CALLING ALL LOAN OFFICERS ON ACTIVERAIN?? WHAT ARE THE FACTS HERE?? NO PRE-APPROVAL LETTERS???

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CALLING ALL LOAN OFFICERS ON ACTIVERAIN?? WHAT ARE THE FACTS HERE?? NO PRE-APPROVAL LETTERS???

* * * CALLING ALL LOAN OFFICERS ON ACTIVERAIN * * *

NO PRE-APPROVALS LETTERS???

This post in response to "NO MORE PREAPPROVALS" posted by Marilyn Boudreaux.

WHAT IS THE SKINNY ON THIS MATTER?

WE NEED TO SEPARATE FACT FROM RUMOR. I've seen the posts on ActiveRain and other areas about this but it has always been rumor and limited. However, when an agent gets advice that "because RESPA. . . . . ", goodness, it must have something more than rumor behind it.

INQUIRING MINDS and other REAL ESTATE AGENTS WANT TO KNOW. Since the post didn't disclose the mortgage company involved, I'm left in limbo. What does RESPA say about loan pre-approvals?????

Is this practice limited to particular scenarios, or, limited to thet mortgage company in Marilyn's post?

A PRE-APPROVAL OR AT LEAST A PRE-QUALIFYING LETTER IS ESSENTIAL TO CONTRACT ACCEPTANCE. I don't need a loan office to qualify my buyers for price range. I can do that in my sleep. However, I remember when we once presented offers without lender letters and promised in the contract that the buyer would make loan application in 5 days and have 15-25, etc. days for loan approval.

WORTHLESS LENDER LETTERS?? My experience is that the lender's letter is valuable for credit review and it gives the listing agent and seller some small comfort that the buyer will be able to close.

WHAT'S THE ALTERNATIVE? GET READY FOR THIS! Perhaps agents will have to go back to the procedures we followed 15 years ago and provided sellers with BUYER'S FINANCIAL STATEMENTS. Fine with me. I never stopped using financial statements. They tell me a lot more about a buyer than a lender's letter. However, I do appreciate the credit review which is absolutely critical as loans become more and more difficult and limited.

BANK OWNED PROPERTIES. This would not be a problem for bank owned properties. They would simply require that the buyer making an offer would have to be approved by, who, the bank that owned the property for sale, of course. O.K. I can live with that.

ARE WE GOING TO BE LIMITED TO THE WORKSHEET WHICH IS IN LIEU OF THE OLD GFE???

Courtesy, Lenn Harley, Broker, Homefinders.com, 800-711-7988.

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Posted by Lenn Harley, Real Estate Broker, Virginia & Maryland on 07/18/2010 07:14 PM

Comments (94)

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94 Comments on CALLING ALL LOAN OFFICERS ON ACTIVERAIN?? WHAT ARE THE FACTS HERE?? NO PRE-APPROVAL LETTERS???

JUL

2010

O.K. I see I am early to the party. Will be checking back and checking in with LO tomorrow.

Many will be looking for some clear insight into this.

Sue of Robin and Sue

Lenn, I went to the post and actually it explains something to me that I have seen happening. I now get the old "pre qualifications" not pre approvals. Although I have gotten a pre approval because my clients file was sent to underwriting, all done except for the appraisal within a week of them finding their home. I was shocked at that, but thought it was oh so cool. Now I know why!

I have not been in real estate long enough to have qualified my own buyers. And that is all I will say on the subject. I probably should read up on it though...

Jane. Let's hope we get some comments from folks who are "in the know".

Robin and Sue. I surely am.

Andrea. I'm fine with a pre-qalification. I give the listing agent a financial statement and the pre-qualification lets them know that the buyer has had the credit report reviewed.

I've never seen any value in the "pre-approval" anyway. If it isn't a "LOAN COMMITMENT", all it is is a pre-qualification anyway. At least to me it is.

