Mortgage rates on conforming loans up to loan amounts of $417,000, and $729,750 in high-cost housing markets like San Francisco and New York City, are attractively low — hovering close to 5 percent. That’s the good news. The challenge is getting through the approval process.

Several years ago, one couple bought a home in Hercules, a suburb in the San Francisco Bay Area, for $650,000, with no cash down payment and no documentation of their income, employment or assets. They would not have qualified using conventional financing with full documentation. Their income didn’t support a $650,000 mortgage.

Today, a buyer is having difficulty getting approved for a conforming $417,000 mortgage even though his credit score is high, his debt-to-income ratio is low and he is putting 30 percent cash down. His file, which is now a couple of inches thick, is caught in the quagmire of underwriting.

The problem from the underwriter’s standpoint is that the borrower has income from several sources. If he was employed by the government and received one W-2 from his employer each year, income verification would be simple. Self-employed individuals are having a much more difficult time getting approved.

This doesn’t mean that you shouldn’t apply for a mortgage if you’re self-employed, or have multiple sources of income. Just be prepared for a long loan approval process. In one case, the borrower’s file took 31 days to get through underwriting.

And, steel yourself for frustration. You’ll be required to document everything, which can include requests that seem ridiculous.

One borrower was asked to write a letter explaining why he made less money last year than he did the year before. He was an attorney in his 60s who decided to work less. He handily qualified for the mortgage on his current income.

Borrowers who have income from investments should be prepared to provide documentation about these investments. Even if you qualify without using your investment income, if it’s reported in your income tax return, the underwriter is probably going to want full documentation. …CONTINUED

Recently, a borrower with good income and credit applied for a $729,500 conforming loan, but was denied because he had only one credit card. The lender required the borrower to have two credit cards. The lender did, however, approve the borrower for a $417,000 confirming loan.

To qualify for the $625,000 mortgage, this borrower would have to acquire a second credit card, use it a few times, pay the bills on time and wait one year before applying to refinance for the larger loan amount.

Is this sensible underwriting? Why encourage a borrower to take on more credit in order to qualify to borrow more money?

Sloppy underwriting and lax lending practices are partially responsible for today’s economic crisis. Lenders should qualify and lend only to borrowers who can handle the monthly payments, have a decent equity stake in the property and have a good credit history. However, in many cases, prospective qualified borrowers are being put through the wringer. We need rational, prudent and intelligent underwriting, not prohibitory underwriting.

The government is pouring billions of dollars into the economy — ultimately at taxpayers’ expense — to stimulate lending and the recovery of the housing industry. If the approval process is so arcane and unreasonable that responsible, qualified buyers can’t get approved in a reasonable amount of time, and without enduring giant frustration, it defeats the purpose of the stimulus.

THE CLOSING: If you have trouble getting a mortgage, and you know that you’re a qualified buyer, call your congressperson and wage a complaint. The pendulum has swung too far.

Dian Hymer is a nationally syndicated real estate columnist and author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer’s Guide," Chronicle Books.

***

What’s your opinion? Leave your comments below or send a letter to the editor. To contact the writer, click the byline at the top of the story.

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