Mortgage Lenders Demanding More Proof of ID From Borrowers

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ShutterstockIf your Social Security number was not issued at birth, you might need extra documentation when seeking a mortgage.
By Scott Sheldon

In the compliant world of securing a mortgage these days, explanations and full supporting documentation are now considered to be the "norm." Lenders must validate that a borrower really is who they say they are. One way a mortgage lender verifies a borrower's identity is by their Social Security Number. But there's a catch. If your Social Security number was not issued at birth, and you're applying for a mortgage, you may need extra documentation to back it up.

Why Social Security Numbers Are a Hot-Button Issue: Identity theft and fraud are prime concerns for Fannie Mae and Freddie Mac, the two mortgage aggregators that create and securitize the lion's share of the residential mortgage market. As the lending industry has recovered from the meltdown, lending compliance standards have become tougher to ensure transparency on the loans being%VIRTUAL-pullquote-If your Social Security number cannot be validated, all is not lost.% originated and sold to Fannie and Freddie.

Your SSN is tied to your federal income tax returns, a benchmark for validating income as well as validating your identity -- that you and the borrower applying for the loan are one and the same. Because of the fraud and money laundering activities of years past, lenders rigorously verify who they are lending to. In other words, there is no getting around the consumer identity validation process when seeking a mortgage.

This can have an impact on your loan. Baby Boomers are affected the most because it was common for many to have received their SSNs when they were well into their teenage years. The same goes for someone who was born in another country, and then received an SSN as an adult. As such, when they apply for a mortgage, the lender might have a difficult time obtaining an SSN validation because the SSN was not issued at birth. (As it became customary for SSNs to be issued at birth, buyers of generations X and younger are not typically affected by this problem.)

Seems like a simple oversight, right? Well, in order to procure mortgage financing, your SSN does need to be validated, tying the number to the individual possessing that number. However, there are frequent discrepancies within the third-party SSN validation companies that lenders use, which can render a validation incomplete. So then what happens?

Other Key Identity Documents: If your Social Security number cannot be validated, all is not lost. Your birth certificate can help you, because it meets the federal identity standards that mortgage lenders must adhere to. Alternatively, a voter registration card or passport would suffice.

In cases where you're co-signing for another individual -- let's say you're co-signing for your daughter or son to buy their first home. The same rules apply, unless your SSN can be successfully validated with the lender.

If you plan to get a mortgage, and were not originally naturalized in the U.S., plan on providing the alternative documentation passport, voter registration card or birth certificate.

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