Lenn,

I'm gonna say no. I don't see anything changing with pre-approval letters. At least not in my market. Listing agents shouldn't be asked to review a financial statement on behalf of a buyer. I had heard that loan officers were not allowed to ask certain questions until AFTER an offer had been executed. Talk about doing things ass backwards. It never says the buyer's agent cant ask!! :-) A little ironic.

I find that most prequailification letter are not worth teh paper written, they make application only to get denied a week before closing. I would like to see the buyers take that step and provide financials so teh only contingincies on teh pre approval oetter is finding a property, getting it appraised and keepin their job and credot score where it is, buyers dont go buying a care before you close on a house.

Greg. I have no problem with financial statements but over the past 6-8 years, agents have lost the skills that we used to use to qualify buyers.

Scott. The question is, are lenders going to be able to provide those letters. Sounds like you're thinking of a LOAN COMMITMENT.

I definitely require a pre approval letter - make darn sure the loan commitment is in 15 days and financing contingency in the contract is off - buyer's deposit is on the hook - sorry

Lenn, Here goes.

Pursuant to the GFE changes that became effective January, 2010 no mortgage professional can use the GFE form to pre-approve a consumer on a TBD property. Legally, we cannot even use the form. Not being able to complete the GFE means we cannot complete the TIL, or any of the other 20-40 pages of initial disclosures that need to be signed by the borrower PRIOR to submitting a file to underwriting.

The new regulations coming into effect are approving a new "worksheet" to use in lieu of the GFE, but it will still not comply with Federal Disclosure Laws. (i.e., no disclosure, no underwriting approval).

It is imperative for agents to understand that complete initial disclosures MUST be acknowledged and signed by the borrower BEFORE the file can be submitted to underwriting. Therefore, any borrower wanting a pre-approval is not able to secure such unless property is selected. A loan officer could maybe "fake" a property (only later to change the address), but the underwriter will require a fully executed purchase contract prior to reviewing the file. (In other words, both loan officer and agent would have to be willing to be complicit in a virtual "shell game".

Mortgage Professionals who have been in complete compliance have struggled to accept and comply with the new regulations for seven months now. It is a little concerning (a lot) that the issue is suddenly forefront on AR, as it indicates to me that LO's across the Nation have been issuing "Pre-Approvals" that were nothing more than "pre-quals".

Every agent should be significantly aware that a "pre-qual" is essentially a "opinion" and only as reliable as the knowledge of the person giving it. Again, this only applies to TBD property...but most agents want an preapproval prior to writing an offer.

To Nicholas: There is no way that is possible or has been possible since January, 2010. Despite the paperwork in any file.

People are mixing apples and oranges and the result is a mush. Fannie/Freddie underwriting guidelines changed January 1 to say that a "pre-approval" requires a pass through underwriting, which of course requires a contract, disclosures and usually an appraisal. If you use the terminology correctly, the best you can get for an offer is a pre-qualification with credit check and asset verification. While many or most people continue to call this a pre-approval, any agent should know that the newly defined pre-approval (well, new since January) is highly unlikely, since most buyers do not go through this effort before an offer. There's really nothing new here. I encourage real loan people to correct my terminology, but we've been operating with these refinements to language since January.

Leslie, You are 1000% correct (at least through the eyes of a few compliance attorneys). No corrections to your comments I can make. So the question remains, has everyone been accepting "pre-quals" since January?????

I saw this popup on FB. There is no reason that a preapproval letter cannot be provided. Unless there are problems with the client's qualification. RESPA does not address preapprovals prior to the property. It is one of the ommission of RESPA that the Secretary has been trying to excuse.

I have not read the post you referred to, but buyers and agents can still expect and receive sold, reliable approval letters.

I will look at the referenced post to try to understand the context.

Getting a pre-approval letter is about all we can expect until we have an offer in hand these days. I going back to read the post.

Lenn here is the responce that I just left on Marilyn's blog.

