Tuesday, July 19, 2011

This Week's Winning Mortgage Question - Pre-Approval Letters

This week's winning question was submitted to us by Jani Bielenberg at Bielenberg & Associates, Metro Brokers. Jani receives a $25 gift card and gets her contact information sent to the 6,600 people on our contact list. We also list her contact info on our blog (10,199 visits for the first 6 months of 2011) and on our blog at Active Rain, a real estate blog with more than 210,000 members.

Jani's contact info follows:
Jani Bielenberg, Broker Associate
Bielenberg & Associates, Metro Brokers

See below for how you can be next week's winner!

Jani's question is: "We recently received a "Pre-Qualified" lender letter for a Buyer on one of our listings. On the loan conditions deadline, we received notice that the Buyer was not approved for the loan. The reason being, the Buyer was retired and the part-time job/salary could not be used because it only had a 6 month history, even though it was in the same field of work. Everyone involved in the transaction was disappointed to say the least. How could a "Pre-Qualified" letter have been issued knowing upfront that this would very likely be an issue? No disclosure was made. What is the workaround when the Buyer's lender is not a company that you recognize?"

Here's the answer: The buyer probably had too long of a gap in employment from the time he retired until he started the part-time job. If the gap were only a month or two, then an underwriter might accept the income from the part-time job.

A good loan originator will ask enough questions when he qualifies a borrower to make sure he's not making a mistake like this. Unfortunately, many of us are not trained very well when it comes to interviewing people. If someone has retirement income and also income from a job (whether it’s part-time or full-time), the lender needs to dig a bit deeper with his questions. Once he has all the information, he should then call an underwriter if he is still not 100% sure that the borrower will be able to get a loan.

I am guessing on this, but I would say that the lender never had a clue that it would be a problem. Even though we need to be licensed and pass a test to be an originator, anyone who spends more than a few minutes studying for the test can pass the test. It is hardly a good measure of how competent someone is. It is entirely possible to be licensed as a mortgage loan originator and not know much of anything about mortgages. It looks like you got stuck with someone who is not very good at his job. The real tip-off that they are not good is that they waited until the very last minute to tell you. As lenders, we know pretty early in the game whether a loan is going to have problems or not. If it is, then it is our responsibility to alert everyone as soon as we know about the problem.

As far as the workaround when the buyer’s lender is not a company you recognize, your best bet is to call the lender who wrote the letter as soon as you receive a letter (before you accept an offer), and ask them if they ran the loan through the online underwriting software that Fannie Mae, Freddie Mac, FHA, and VA provides to lenders. Also ask them if they checked the lender’s underwriting overlays (the additional guidelines that many lenders add on top of Fannie, Freddie, FHA, and VA). And finally, ask them if they checked the mortgage insurance underwriting guidelines. If they don’t answer YES to all three of those questions without hesitation, then you are probably not dealing with a very competent lender. Using the underwriting software and manually checking the lender and mortgage insurance guidelines is the absolute minimum amount of work an originator needs to do before writing a pre-approval letter. A good lender never minds answering a listing agent’s questions, so make sure you call the lender when you receive a pre-approval letter.

Getting a loan approved is easy - if you know what to do. The Mortgage Experts know what to do!!!

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