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Deposit documentation in residential lending

September 26th, 2012 2:10 PM by Chuck Green

One of the most irritating aspects of lending these days is the requirement that all deposits be "sourced". This is a big hassle for everyone.....but standard now for Fannie, Freddie, and jumbo investors.

Here is the issue. Lenders care about your reserves and liquidity....but in the past ignored deposits made into bank accounts that "create" this liquidity. Lenders were unable to "prove" to investors that these new deposits of funds were "really" belonging to the borrower.....since in theory these deposits could be from a credit card advance, or even borrowed funds. Because of this, deposits made to bank accounts are now scrutinized; borrowers now need to provide evidence that these deposit funds belong to them by providing a "paper trail".

A "paper trail" consists of two things:

  1. Providing copies of all checks deposited on a certain day to match the deposit amount shown on the bank statement.
  2. Brief explanation required as to what these checks were for.

Here is the best way to organize this document:

  1. Copy (using a copier) all of the checks (from one day's deposit) onto one or more pages, and label each check copied as item A, B, C etc.
  2. On another page show "Deposits from XX/XX/2012" and then underneath this, list items A, B, C, D that correspond to the checks shown and labeled prior to this.
  3. Explain:
    1. Item A (example) "deposit from our tenant for rent owed for month of July"
    2. Item B (example) "bonus received"
    3. Item C (example) "sold my bike - paid by check"


Posted in:General
Posted by Chuck Green on September 26th, 2012 2:10 PM