"Marilyn, who ever gave you that information told you wrong. Pre-Approvals are alive and well and there is no RESPA restriction in issuing them. What RESPA refers to, and Lenders that play games with fees are afraid of is that once a Loan Officer or Broker has taken: the Borrowers Name, Income, Social Security Number, Property Address, Estimate of Value of Property, Loan Amount, that Loan Officer or Broker has to issue a GFE within 3 days of taking that information, because according to RESPA that constitutes an Application. Once they issue the GFE, which they have to within 3 days or be in violation of RESPA, they are locked into the figures on the GFE for 10 days. Many Lenders do not want to be held to that, therefore they will not take all that information so that they do not have to issue the GFE.

So once again the Pre-Approvals are alive and well, but apparently your Loan Officer does not want to be bound to the figures that he initially gives and wants to be able to change them later."

Also contrary to some comments, a Borrows can submit an Application and be approved for a Loan up to a dollar amount without being under contract on a house. The Application is put through Underwriting with all the documentation that would be collect when a Borrower applies for a loan once they have a property (financial, employment, and bank information.) The Borrower is then approved by an Underwriter, just awaiting the on purchase of a property within the amount that was approved and the property appraising for the selling price. A GFE and Truth In Lending is issued and the Underwriter issues Commitment Letter.

The bottom line is, is a Lender willing to stand by the fees they quote?

P.S. I should have turned this into a blog and gotten 225 points :)

Lenn, okay, I will "go there". A automated underwriting approval (DU, DO, FHA or VA (Lapp) or "Proprietary" (lender specific) CAN absolutely be generated without a real GFE and full disclosures. I can do that on my laptop. However, every agent needs to understand that automated underwriting is "garbage in, garbage out"....If the person at the computer is inputting information contrary to the underwriters guides, the "pre-approval" is useless.

Let me reference my position as a Regional Automated Underwriting Manager on this comment. I taught wholesale Account Executives, Brokers and Loan Officers how to use and manipulate automated systems for the Western U.S. Knowing how to "tweek" the system is wonderful. But, plugging in numbers and data to "get" an approval is a whole different animal.

So, if the "pre approval" is a result of the 1003, credit report, gathered documentation and automated underwriting reading are we not still discussing a "pre-qual". Again, garbage in, garbage out. (yes, that was the corporate disclaimer for all of the trainings I conducted across the Western United States.

Lenn, Here is some more information from the FDIC website on how they define a Pre-Approval.

Section 203.2(b)(2) of Regulation C

(b) Application. (1) In general. Application means an oral or written request for a home purchase loan, a home improvement loan, or a refinancing that is made in accordance with procedures used by a financial institution for the type of credit requested.

(2) Preapproval programs. A request for preapproval for a home purchase loan is an application under paragraph (b)(1) of this section if the request is reviewed under a program in which the financial institution, after a comprehensive analysis of the creditworthiness of the applicant, issues a written commitment to the applicant valid for a designated period of time to extend a home purchase loan up to a specified amount. The written commitment may not be subject to conditions other than:

(i) Conditions that require the identification of a suitable property;

(ii) Conditions that require that no material change has occurred in the applicant's financial condition or creditworthiness prior to closing; and

(iii) Limited conditions that are not related to the financial condition or creditworthiness of the applicant that the lender ordinarily attaches to a traditional home mortgage application (such as certification of a clear termite inspection).

Since the above states that no additional conditions, other than the 3 above, can apply, that would mean that a Pre-Approval letter can only be issued once the file has been reviewed and decisioned by an underwriter.

I think that pretty much every major lender follows the above criteria. Just because a loan officer is still giving a Pre-Approval letter, doesnt mean that they should be. They might find out a differnt answer if they check with their compliance department.

Rodney, Incredible job of linking all the relevant information. Thank you!! So, what is your take on the loan officers who have been issuing pre-approvals since January?

