The day before settling on your new home, your lender tells you that you have been denied for x,y,z of a reason. You ask how this can be because your lender has had your mortgage application for over 30 days. You are furious....
Well folks, this has been a very touchy topic of lately, those loan officers that issue pre-qualification letters or pre-approval letters. There was a comment on my previous blog, Pre-Qualification letter vs Pre-Approval vs Commitment letters - Knowing the differences. The comment was written by a loan officer with 7 + years of experience. Just a FYI... I am not knocking the loan officer. This is a good topic to discuss and understand.
Comment on previous blog by a loan officer :
"The problem with lumping these two definitions under the same category is that as a Loan Officer, we are not underwriters. Our daily job requirements cover more than just approving/declining loans, not to say that's all an underwriter does but this is their main function. Our objective is GETTING loans. I don't sit down every morning and review guidelines and loan packages ALL DAY. I don't review every single page of the banks statements to look for NSF charges or large deposits etc. I don't look at the buyer's address on his pay stubs, W-2's and bank statements to make sure they all match. I am not that detailed or analytical, otherwise I would not have more than 5 loans a month or I would be an underwriter. The people on my team do perform these functions but early in my career I didn't have help. This forced me to be more detailed than I currently am, but as a Loan Officer these things are not high payoff activities. This is why, I believe, so many Loan Officers don't perform the actions of an underwriter. I am not stating every Loan Officer doesn't do these things and that they shouldn't but rather that this isn't our main role. This is why I believe there are two different definitions, PRE-QUALIFY and PRE-APPROVAL."
Here is Jeff Belonger's strong opinion about this.....
Yes, we aren't underwriters.... but what has made me very successful in closing most of my loans that I originate (writing applications) is that I look at the items that I collect from the borrower. This loan officer states that the loan officers objective is to get loans. Yes, from a sales perspective, he is 100% correct. But if you stop right there, I now classify you as an order taker. Anyone can fill out a mortgage application and collect documents. He then goes on to say that he doesn't review every single page of bank statement to look for NFS charges or large deposits. He mentions a lot of things. Here is the problem with this.
When I take a mortgage application or even when I issue a pre-approval letter, I have collected most of the documents needed to start the mortgage process. But before I hand my loan into the opener or my processor, I check these documents. Here is why....
- Bank statements- If there are large deposits, we need to explain these, if not consistent with the borrowers normal pay. If we have a large deposit that we can't prove, this can kill a deal in some cases. Why? Because you can't borrower money to buy a home. Yes, you can receive a gift, but even that paper trail has to be proven. If there are many NSF's (non sufficient funds) on the statements, this could lead to a denial. Can you be a worthy borrower if you write bogus checks?
- Pay stubs- If you don't review these carefully, there could be other debt on your pay stubs that don't show up on your credit report. You could have a wage garnishment for back taxes, child support/alimony, or another type of wage garnishment.
The list could go on and on, depending on what is needed to be collected. My point here is that as a mortgage loan officer, we need to cross the 't's and dot the 'i's more than just once. Even when I first screen a new borrower, I spend some time asking them specific questions. In my studies when speaking to other borrowers that have spoken to a few loan officers, many tend to ask the basic questions and that's it. I feel like there are about 10 major questions to ask, in making sure that this loan will close and close on time. I wrote about my specific questions... Jeff Belonger's mortgage questions when pre-qualifying...
Overall, yes, there could be other reasons to why your loan didn't close or close on time...
- appraisal
- title work
- maybe the borrower lied about something
The sad part about all of this is that the loan officer or lender can blame many different reasons to why your loan won't close now. Yes, many lenders have specific lender overlays, which means that they can add to the normal guidelines that HUD/FHA or Fannie Mae/Freddie Mac have established. But because of so many changes, this seems to be the easiest excuse out there now. Yet, in my honest opinion, the loan officer might not have done a good job up front. They were too busy stuffing their pipelines with mortgage applications. People, you need to choose wisely. Please read my blog about the questions that I ask. If your loan officer only asked you half of them, there could be major problems down the pike per se. Thanks
NEWS PRESS : This just in.... Kathleen Daniels just made this comment : Kathleen's comment : She stated that a lender should know long before if there is an issue. A few things.. if it's not an apraisal or title issue, yes, in most cases this could be correct. Just don't assume. If the application was properly taken and the correct documents were collected upfront, yes, 99% of the time the problems should be found many weeks prior to closing. It just depends on when the application was taken and when the closing date is set. The average time frame that a lender should need in today's market is almost 4 weeks. Yes, many of the lenders and brokers out there are 6 to 8 weeks, but they just took too many applications that probably won't close to begin with... maybe refinances that will have appraisal issues? Just food for thought.
