A discussion on ethics grew heated between several staff members a short while ago.
Ethics are subject to the scenario in which they apply. Omitting pertinent information from a loan file is considered fraud, but what if you are omitting information to help make the process smoother for the borrower.
Example: A borrower has a few overdraft charges on his bank statement. It’s clear from other accounts that he has the ability to save money and this appears like a simple mistake.
Overdraft charges, however, are considered a red flag to an underwriter. Questions crop up:
Does this potential borrower have the capacity to budget for a mortgage payment?
Do they mismanage money?
Will this affect their ability to make timely payments?
His loan is otherwise flawless.
Do you omit the bank statement and ask his bank to prepare a verification of deposit (which only shows the current and average balance)?
In this case, you would be omitting any evidence of an overdraft. You won’t have to bother the borrower and the underwriters won’t ask questions.
Do you address the overdrafts upfront but asking the borrower to explain them?
As intrusive as this is, you are also lending them a lot of money. Shouldn’t they be asked about the overdraft and required to explain it?
In life, don’t we all judge these situations on the margin? What are the risks? Is it to great? Will it be construed as fraud? Is it harmful?