Lenn... you beat me to a post about this. I just read that post. Here was my comment..

my pre-approval comment

@ Deborah, comment # 9... . I am confused to why you mentioned this on the other post also, in regards to Good Faith Estimates. You can give out a pre-approval or a pre-qual letter with an itemized fee worksheet, which is just like the old GFE. I understand what you are stating about disclosures, but still don't see the relevance between a GFE and a pre-approval letter. I guess we could argue it if we defined pre-approval letters first. So many just on that subject have mixed definitions on what a real pre-approval letter is. You can still run a TBD through AUS. Now, maybe it's just late and I am missing something.. lol hence why I am asking you directly. thanks

jeff belonger

Lenn,

Others have already written volumes here on your blog in answer to the question. I anticipated the problem, and give my buyers an Initial Fees Worksheet. It's EXACTLY the same as the old GFE. EXACTLY. I don't give them the GFE until they have a property under contract. The new GFE doesn't tell them ANYWHERE what their new payment will be. Leave it to the government to simplify a ONE PAGE document by making it THREE PAGES long and leaving out crucial information.

Mike in Tucson

Great... 'looks like another step backwards. It's getting more and more like real estate in the 70's.

Hi Lenn!

I'm parked to read the rest of the lender's comments and am going to encourage my lender to stop over and give his explanation as well.

What is disturbing to many of my clients is that they want to 'shop' lenders and they used to be able to do it with the GFE's from several--lay them all out and compare, then decide upon which was the best fit for them.

As for my sellers, we are getting mostly pre-qualification letters which aren't worth the ink they're written with any longer.

Just got a cash offer on one of my listings tonight--all I can say is I LOVE it--not fighting with the underwriters and the buyer didn't even request time for an appraisal either! Life is GOOD for my seller! :-)

JUL

2010

Lenn, thanks once again for airing such a timely subject. I've been in "all of the above" situations since January--with lenders who issued pre-approvals, with ones who said they couldn't--though they could do "approvals" subject to the given property and appraisal--to ones who say they cannot do anything--quote fees and/or rates until they have an executed contract. Since said executed contract needs to include terms of financing, it sure puts the agent between a rock and a hard place.

In Texas we can issue one of two letters--Conditional Approval (CA) or Conditional Qualification (CQ). The CA has been through an AUS while the CQ is an opinion. I agree with Rodney, that a CA can still be issued without having identified a property.

The sky is not falling...

Tom

That's it... Cash buyers only from now on! (kidding of course)

Holy moly...my head is spinning... Now that Tom has thrown in the mix that all of this could vary from state to state (or can it?)...then I am still wondering what is the best thing to do when I list a home... Do I require a pre-approval letter with an offer or a pre-qual...or is there another doc that would give the seller a sense of where the buyers are at?

I will return tomorrow to see what the answers are.

Great post, Lenn...

If my loan officer of choice told me that, it would be the last time they ever did a loan for one of my clients.

Loan pre-approvals are not going away. Cross-qualifications are becoming more common, however, because many loan prequals are fictional.

As a listing agent, I don't care to see a prequal from a buyer. But they do have to prequalify with my lender so that I know whether they truly are a ready, willing and able buyer. And I would never advise my seller to sign a contract or open an escrow until we knew with at least some certainty that the buyer was qualified.

I am very glad you brought this up. Some lenders here were very vocal about the fact that they could no longer issue pre-approval letters, but pre-qual. Some are still issuing pre-approval letters that are identical to 2009 versions.

I am at a loss. Sellers are still expecting "pre-approval" letters, and are not willing to go forward with a "pre-qual" which is considered useless.

But I was already of the mindset that either is useless in this lending climate.

I am parked.

Lenn.. I am reading several comments and laughing... some realtors are saying that pre-qualification letters are useless.. lol Sorry, but so are many pre-approval letters. Ever heard of wrong info? Many ,... maybe most pre-approval letters are shaky for one reason, that borrower was never fully underwritten. If a loan officer ran the loan in AUS, automated underwriting system and get an approval, doesn't mean that it could be 100% correct. If that loan officer or processor used the wrong income, then what.

