mortgage fraud rears its ugly head once again in an unexpected place

We've been working on a refinance transaction for a number of weeks.  The file has been stuck in mortgage underwriting because we reported a pending lawsuit and the borrower didn't know how to handle creating a letter of explanation or why one was needed.

So, last week, finally, the borrower's attorney provided an explanation which I thought was terrific and if I had been the mortgage underwriter, I'd have approved the mortgage.

Imagine my shock yesterday when the mortgage underwriter requested that I amend my title insurance commitment so it showed no pending lawsuit.

She said they had a guideline that says they will not approve a mortgage if the borrower has a pending lawsuit.

HUH?  I know that sometimes mortgage underwriting rules defy logic but anyone could have a lawsuit filed against them without merit and was she telling me that these people cannot get mortgages?  I have to believe that this is a misinterpretation of the rule, however, IF that is the rule, then so be it.  This borrower has a pending lawsuit and if your guidelines say you cannot approve his mortgage, then deny the loan.  Don't ask me to scrub the title commitment to show no pending lawsuit because that is MORTGAGE FRAUD and I will not go there.

As I had this conversation with the underwriter through emails and on the phone, I did suggest that I did not think this was her intention but that she needed to realize that this is really what she is proposing.  I calmly asked that she review this with her supervisor and she said she would.  I am awaiting their response and do hope that this is a rogue underwriter who needs more training and not the beginning of yet another round of mortgage lending gone bad.

Fingers crossed.