Please read Jeff Dowler's comment... Jeff's comment - This could have been a mini blog and is right on, spot on...
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Copyright © 2009 by Jeff Belonger of Infinity Home Mortgage Company, Inc
Jeff, on the surface my thought would be - someone screwed up and did not do their job. A lender should know long before the closing if there are issues with a loan.
Too bad some people don't get really thorough loan officers like you. But I would add to Kathleen's comment that "someone screwed up". I would say that for that much time to pass and to get that close to the closing, others screwed up to. Where was the buyer's Realtor? Why wasn't he/she on the phone with the loan officer much earlier than this and often to verify how things are going with the loan?
Why does everything happen at the last minute? Thanks for sharing your post with us.
Underwriters are behaving differently these days. We are seeing them ask for things that they must have delighted in creating in the middle of the night. Escrows are blowing out because of an underwriter acting out. It is not the fault of the loan officer in most cases - it is the underwriter being overzealous and illogical.
Jeff - seems to me that the issue in some cases is simply to write as many apps as possible with less regard for the actual funding. The more you write the greater the % that WILL get funded, as opposed to doing the right thing to truly qualify someone. And someone with limited experience will just not have the knowledge to be able to correctly pre-approve someone and to rally review the documentation the have to see if there are issues, and may not care that much.
Jeff
KATHLEEN.... . I will agree with your statement and added it into my blog at the bottom. My whole point is that a loan officer can make up excuses to the reason why and make it sound like it wasn't their fault.
VICKI.... . I don't even blame this on the buyer's agent, whether they should follow up or not. Sure... but a good loan officer will bring anything wrong, up to the buyer's and to the realtor's attention. As I explained to Kathleen, yes, many times these problems are found prior to closing and not just the last day. And thanks for the kind words..
HARRY.... . in many cases, the loan officer doesn't want to give bad news until the end... sad, but so true. thanks
JIM..... I am going to disagree.... because my underwriters are still asking for the same things as if we went back 10 years, prior to this mortgage mess. When it comes to income and assets, these things haven't really changed for the most part. You are either dealing with underwriters that are new, less than 5 years in this business, or just a lender that will be strict no matter what. Just my opinions... but I see a lot of this daily and know what we look at as a company. We follow the guidelines and even investor overlays... sure, some underwriters are more critical of appraisals and such... but why we also use AVM's.... thanks
JEFF .,..... . you said it beautifully,.. you could have made my blog really short.. as I stated, I didn't want to throw the loan officer under the bus, because I don't know much about his skill level... but it's more than just taking the actual application... and yes, it takes some time... but if you have a plan and a specific schedule, you can still do a fair number a month and make a very good living.
Jeff, part of the problem is lack of loan officer training which has not changed much over the past 39 years that I know about. You are correct, there are many inexperienced loan officers who think that because they took a ten minute application they have an actual loan. They are under the mistaken idea that it their processors job to carefully review check stubs and bank statements for the many potential problems lurking there.
In my opinion it is the loan officer's job to take a complete application, gather the documentation, order the credit report, ask more questions then submit on line for AU findings. Then they can issue a valid Pre-Approval letter.
It really does not take that much more time in the beginning to turn over to your processor a complete package and the LO's due dilligence will save an enormous amount of time in the long run.
Thanks for you blog
There is a great statement I have learned, "If you don't have time to do it right the first time, when will you have time to fix it and do it right?"
BILL.... . yes, lack of loan officer training... but I only learned how to qualify with income, loan products, how to fill out a 1003.... but we also need to take it further.. and act like an underwriter... asking ourselves as loan officers..."how would my underwriter look at this file".... the basics that is.... pay stubs and bank statements... and how we put the deal together, with notes and such. You are correct, if you take a really good loan application and asked the right questions, it doesn't really take that much longer to put all of this together.