Overall.. stop with the non-sense that one letter is better than the other. If I handed you a letter which at the top stated, You are owed 1 million dollars, does that mean it's good, valid at any bank? Just because it states Pre-approval, does that mean it's 100% accurate? no... again, many loan officers and realtors use pre-approval very loosely. I have spoken to many loan officers that will hand out a pre-approval letter if they just ran it in the system, but in never touched the underwriters hands. This needs to be pointed out... many that think they know and understand when talking about pre-approval letters don't know. I just had a borrower that went to another lender back in May, who gave them a pre-approval letter.. well, they were suppose to have closed on June 30th... no go, it didn't happen.

In regards to those that say... well, that borrower still has to be looked over or approved by my special lender. Sorry people.. not all lenders can do all deals. In 2008, I closed 11 loans that were actually approved by their first lender, but never made it to the settlement table. I have one right now, the one I mentioned above, who was pre-approved. I can do it, but I would bet many lenders couldn't do it. My point? What if your loan officer who you trust said, no way, this person can do the deal... I won't be able to do it. So then you tell everyone not to take the deal? But that I would be able to get it done? I know many realtors want to look like protectors... but who made everyone god? Just curious... would like to hear back from some of these realtors. thanks

jeff belonger

Lenn, first off thanks for making people stand up and take positions. I am embarrassed that my squishy little comment came in minutes after Deborah Garvin's excellent description...bad timing. I had posted on Marilyn's Bondreaux's original post and then on Deborah's and then shrugged it off. Surely, I thought, this isn't new news. But the rif-raffing here is fascinating.

I am intrigued by Tom Branch stating "in Texas, we do such and such". It sure would be helpful if the lender folks who post were crystal clear about whether there are different terms and conditions at a state level. I just poked Larry Bettag for Illinois for tomorrow. I suspect that Fannie, Freddie and FHA are the same state to state, while a loan operation (bank or credit union) might have different policies.

I have notes from our January sales meeting about the changes so ithis isn't a surprise.

On a personal note, thanks for help with a transaction. I went through this very issue this week with an agent, her buyer's offer, and the buyer's loan officer. We're not countering until they give us a pre-qual with credit and asset verification. Period. She says they can't do that until we accept the offer, which of course means entering it into the mls, and besides a pre-approval is better. Nonsense. I can't wait to print off a couple of the detailed comments and forward them to her. She thinks I made this stuff up.

So what Jeff is saying is all the letters are potentially worthless? Nothing new there Jeff...but in this market, what are you allowed to give us, and does it vary state to state. We don't know your industry. Enlighten us, don't laugh at us. We want to close deals and know what we are up against. Your answer isn't clear. I want to be sure I am understanding this.

Nicholas. Sounds good and that's been my experience for the past 6-8 years. However, if, as my reading is indicating, mortgage companies throughout the industry establish internal policies eliminating the "pre-approval" letters, we'll have to do something different.

My understanding is that companies are now quietly establishing those policies to protect themselves from liability in the case of underwriter rejection of the loan following issuance of the new worksheet or GFE.

As a listing listing agent, we can be as tough as we wish with respect to requiring that the buyer be pre-approved, but if the mortgage companies aren't cooperating. . . . . . listing agents may have to take more responsibility to establish the buyer's qualifications to obtain financing if the only thing the mortgage companies will provide is a credit report review, which it appears they can still do. That amounts to nothing more than a "pre-qualifying" status.

I really doubt that these are going away. Some possibilities are maybe new guidelines on how they are given might be in the works.

Our state has a Buyer's financial statement (BFI), but since the advent of Buyer Representation, it's similar to faxing your opposition your "playbook" prior to a football game !

