Consumer - "I have been approved for that mortgage."
Me (loan officer) - "How do you know this for sure?"
Consumer - "Because I was told by the loan officer that they ran it in their system and it came back with an approval."
Me - "That sounds great. So did you show them all of your information, your pay stubs and bank statements?"
Consumer - "No, they had my information from before."
Me - "Okay, I am confused. They said that you are approved, but they didn't physically see any of your W-2's, pay stubs, or even your bank statements?"
Consumer - "No..... what's the big deal then?"
Me - "Sorry for the chuckle, but you aren't approved. Let me explain to you the whole process from start to finish."
I wrote this blog a few weeks ago :The difference between a Pre-Approval and a Pre-Qualification letter. I wanted to bring this up again because this just happened to me last week. As many have mentioned, we not only need to educate the consumer, but others within the real estate business. As PROFESSIONALS, we need to RAISE the bar & educate consumers.........
Getting back to the issue. My client had been approved by two other lenders. Most lenders have a system call DU or LP. DU is Fannie Mae's automated Desktop Underwriting technology. LP is Freddie Mac's version which is called Loan Prospector. These tools allow lenders to put your information into the computer in order to get a loan approved or denied. Some companies have their own versions. These systems will look at your credit, income, years on the job, etc etc and match it to the proper guidelines written for the loan program that you are being approved for.
The main thing to remember here is that your information is being inputed by a human. It doesn't matter if it's the loan officer or the the processor, mistakes can be made. Most importantly, an underwriter needs to review the information to make sure if was inputed correctly. In the case of my client? I asked to see his pay stubs. As I reviewed them, my mouth dropped open when I noticed that they were from his brother, in his brother's name, and not the company that he works for. This could become a major issue for several reasons. The computer isn't going to know this. Hence the reason why I said, "you aren't approved."
I just have a problem with consumer's being misled. I always state that I am not perfect nor god. But know your job at least. Be upfront with consumers and clarify things when talking to them. Have you ever been told that you were approved, later to find out that you aren't?
Another must read : The difference between a Pre-Approval and a Pre-Qualification letter.
Updated Blog - 7-23-09 : Pre-qualification letters vs pre-approvals letters and knowing what a commitment letter is....
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Copyright © 2007 by Jeff Belonger of Infinity Home Mortgage Company, Inc
Nick.... you win $1 for being the first comment after over 200 viewers. Sure, this is not a funny story or humorous.... but it's reality.
In any case.... I did kind of chuckle. I was able to do this and cute right to the chase, because I am on a different level with this client. He has become more than just a client. And he did understand this after I pointed this out. Thanks for stopping by.
Jeff- good post. This job has its moments when you just want to throw your hands in the air and give up when a prospective borrower tells you " Well the broker told me I am approved already at 5 1/8 with points and he can close my deal in 10 days, yet their docs have never been taken, and at times, their credit has never even been run.....and I can imagine you did a little more than" chuckle" after reviewing those paystubs!
J Yozzo
John..... thanks for the compliment. Just when I think I have seen or heard it all. I seem to be throwing my hands up a lot more lately. The unfortunate thing when the market gets bad, slows down; is that some of the people struggling mislead or stretch things, just to get the business. I guess that is part of life and this business that we are in.
Midori..... I would hate to agree, but I will say that I think the mortgage industry does have the worst reputation. Greed can really change people at times. Thanks for stopping by and for your feedback.
Sally..... sorry that I wasn't clear. I didn't want to make the post longer than it had to be. But my client works for his brother. He is the owner of the restaurant. There could be several red flags because of this set-up. And there is so much that isn't mentioned and that these other 2 loan officers wouldn't know about, unless the visually saw what needed to be seen.
There is a lot of misdirection going on in the industry and sometimes it gets frustrating to say the least. I get upset when my clients go down the street for some super-loan that I tell them they don't qualify for. They come back begging me to close a loan in 3 days. I think the link between Realtor and loan officer needs to be strong to avoid this. The Realtor can help greatly by saying, "Hey, I have seen this 1000 times, if its too good to be true, it probably is!"
The bottomline: the consumer has to learn to ask the right questions.
Olan..... you said that right, misdirection... aka, misleading. And I agree, the realtor can add his/her opinion and clients will listen. Not always.... but do they really try when they say that so many come with pre-qual letters? Or is this just an excuse, because they don't want to get involved. Now..... I am not trying to call any realtors out on this, but I do wonder. Me? Team, as Midori mentions below.
Midori.... teamwork has always been in my vocabulary. And yes, building relationships is key. Thanks for your added feedback on this issue.
This is such a problem in the industry today. I am actually in support of a Uniform Pre-Approval Letter with compensation for the injured party. Why?
1- AUS are easy to run.
2- Credit and income documentation can be verified by lenders.
3- The commitment can be good for 60 days and still give the funding lender enough time to sell the loan in the secondary market .
The result?
1- Realtors will push borrowers to be more compliant with lender's requests; they won't get offers accepted without them.
2- Originators will be able to put pressure on underwriters to sign off on te Uniform Pre-Approval in a timely manner.
