Why Clients May Be Asked to Write a ‘Comfort Letter’ to Their Lender

August 6, 2018

When an insurance company's underwriting department has questions about a borrower’s background, it's becoming common to ask the borrower to write a letter of explanation to their lender, dubbed a “comfort letter.” The lender may request a letter to gain clarity on the borrower’s circumstances that were not explained in their credit or employment documentation.

A mailbox with the text "LETTERS"

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“We try to connect the dots using data, and we think that makes the application process more robust,” Bill Banfield, executive vice president of capital markets for Quicken Loans, told The Wall Street Journal. “But when you need a little help from the client to connect those dots, letters of explanation are a way to help the underwriter interpret something.”

When would a client be asked to write one? The Wall Street Journal offers up some scenarios, such as a borrower who wants to buy a new home far away from their current place of employment. The lender may ask the borrower to explain, like if they intending to telecommute or has a new job. The bank may also request one if the borrower makes an unusual large deposit. They may ask for a letter to document where the funds came from. A lender may also ask for an explanation if there was a gap within employment.

“It could be as simple as somebody had a child, and they left the workplace for a period of time,” Banfield told The Wall Street Journal . “What the underwriter is trying to get at is the stability and continuity of the income they’re using to qualify the client to ensure that they can actually afford the payments.”

For lenders who do ask for a letter, banks tell borrowers not to panic. It’s a common part of the mortgage-application process these days. This does not mean there is a problem with the application or that it will be denied. In the letter, WSJ advises making sure the borrower fully understands the question and addresses the underwriter’s concern with concise and accurate information when requested.

Banks, however, are not permitted by law to ask borrowers anything that is “prohibited bias,” like on medical privacy, gender, age, religious, or racial discrimination, says Allen White, senior vice president of mortgage lending at South State Bank in Seneca, S.C.

When Your Mortgage Lender Wants to be Pen Pals,” The Wall Street Journal (Aug. 1, 2018) [Log-in required.]