I have a lender who has suspended 2 files in the past 2 days because they did not contain paystubs. On both of those files, the borrower was not a salaried borrower (where paystubs are the proper income verification documentation). One was a partner at a large accounting firm and provided K1s (along with federal tax returns) and the other was self-employed as a small business owner (who supplied tax returns and aP&L statement).
Self-employed borrowers and partners at accounting firms do not receive paystubs since their income is not in a consistent amount. They are paid based on the profitability of their businesses. As such, Fannie Mae and Freddie Mac require those documents and some others, but NOT paystubs or W2s which are for a salaried borrower with a set and steady income. We now need to get back to this lender, convince the processor of this (or his/her supervisor if we can’t) and then get these loans back on track. Total wasted time, 3-5 days. Finding someone at one of these banks who has a brain and actually uses it….priceless.