Monday, January 11, 2010

No More Pre-Approvals???

We received a lot of calls last week from real estate agents who have been told that the new RESPA law prohibits mortgage loan originators (the new name for anyone who sells a mortgage) from issuing a pre-approval. Not true, not true, not true.

The new RESPA law prohibits a loan originator from requiring that the borrower supply supporting documentation (pay stubs, bank statements, tax returns, etc.) before issuing a Good Faith Estimate, but it certainly does not say a loan originator can’t pre-approve a borrower.

Pre-approval letters, if they are done correctly, should only be written after the loan file has been submitted to one of the online automated underwriting engines. Fannie Mae, Freddie Mac, FHA, and VA all make this software available to originators. If the borrower has told the originator the truth about their income, assets, etc. (and any good loan officer can very quickly determine if a borrower is telling the truth), then the pre-approval will be legitimate. If the borrower is lying, then the pre-approval will not be legitimate. Same as always – absolutely nothing has changed.

So don’t listen to anyone who tells you that pre-approvals are a thing of the past. The new GFE is different than it was before, but it’s just a new form. Let the complainers fade away.

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