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Bill Ladewig, Your FHA Guru
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48 Comments on Education is the Only Sure Consumer Protection
Bill,
This is what makes you a trusted advisor.
This is a good way to shop rates. Thanks for the info.
I agree with most of your blog post except the parts about quoting rates and locking loans. How can a loan officer give a competent rate quotes without knowing the borrower's complete financial picture, which includes analyzing the credit report? If a borrower wants a rate quote, I will give him one, but I will also tell that it is based upon incomplete information. To me, this renders the quote meaningless. How does this help the borrower?
For example, suppose a borrower tells me they have excellent credit and it is true. However, supposed they make thousands of dollars in monthly payments for auto loans, student loans, etc. This may have a too large debt to income ratio and disqualify them for a mortgage despite the good FICO. Unless I have accurate information, I am not helping the borrower. The difference between a 640 and a 720 FICO could raise an interest about 1.5. To me, giving a rate quote without seeing a credit report is like an appraiser evaluating a house without going inside. I have no problem providing a borrower with a Good Faith Estimate before an application is signed. A borrower has every righ tto know what the fees and points will be.
You also state that a loan officer should lock a loan as soon as possible. This is irresponsible. Suppose you lock a loan for 30 days and it takes longer to close. The borrower will have to pay to have the rate lock extended. How is this helping the borrower? As a loan officer, I do not consider myself an order taker. I am an adviser. I spend much time and effort analyzing rate trends. If I believe rates are going down I will tell my borrower not to lock and explain my reasons. It is then up to the borrower to make the decision. During the course of the approval process the evidence may show that rates are about to rise. I will call the borrower and tell him now is the time to lock. I am proud to say that I have saved my borrowers thousands of dollars on loans by waiting for just the right time to lock. If I started a loan a month ago and just blindly locked it, I would have done my client a disservice. If I waited to last week to lock, the borrower could have gotten a lower rate.
Chris, about pulling credit. The new FICO scoring model recognizes that a borrower may have several inquiries because they are shopping for a mortgage. If a borrower has several inquiries in a short period of time, it will count as one credit pull and the score will be hurt only once.
Bill...you're right. I always add that an education is something you get before ...experience is what you get after. Sometimes it takes both...but education is better!
Verlyn
Andrew, when consumers understand the system they can make the system work for them.
Dan, comparing apples to apples is very difficult for consumers without some edycation.
Joesph, the nicest thing said so far. Thank You.
Tammi, you are very welcome.
Paul, I am talking about the initial quote and lenders trying to pressure borrowers into an application and credit report before they find out if the lender is competitive. For instance, would anyone shopping for a car allow a salesman to run a credit report before they received the price of the car? A loan is a product just like any other and a company that requires personal information before they provide a price for their product is unbelievably arrogant... and consumers who fall for that guff are uneducated.
The consumer must also understand that a credit report must be run before the loan can be locked. But locking is part of the process AFTER they have selected their lender. AND, if the consumer provided incorrect information initially they must understand the rate can change. They must also understand that rates change daily, often several times a day. UNDERSTANDING COMES WITH EDUCATION. (not shouting here the caps are for emphasis... ok so maybe I am shouting)
You need to carefully reread the post. It does not say to lock as soon as possible actually it make no reference to when to lock. It does state consumers should compare rates for the Same Lock Period when shopping for a rate. The blog only states that borrower should be able to lock on the day the rate is quoted as a test for rate validity. If a lender thinks the borrower is wants an immediate lock they may provide a more accurate quote. But maybe if the wording confused you it confused others so I will go back and tweak it a bit.
I disagree, Borrowers are at risk of having their score dinged with several reports unless all the credit reporting companies are using expensive software that most credit companies will not purchase because it is costly. Your advice can be particularly dangerous for borrowers with credit score just above the minimum allowable because a couple dings can disqualify them for any loan.
Verlyn, excellently stated, it is best when the two are combined. The only thing is as we become more experienced we realize we need more education.
Bill, Just a wonderful view from an expert! Thank you for taking the time to compile it for the rest of us. It should help us all become a bit better with guiding our buyers into the loan application.
My only counter to this is when a LO starts quoting rates and fees, without the credit report, somewhere later along the line, after the buyer has put down earnest money, the LO gets the credit report and there is some big, nasty, ugly item, like a NOD, or BK, that the borrower didn't want to talk about earlier.
When you asked the questions in Declarations, or would have asked them, except that the borrower didn't want to get an accurate quote, just a quote.
Experience, getting a full application, and asking questions of the borrower on the first contact avoids a great many other issues later on. Try explaining to a Realtor that their great buyer has a BK that they didn't tell you about; "Wasn't that on their credit report?" Yep, but I didn't run it, because they were shopping rates. I had a guy in our office who was an exceptional salesman, but a lousy LO, and he probably did more to blow up more transactions than the recession has; I've heard every excuse, but they always come down to not getting a complete application.
Bill, as always a great post. Thank you for sharing this information. You are a professional!
John, We may be talking about two different things. The discussion is just about rate quotes. A Pre-Qual or Pre-Approval implies you are past the rate quote stage and at that point an application and credit report are essential.
If you are making a case that an application and credit report are required befor the intitial quote the flaw in your argument is that no matter how much information is gathered before a rate quote it is still just a snapshot until it is locked and rates are not locked until the lender is selected and the loan is in process.
