for a literal interpretation, there are very few in mortgage lending. Mortgage lending has never been black and white since I started in the field in 1982. It's funny, the ones that say it should be black and white are usually the first ones to scream when the black and white guidelines lock them out of a program or rate that they seek.
I certainly would not take the approach this broker is requesting, but then, there are far too many details we are not privy to in this situation.
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