For much of American history, citizens have debated whether there is a "right to privacy." On the one hand, should we not have some expectation that personal and family matters be held confidential? On the other, is it even possible given the intrusion that modern technology represents? Wherever you come down on these questions, it is safe to say that most of us do not like sharing personal information if we can help it. Yet for a mortgage lender to extend large amounts of cash to new applicants, it must learn a few things about their trustworthiness and overall reliability.
It is a traditional cultural taboo, for example, to tell people -- outside of the IRS -- how much money you make. It was always considered bad form and none of anyone else's business. Of course, a home loan issuer must know this to protect the investment it makes in a borrower. The same goes for employment, assets, home value and credit history -- personal relative to the general public but essential in evaluating financial soundness. So, for the sake of argument, we can exclude these matters from the "personal" column because they go to the very heart of a home loan application.
What does constitute personal information? Section III of the standard mortgage loan application asks for information on the borrower and co-borrower, if applicable. Among the data is the social security number -- necessary to pull credit and conduct legal searches. In addition to names and contact information, the application requires a birth date. Why? For one thing, an applicant must be a legal adult. For another, an accurate credit report is conditioned upon age as an input. Lenders are forbidden to discriminate on the basis of age.
An applicant might see a request for marital status as overly intrusive. The reason behind this question is multi-fold: a divorced person might have to pay alimony or child support. A separated person's financial obligations are up in the air. In many states, debts are attributed to couples rather than one spouse or the other. A lender needs to know how those debts were disposed of in a divorce agreement. Moreover, there are jurisdictions that recognize a spouse on title even if he or she is separated from the applicant. These have serious financial implications for both borrower and home value.
The loan application also provides a field for the number of dependents in a household. While this figure does not affect the underwriting of a conventional loan, government-backed loans consider this significant. Kids cost money to feed and clothe, money not available for debt payment. Plus, each dependent affects taxable income.
Section VIII of the loan application asks the loan candidate if he or she is the subject of a legal judgment or if there is a lawsuit pending. Again, such disclosures are necessary for the lender to know if the stated assets are under any threat of seizure or if income is subject to any garnishment.
The last section of the application asks about race and ethnicity. Lenders must prove to government regulators that they do not discriminate on such grounds. Monitoring the backgrounds of each applicant, ironically, bolsters the argument that underwriting and customer service is neutral across all nationalities and ancestral lines.