As for credit surprises, qualified loan officers ask credit questions as part of their initial quote process and always instructs the borrwer... if there are any undisclosed credit derogs the rates quoted do no apply.
However, let's get real, from the view of some lenders, (including all big box lenders) it is just smart business to intimidate borrowers into completing an application and credit report before the borrower receives rates to halt the shopping process.
We all know that once we have the application and credit report we have a 70 to 80 percent chance keeping and closing the loan because the shopping process will almost always be halted.
Intimidation is the wrong way to conduct business and it creates the wrong mind set.
Small mortgage bankers and mortgage brokers must put the consumer first not just because it is the right thing; it is the only way we will keep the regulators out of our hair. Government regulators controlled by big banks will eventually put all of us out of business and consumers will get to choose only between four big banks.
Bobby, thank you so much, that is a tremendous compliament and something to live up to.
Excellent post. Good points to bring up to our clients. Thank you.
Bill, Great post and could not agree more that Knowledge and Education is the key. The only problem I have is some Realtors try to Educate their borrowers. On a recent transaction a Realtor told there buyer that they did not believe in buying down the rate. The convinced the buyer that paying a .50% Higher rate (for 30 Years) was better than paying ONE Point to receive a .50% Better rate. It may not be relevant, but the lender the borrower choose was affiliated with the Realtors Brokerage. A few months ago, I read that about 60% of first time buyers take the recommendations of their Realtor when selecting a Lender. Maybe this means we need to educate Realtor and Buyers jointly.
Excellent post. I think that some of the loan officers are getting defensive and attempting to justify their positions about pushing for the application. If you ask the correct questions, you can give an initial quote. We all want the application because we feel like we have a greater level of commitment. All borrowers understand that the quote is just that, a quote. If you ask pre qualifying questions, you will know what to expect once you see the income and credit. I hate bogus GFE's.
Millie, thank you. You are welcome to copy it and use it as an information flyer. I send links to several blogs to my borrowers and the information has been appreciated and probably saved more then one from the evil, greedy, grasping hands of my competitors. :o) If you would like the links I would be happy to send them to you.
Tim, thanks again for the heads up on the new FHA condo approval process being delayed to Dec. 7th. I modified my initial post.
Bad information begets bad information. You are correct that we must educate everyone concerned. As for keeping Realtors current we must become known and trusted information sources. That is my purpose with blogs and my website at http://www.yourfhaguru.com.
Kyle, you are exactly correct. I share your feelings about bad GFEs Anything that misleads borrowers will eventually come back to haunt us all.
Again it is all about industry and borrower education. The bad guys can only thrive on the uneducated.
As credit restoration and education specialists, my partner and I think this has been an excellent conversation and just wanted comment on a couple of things. We believe all people should know where their credit stands BEFORE getting ready to make a purchase.
As Tamara Heyward pointed out, the only site we know of to get a free report is at www.annualcreditreport.com. It is important to let people know that this site still has plenty of opportunities to spend money, mostly on credit monitoring services, so they need to navigate carefully. Since reports are not standardized, these can be complicated and hard to interpret. Also, they have to request each bureau separately which does generate a lot of paper. The advantage to looking at a tri-merge (obtained from a lender) is that the information is much more compact and the FICO score is included.
To get a true FICO score, one has to go to www.myFICO.com, and this does have to be paid for. There are lot of scores being published out there and we call these FACO. These scores can vary widely from the true FICO so they can't even be used as a guideline.
Hard inquiries (like from a mortgage company) do impact the score so anyone saying it doesn't is giving erroneous information. We do not promote "shopping" within a certain period of time. But our definition of shopping is have multiple pulls with no plan. There's no harm in buyers talking to more than one lender to see who they feel most comfortable with, then maybe narrow it down to 2 to compare.
We really appreciate Andrew Mooers' comment about increasing scores as much as possible to get the best interest rates. Too much of our business comes from those who don't qualify and only aim for the minimum score. Our approach is to teach basic credit management so our clients not only maintain their improved credit scores, but are encouraged to contine to improve their credit management. This can in turn minimize overpayment of items such as cars and insurance and impact employment. Getting the right education can save thousands of dollars, something we all can use.
Great loan tips Bill. I always make sure that my Clients do these things. Points can add up quickly
Oh Bill, yeah, you can talk about rates, fees, and points can be discussed, and a GFE sent out, as long as you state that you don't have the credit report, or a full app in the notes. I worked at one of the early, internet based discount lenders and we put our rates and fees right out front.
What always chaps my hide is working with someone, getting little info, and them trying to demand to know what rate they'll get, and then at some later point finding a big, hairy NOD monster hiding in the credit report. I also don't get how some LO's can play bait and switch games, or quote borrowers ridiculous rates and fees. We're all working with the same lenders, how does anyone believe that the last guy they talked to can get them 4% with no fees on a 30 yr fixed?
Nancy, that is good information, thank you.
Mark, good education makes for realistic expectations and smooth transactions.
John, good idea to put a note on the GFE. Back in the day I was a heavy advertiser on Bankrate, Monster Moving and several others. We always posted correct rates and APRs and would produce a GFE at the drop of a hat. I was always in a state of Pissed Off because none of the sites would police the lenders who were obviously lying.
Excellent article. I missed it when you originally posted. Lots of good information here for buyers.
Thank you for this very informative article of yours. You have explained everything well. I appreciate that you shared this to us. I ususally get my credit report score