Let's say it takes you 2 hours to ask teh questions and to take a mortgage application. Take another hour to review the documents and to put it in file order... hhhmmm... 3 hrs... okay, you could take 3 loans a week and still handle all of your problems.... and that means you would do about 12 loans a month... even if you made the minumum, you could still earn a 6 figure income without blinking. thanks
STEVE.... . BINGO... well said... if you take that extra 10 minutes to see if you as a loan officer crossed your 't's and dotted your 'i's, then it could go smoothly. thanks
Jeff,
As you state, the best LOs do more than just pass information on to an underwriter. The most successful LOs have developed a trust from their underwriters, who know that if that LO has submitted a file, everything is likely to be in good order.
I definitely agree - I was trained as well to actually READ the documents that the clients give us. It is our responsibility to know the programs as well. I think that is a cop out from the lender who stated that.
Jeff, and if the loan officer sees that it is FHA, shouldn't the FHA addendium be sent right away and not opps at the end. We've had to lenders representing the buyers send them over late in the process. Gee it is required, get it over right away.
Jeff: Thanks for the post. I would argue a transactional loan officer (and there are some very high producers out there) wouldn't probably be interested in what you espouse. I can tell you are relational. Clients matter to you. That being said, I think a loan these days has a 50/50 chance of getting done after taking the application. It doesn't really matter how experienced the LO is, there are changes happening every week in our business. The significant thing is pull-through. Some of the top producers in my office are at 50-60%. And they know what they're doing. I think my pull-through is a little higher but I've still had a few that haven't happened. I do agree with you on this. If problems arise, it is the loan officer's fault. When I've had tough loans, it's because I've made a mistake along the way. Thanks again for the post. Your thoughts are appreciated.
Hi Jeff, interesting information on the role of a mortgage broker - I wish they all were as conscientious as you are! :)
A lot of the problem is loan officers refusing to disclose information when you call to check up on the buyer claiming it is private. If the pre-approval is not worth the paper it is written on there must be a willingness to disclose what they are actually approving. Good post, many consumers and agents don't know the difference.
Jeff - It has been a long time since i stopped by. As usual you didnt dissappoint.
JP Lowry--President--Preferred Financial Funding
I agree, last minute dead deals like this indicate someone on the lending side did not do their job -(except the one time some borrower decided to retire the week before he bought and didn't tell anyone). At the table changes in the cost of the transaction also indicate a poor job by the person the borrower worked with. It is not some one else's fault. My guess is this loan officer kept saying everything is fine, over and over.
Every deal is carefully reviewed before we send a pre-qualification letter. I warn everyone in a friendly fashion, if everything they tell me is true then we are good. Everything financial on that application will be documented. I will let them know how much the appraisal comes in for once I get the information. If there is anything that is questionable, we ask the underwriter before hand to make sure there is no problem. We keep the borrower and realtor informed throughout the process to be sure we are all on the same page. Lots of things are changing in the industry right now, so those changes might impact the deal, but you would still know about it before the last minute.
Jeff,
I am with you on this one. Not looking at bank statements and paystubs is the kiss of death. What if the client has bonus income they need to qualify but it isn't ongoing? As you know, you can't count it. What about self employed folks that show lots of income on the application and none on their tax returns? There are enough pitfalls without overlooking something as simple as reviewing paystubs, tax returns, credit reports and DU findings. Just because you have a DU approval doesn't mean you have a deal.
Nice Post!
Jeff, the underwriters are getting very very detailed these days. I think it is a good thing, but it certainly adds stress to both sides of the transaction. Great blog as usual.
It has been over a year since I went through the loan process. I understand that many things have changed. More documentation is necessary and many loan types are not done any more.
With all of the bad loans, I can understand there being greater caution. I would think that over time loan officers should have a good feel for what underwriters are really looking for. I have a good freind that is a loan officer and he tells me that he can usually be sure that his loan packages are accepted. He is careful to use appraisers that fairly value a home and insures that all of the paperwork is in order before sending the docs to the underwriter.