Forbes Article - Loan Approval Process

7/27/2019 Forbes Article - Loan Approval Process

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by Mark Greene, Forbes MagazineLoan File

Perfect

The media has it all wrong securing mortgageapproval and satisying credit underwritingguidelines are not the diculties plaguingmortgage consumers. Its in meeting the rigorousdocumentation requirements that most peopleall fat. The good news is, the x is simple. Justscan, photocopy, ax, and deliver every aspecto your nancial lie. Then, shortly beore closing,check everything again.

Mortgage consumers who enter the mortgageapproval process ready to battle their chosenmortgage lender will come out with a nightmarestory to tell. As the process, requirements, andguidelines are the same or everybody, yourmindset is the game-changer. Accepting theredundant documentation necessary or lenderapproval will make everyones lie easier.

When I was a kid, my ather occasionally issued

Equal Housing Lender Member FDICbankingunusual.com

The

directives that I naturally thought were superfuous,and when asked why I needed to do whatever it wahe wanted me to do, his answer was oten: BecausI said so. This never seemed to address my querybut always let me without a retort, and I wouldusually comply. This is exactly what consumersshould do during the mortgage approval process.When your lender requests what seems to be over-documentation and you wonder why you need it,accept the simple edict because I said so. Youwill nd the mortgage approval process much lessrustrating.

So, whats the perect loan?

Well, its one that (a) pays back the lender and (b)pays back the lender on time. Underwriting the

perect loan is not the goal that mortgage lendersaspire to today.

The real goal is the perect loan fle.

Mortgage lenders have suered staggering lossesand gone out o business because o the dreadedloan repurchase. As mortgage delinquenciesincreased, FannieMae and FreddieMac beganto audit mortgage loans they had purchasedand discovered substandard and raudulentunderwriting practices that violated representationsand warranties made, stating these were high

quality loans. Fannie and Freddie began orcing theoriginating lenders o these bad loans to buy themback. So a small correspondent mortgage lenderis orced to buy back a single mortgage loan in theamount o $250,000. This becomes a $250,000loss to a small mortgage business or a single loan,because it will never be repaid.

MoneyBuilder

Jim YarringtonSenior Mortgage Banker

Peoples Bank13180 Metcal AvenueOverland Park, KS 66213

[email protected] # 454680


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The Perfect Loan File(continued from page 1)

It doesnt take many o these bad loan buybacksto close the doors on many small mortgageoperations. The lending houses suered billionso dollars o losses repurchasing loans romFannie and Freddie, and began to do the samething or loans they had purchased rom smalleroriginators.

The small and medium sized mortgageoriginators that survived created underwritingguidelines and procedures to eliminate the threato uture loan repurchase losses. The answer?

The perect loan le.Its no longer necessary to have excellent credit,a big down payment and stable employment withincome sucient to support your debt serviceto guarantee your loan approval. However, youmust have a borrower prole that meets thecredit underwriting guidelines or the loan youare requesting. And, more importantly, you haveto be able to hard-copy-guideline-documentyour prole.

Every nook and cranny o your nancial lie has

to be corroborated, double- and triple-checked,and reviewed again beore closing. This way, ithe originating lender has created a loan le thatis exactly consistent with published underwritingguidelines and has documented while adheringto those guidelines, the chances are that yourloan will not be subject to repurchase.

Borrowers also need to prepare or processingand underwriting. Processors and underwritersare the people trained and charged withgathering (processors), all o your required-

or-approval nancial documents, and thenapproving (underwriters), your loan. You canassume these people are well trained and veryexperienced, as they are tasked with assemblingand approving a high-quality-these-people-will-pay-us-back loan le. But just how do they goabout that?

The process begins with the lter the loanoriginator (a.k.a loan ocer, mortgage consultant,mortgage adviser, etc.) tasked to match thequalications o a particular mortgage deal to theappropriate underwriting guidelines. It is the lters

job to determine i a loan scenario is approvableand to gather the documentation to support thatdetermination. It is here, at the beginning o theapproval process, where the deal is made or brokenThe rest o the approval process is just papering thele.

The lter determines whether the inormationprovided by the borrower can be validated anddocumented. This is simple, since most mortgagesare approved by automated underwriting enginessuch as Desktop Underwriter, and the automated

approval generates a list o the documents neededto paper the loan le. An underwriter can, at thisstage, request additional supporting documentationevidence at their discretion, as not all circumstanceneatly t into the prescribed underwriting box. I thelter creates a loan le with accurate inormation,then secures the documentation resulting rom theautomated underwriting ndings, the loan will closeuneventully.

So, lets begin with the pre-approval call. Mortgagepre-approval is typically accomplished with a

telephone interview. A prospective borrower calls amortgage rep (lter), and the questions begin. Therewill be lots o questions as this critical phase o theprocess is akin to the discovery period in a trial youll need to disclose everything. Expect to answequeries on what you do or a living, how long youvebeen employed in your current eld, and what yoursalary is. I there is a co-borrower, they will have toanswer the same questions.

Every dollar in checking, savings, investments andretirement accounts, also known as assets to close

as well as gits rom relatives and non-prot grants,has to be accounted or. Essentially everythingappearing on a borrowers asset-radar-screen has tbe documented and explained.

I you were previously a homeowner and soldyour home in a short sale, or i you own a homenow and plan to keep it as an investment or rental


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Jim YarringtonSenior Mortgage BankerPeoples Bank13180 Metcal AvenueOverland Park, KS 66213

[email protected] # 454680


The Perfect Loan File(continued from page 2)

property, there are new and specic underwritingguidelines created just or you. In these cases,ull disclosure o your credit and homeownershippast can potentially eliminate unoreseenmortgage approval woes. For instance,FannieMae has a new underwriting guidelinecalled Buy-and-Bail, or current homeownersplanning on keeping their existing home asan investment/rental property. Properties notmeeting the 30% equity test or Buy-and-Bail result in additional asset requirementsto purchase a new home. Buyers with a shortsale history may have to wait two to three yearsbeore they are eligible or mortgage nancingagain. Full vetting o your previous mortgage liewill save you the dreaded we-have-a-problemcall rom your mortgage lender.

It all comes down to your proo. I the lender

asks or a specifc document, give them exactly

what they are asking or, not what should be

OK, because it wont be. This is where the

approval process tends to go o the rails, when

the lender asks or specifc documentation and

the borrower supplies something else. Here,

too, is where both sides get rustrated. So i the

lender asks or a bank statement and there are

5 pages or that bank statement, send them all

5 pages, and not just the summary. I you send

them the summary page and they ask again,

dont complain that the lender keeps asking or

the same thing when you never sent it in the

frst place. This may sound elementary, but the

vast majority o mortgage approval process

woes stem rom scenarios just like this.

The reason the mortgage approval process isnow so rigorous is simple. Avoiding deaultsand loan buybacks has become the primarygoal o mortgage lenders. Higher standardsare reducing loan deaults, which should meanewer oreclosures in the uture. Governmentdata shows that less than 2% o loansoriginated in 2009, that were resold to Freddie

Mac and Fannie Mae went into deault ater 18months, down rom more than 22% deault rates o2007 loans.

So when your lender requests specic documents

rom you, give it them just because they said so.You can thank my dad or that.

Greene, Mark. The Perect Loan File. Forbes

Magazine. Online Edition.March 9 (2012): n. page.

Web. 9 Jul. 2013. .

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Forbes Article - Loan Approval Process