What do you mean you can't get my loan closed now? You promised !!!!! Have you ever heard those words as a consumer or a realtor? I have closed 8 loans just this year that the consumer heard those same words from their previous loan officer. And these words were uttered either the day before closing or the day of closing. In my opinion, that is no excuse unless there was a title issue last minute or the client lost their job or quit 5 days before settlement. But most reasons are other than what was just mentioned.
I read a post the other day written by David Garcia titled 5 Reasons Why Loans Go Awry at the 11th Hour. It was good. But I semi disagreed with some of the reasons to why loans don't close last minute. I think it was letting many loan officers off easily with typical excuses. Especially now more than ever. Meaning that we could blame it on the ever changing mortgage programs, which I think is one reason why this is becoming more wide spread as of now, in today's market.
In David's post, he talks about the loan officer assuming that the deal meets guidelines. Explaining that with changing guidelines, that if they aren't on top of these changes, this could be a valid reason. These I do agree with, but still don't think they are the main issue. David does mention that he thinks the word "loan approval"is used to loosely. Now, I will agree with this more, but we need to understand two things here first. The difference between a pre-qualification and a pre-approval. Everyone needs to understand this, even loan officers, before a consumer can truly move forward.
Now, with that in mind and because of what has been mentioned above from David's post, there is the 'Oops' factor that so many loan officers use when giving bad news. What are the basic excuses?
- Your credit score dropped a few points. Most lenders will allow credit up to 90 days on a re-sale or refinance. As a banker or broker, your credit shouldn't be pulled prior to closing unless it's beyond this time frame.
- There are a few other excuses such as lack of income, the VOE came back lite (verification of income), etc, etc. But these are even poorer excuses and I will explain this next.
As I mentioned in my comment to David, below are the true reasons, in my opinion of 16 years in mortgages, to why so many loans go south the last hour, prior to settlement.
- Loan officer is not able to read a credit report - (most of my answers will be directed to the fact that if you did a FHA manual underwrite. Because as a loan officer, we need to act as an underwriter when qualifying. That is how I review my loans prior to giving a pre-qual letter.)
- just because they have a credit score above 600, doesn't mean that it can always be done
- if they only have two tradelines with bad credit, we need to show 4 trades. FHA wants to see 4 tradelines for 12 months or more.
- not explaining to a consumer that most collections or charge-offs need to be paid off (case by case - but most times, need to be paid off or have a payment history) this depends on the whole scenario. But if it's not a strong loan, this needs to take place.
- Income - how many actually know how to read a pay stub or don't when they qualify a client?
- How about if I get paid twice a month? That's not 26 weeks, but 24 weeks.
- What about pay stub deductions? If there are loans other than a 401-k, they need to be included in the DTI.
- I just had this happen to a client. Her previous loan officer used her child support. She supplied a piece of paper saying what her payment is and that it started on August 2007. The other person didn't ask for anything else and said that this was okay. Rut row.... what about proof of a payment history and proving that it is suppose to continue for 3 yrs. She was told that she was approved. Her ratios even with this $600 payment are 31%/47.2%. With credit scores of 541/553/590.
Overall, I could be here forever. What I attribute a lot of this is to bad screening of the consumer and maybe bad processing. But I would put most of the blame on the loan officer. And why are even income and credit some of the main reasons at the end? Because the loan officer brought the deal in last minute? Or told the processor that they were helping the client with the credit... but never did or didn't know how to? But most??? Because they just didn't understand how to read the credit report, what to tell the client to fix, or how to read pay stubs or income taxes. And now the processor is trying to fix the deal. So they tell the loan officer to tell the client that they might have issues. Here is the problem... the loan officer doesn't do this right away.
PS.... and this has nothing to do with local lenders or out of state lenders. That will be talked about in another blog later this week. It all comes down to properly screening the consumer. The 8 loans that I saved this year from other lenders that denied the loan last minute, 7 of them were out of state. 6 of them had gone to their local lender.
- FHA Loans - FHA Mortgages - Conventional Loans - VA Loans -
Experience & Knowledge at its BEST !!!
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For more information on FHA loans, please go to this link. The FHA Expert
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For important mortgage insight to watch for, please read : Consumers need to be aware of these Red Flags !!!!!
Copyright © 2008 by Jeff Belonger