Lenn I saw this last night and had made a written note (mental don't seem to work anymore) to talk to a knowledgeableloan officer about this. I have insisted that my buyer clients bring their financials with them when they go in for a pre-qualification regardless of the bank. It gets the process off to a quick and hopefully more accurate start.

@George why not do the post, you still have more that you can bring to the table

I read the post with real skepticism. I really does not make any sense that this would be a RESPA issue.

Interesting thread, good question, interesting answers....will send my lender over here. I then to think once they have applied, the GFE is issues they can't change the fees except in a few categories.

I saw the original post last night. It's interesting to me that the comments you received have been so varied. i'm no clearer on the rules. I'll keep reading the comments hoping for clarity. Thanks for posting the question.

I believe pre-approval letters are worthless too. Particularly those that are spewed out only after pulling credit. I typically stay aware from mortgage brokers who practice this for of approval.

Sounds like a mortgage myth that needs busting here...

...and, as usual, Jeff and others have done a great job at that. While Deborah's answered was very well researched and 98% correct it's that last 2% that makes the difference. George brings up part of that "2%" in his comment. This entire idea of "no more pre-approval" was being discussed in earnest earlier this year because of the RESPA changes.

And in the end, while George is right and a lender CAN issue a GFE (which is then binding) whenever they want, a GFE MUST be issued when certain "triggers" are met. HUD caved in to pressure early in the game and actually added this last trigger which changed everything:

GFE triggers

Notice #7? That means lenders like myself can freely make the determination that a full GFE is not required until I have received a binding a contract. Not that I don't want to stick with my numbers when I provide an estimate to a borrower, indeed my numbers hardly ever change. The draconian GFE, however, requires I disclose too many other costs that could easily vary by property and loan (and are not considered change of circumstances), and it holds me accountable for any of those changes.

Long story short- the lenders that can not issue pre-approvals are making that decision themselves. It's just another "lender overlay" and in no way represents the industry as a whole. It is very important to note, however, that the point Jeff is driving home is the key- whatever type of letter you get, it's only as good as the Loan Originator you're getting it from. I too am getting many loans referred to me when another lender couldn't get them done. Oftentimes, no approval letter should ever have been issued. My suggestion to Realtors out there- partner with a LO you can trust and have them review your approval letters for accuracy. You would be surprised how much additional insight you would gain!

Myth Busted? :)

Gerry Suarez, Jr.

Your FHA Loan Pro!

Lenn - what a timely blog post. I have read the responses and have my head spinning. But, I have taken copius notes since this afternoon we are having our monthly financing "class" which is really an update. Many questions to ask.

Lenn - I'm beginning to think that in the real estate "profession", the bigger the circle of light, the larger the perimiter of darkness. I'm going to continue to watch this blog, to see what insight is provided in the comments.

While the SAFE Act is Federal, each state still licenses and controls their own MLOs within the framework. The Texas Conditional Qualification and Conditional Approval letters are available at:

http://www.sml.state.tx.us/ResidentialMortgageLoanOriginator/rmlo_compliance_reporting.html

Note the form titled, "Multiple Roles in a Real Estate Transaction" which is used wihen the MLO is also the agent.

Tom

I still use buyer financial statements with all of my transactions Lenn as well (unless the buyer protests). Nothing is perfect, but as a professor at Georgetown University used to always say, "Something in writing is better than nothing in writing".

Debe and I use the services of the same lender. I refer to him as my Loan Guru. Like Debe, I'm sending this to him to chime in.

Fascinating.

@ Dawn.. comment # 31... no, not laughing at you or anyone else. I have always said, if you don't know or are not sure, then ask. I am sometimes not clear, because my mind is going a mile a minute while my fingers are a block behind,.... besides, I am not always the best at putting clear thoughts down on paper.