3- the Uniform pre-approval will serve as a stronger commitment to the approving lender so pipeline pull-through percentage increases; that will mean lower costs.
Jeff, you're absolutely correct with this post. I will admit to approving clients without seeing documentation though. This is due to a combination of two factors: 1) the realtors I deal with always bring good clients, and 2) I tell them upfront what documentation I will need and that if they cannot prove it, the approval will be nullified. So far they've been honest. Should I chalk that up to some luck?
- Tchaka
Brian.... wow..... this sounds really good. Glad that you put your thinking cap on this one. The biggest thing, that you, myself, and other loan officers will understand...is your comment in regards to pipeline pull-through. Yes, lower costs. I have seen so many companies just go out an allow LO's to originate, no matter if it will stick or not. Gee.... the costs.. paper, application packages, the PROCESSOR's time.... etc etc.
Kaye.... yes, I think so also. Overall, it's called pride. I pride myself in making sure that ...for most of the time, that when I say it's a done deal, that it will close. I have always had a very high closing ratio, even including refi's. Thanks for your feedback.
Tchaka.... hhhhmmmm... I would say luck. In all honesty, I think that you are playing with a loaded weapon per se. The combination or not, look at my example. He has a job.... he works for a legitament company.... and he is w-2's. But it could be a red flag because of how the pay stubs read. Just food for thought.
Hi Jeff-
I like Brian's idea above pf a uniform pre-approval letter. I think this could even up the playing field somewhat : ) As usual, great post.
Ravi..... thanks Ravi. I finally caught up with Rob early evening. I'll work on some options for him and told him that I'd get back to him tomorrow. He has been to a 2nd mtg company already, who also issued him a pre-approval letter, but that he hasn't shown any documents as of yet. thanks again...
Kelli..... it could even the playing field, but could it. Again, I have seen some companies even put out there some commitment letters that hadn't been looked at by an underwriter yet. Thanks for the compliment.
Matthew...... what about the nickels though? Would you still be rich? Thanks for the nice compliment.
Jeff-There are products out there, with a high enough credit score, that do not require any documentation. I occasionally get an appraisal waiver, too. However, I put that all in writing for my customers.
**Consumers: Please keep in mind that I am speaking of the exception, not the rule. Jeff is correct, a loan officer needs all your documention for an approval**
Ann..... yes, I am aware of this. But this was just a general example, especially if you read the part about my client and his pay stubs. But thanks for clarifying that in your 2nd paragraph and thanks for stopping by.
Matthew.... not a biggie... thanks
Naoma..... yes, it certainly seems that way. Overall, just educating the consumer. Unfortunately, it will not always go the way that we would like. Just the facts of life.
Here is what I included in my post. As PROFESSIONALS, we need to RAISE the bar & educate consumers.........
Great post. I think so many people do not understand what they are being told. I don't think I knew what I was being told when I first bought my first home. I like the fact that you are trying your best to teach people the right way.
Matthew Meli
Great Post..I have had lenders who swera by that Desk Top underwriting and I unfornately swear at it LOL I have seen many problems with DU as you said it then goes to a real underwriter that can find all the problems and like any loan that is when the fun begins. SO many people fib or actually think they are telling the truth and don't tell the lender about things that are found during underwritting .ouch. I would eb a big supporter of a universal approval letter.
Keep Blogging Jeff you the best
Matthew M. ....... yes, I would agree that many don't understand what they are being told. Most of all, are the loan officer's even explaining it correctly? And thanks for stopping by and for the compliment.
Sandra...... well, I usually swear by desktop underwriting because I know how to look at the basics, aka. pay stubs, bank statements, and asking the right questions. And if I am not sure, I ask an underwriter now than later. And yes, it can be tough when the client doesn't tell you everything and that you don't find out until during the process. But what's sad is that I think some lenders use this to their benefit when they actually messed up in the beginning. Then pointing the blame on the client because of this, just because you don't know and it's the lenders way out.
Thanks for those great compliments and for stopping by.
I think there is a serious confusion with regards to pre-approval letters. Most commitment letters I see today are just step two of the pre-approval letter...sure the client qualifies but does the property?? And if the property doesn't qualify is the so called commitment letter held against the buyer?
Here's a senerio I recently encountered with a client. The buyer qualified, was issued a pre-qualified letter from his lender. Buyer and seller signed the contract with the "basic Mortgage Contingency" - the lender issued a conditional Commitment letter, based upon appraisal, title etc. The lending fell through when the lender found out that there was active litigation against the homeowners association.
Both the buyers realtor and his attorney told him that he could not get his earnest money returned to him due to the fact that the lender had issued him a commitment letter!!!
JENNA.... in regards to your example, those lawyers are wrong. That commitment letter said conditional until the appraisal is done. Besides, any denial letter should in most cases get the buyers earnest monies back... my opinions, since I am not a lawyer, but I don't see any of that holding up in a court of law.
I just wrote this about a week ago... Pre-qualify letters vs pre-approval letters thanks for your feedback