In any case.... no, I am not saying that all letters are worthless, either a pre-qual letter or a pre-approval letter. I will keep the suspense going. I am actually going to write a post about this and the discussion between Lenn's post and Marilyn's post.... please stay tune. thanks

PS.. read Gerry's Suarez's comment... # 40. As he states, some of these issues about lenders not offering pre-approvals are because it's a lender overlay. And #7 in his list is one of the reasons why. #7 is not cut and dry and can be interpreted several ways by any lender. thanks

jeff belonger

Jeff,

The #7 loophole is likely a compliance nightmare. I work for an FDIC insured bank and our LOS software flags a file once the necessary data is entered.

Tom

I think that defining the difference between pre-quals and pre-approvals is important. I view a pre-qual as taking an application and getting an automated approval. I view a pre-approval as the pre-qual plus validating income, assets and etc. I then have another category for a pre-approval with an underwriting decision. This is the pre-approval being reviewed by an underwriter and accepted pending disclosures, appraisal, clear title and a purchase contract. I don't know of any reason why you can't issue a pre-approval letter as long as the potential buyer cooperates by providing you with everything you need. In my world, a full pre-approval with an underwriting decision speeds up the process for me because I don't have to wait in underwriting after the buyer receives an accepted contract. It also delays the buyers ability to make offers immediately. Every Realtor and buyer wants a true pre-approval, but are you willing to wait for it? As far as fee disclosures, I currently use the initial fee worksheet when I don't yet have all the pieces to the puzzle. This is acceptable by HUD. I am not worried about disclosing my fees, they will never increase, I can control that. I recommend that you as a Realtor clearly define what you actually want from your loan officer and see if they can deliver. If their company has overlays that don't permit them to issue you a pre-approval letter, you must decide what you want to do. Don't throw the baby out with the bath water. There are numerous loan officers that have more experience and knowledge then many underwriters these days, so I suggest you choose a knowledgeable loan officer and defer to them. I have had pre-approvals from underwriting get turned down after re-submission (they missed something the first time around or guidelines changed), nothing is really approved in my eyes until it is funded and recorded.

Lenn....

I just want to see the credit report, proof of funds, monthly income, do the front and back end ratios and then talk with the underwriter.............if the ducks line up, COE here I come.....If not, next offer please........Letters???? People are still using letters? Those worthless pieces of paper that look good but say nothing?

Thank you & best....

Lenn,

Deborah's comment to your question, #9, is right on the money. It can't be stated much better, so I have copied her comments and included below, which is my way of endorsing her comment:

"Pursuant to the GFE changes that became effective January, 2010 no mortgage professional can use the GFE form to pre-approve a consumer on a TBD property. Legally, we cannot even use the form. Not being able to complete the GFE means we cannot complete the TIL, or any of the other 20-40 pages of initial disclosures that need to be signed by the borrower PRIOR to submitting a file to underwriting.

I can only add that once the new GFE is published by any lender on a specific transaction, certain parts of that GFE cannot change during the transaction, even if the borrower decides to use a different lender. If a buyer is going to get a loan these days, they should be serious about making application, and serious about staying with the loan officer they initially choose to help them with their loan. Pre-approvals are simply not possible anymore, and "shopping" for the best lender arrangement by buyers is virtually impossible as well. A lender can't give you a serious answer about rate or loan approval until the buyer provides a full file to the lender.

Bruce Bills

www.ratewindow.com

You have a lot of answers here already... Truly a garbage in=garbage out scenario and you need to have a trusted lending partner on your team to trust the "letter" no matter what you call it. I have done very few true pre approvals over the past 23 years, they are not necessary 99.44% of the time. If it wont close I will not take the app, pretty simple philosophy that has kept me in the industry for decades.

as far as the legality of the true pre approval: I am sure there are companies out there that are saying "NO" to a pre approval as a policy for numerous reasons.. Mostly stemming from the new GFE and RESPA fun of 2010. Once we disclose a GFE we are stuck with the charges unless there is a change of circumstance, and a change of property is not clearly a change in circumstance according to the brilliant minds that wrote the rules.

The closing cost worksheet is actually a much more useful tool, Uncle Sam took a simple 1 page document, made it 3 pages long and on the 3 pages it has less room for detailed information, and they even forgot a signature line...

In response to Jeff and my comments #9. I don't think we are is any disagreement. To me, the only "preapproval" is one that is signed, sealed and delivered by an underwriter. Hence, the disclosures. If the underwriters are swamped with real deals, there is little likelihood that I can get a true preapproval in a time frame any agent would accept.

Yes,most loan officers can get an automated decision...but so what? As you stated, the AU approval means nothing if the information is not accurate.

Like yourself, I am quite confident in my ability to prequalify a client (having closed 100% of my purchase loans in 20 years), but I can't tell an agent that we have a "preapproval" if we don't. I think this is where the issue lies.... it seems that there are a good many LO's calling a prequal a preapproval.

Lenn, thanks for the post. It's good to read the replys some have taken the time to write.

Ted. Isn't that the truth. This is a blog of blog posts.

Deborah. HA! This is an example of why words are important. For years now, we've gotten those "pre-approval" letters from loan officers that were NOT. Listing agents returned offers with letters that said "pre-qualified" establishing the fact that the buyer had been credit reviewed.

Sad that the value of "pre-approval" was deminished by loan officers by issuing "comfort" letters to agents.

Sad that agents don't take the time and effort to learn the difference and learn how to do their job.

Michael. Indeed. My area too. Just try.

Robert. The only response to your very accurate observation is that "everything the government touches turns into crap.

The delima we are faced with today vis-a-vis pre-approvals is a classic example of untended consequences.

Bruce. You quoted Deborah: "Every agent should be significantly aware that a "pre-qual" is essentially a "opinion" and only as reliable as the knowledge of the person giving it. Again, this only applies to TBD property...but most agents want an preapproval prior to writing an offer."

Because we selling agents know that our offer will be trashed without a piece of paper from a loan officer that says "pre-approval" or at the very least, "pre-qualified".

Richie. As an agent, how are you looking at the credit report?? Whose underwriter??? Your profile says you're an agent, but your comment herein would appear to come from a loan officer. I'm confused.

Kyle. Of course all that you state are true. Our problem here is that some loan officers are not giving agents what they need to submit a contract offer.

Lenn: Thanks for the post. I'm allowed to issue pre-qual. letters or pre-approval letters with an AUS approval. As Jeff and Deborah state, these days they don't necessarily mean much. If there is no address, it will be a pre-qual. letter as we can't run AUS without a property address. Jeff is correct. A good loan officer will have a feeling based on reviewing a borrower's documents whether the loan can be done or not. Some loan officers may not be willing to take the time to issue letters to realtors these days. That's an indication more of attitude rather than whether it can actually be done or not. The way I look at it is this. If I can help my fellow realtor do their job a little bit better, I'm happy to oblige. Thanks again!

Lenn,

I'm a heavy listing broker and I don't see but one or two Conditional Approvals (pre-approvals) a year.

What's most common is the Conditional Qualification (pre-qualification) letter which tells me what the MLO bases their opinion on. The Texas format at least forces them to disclose what they have reviewed so that as the listing broker I can help my sellers make a decision on the strength of the offer.

Every agent should have a working knowledge of real estate finance. I'm not advocating they should be MLOs but they should have a basic understanding of the process.

Tom

OK. So, to put semantics aside:

A true "pre-approval" requires that the buyer has filled out a loan application, and it has been reviewed by an underwriter.

A "pre-qualification" only requires that a loan officer has reviewed the buyer's income, credit report, and financial assets; and has determined that he/she meets the standards to be approved for a loan up to a certain amount. [We also have to assume a monthly maintenance fee here in Manhattan]

As a real estate professional who wants to best service his buyers (and end up with a CLOSED transaction), I should continue to pre-qualify my buyers before we both waste our time. Granted, many people don't feel comfortable giving us their financial info; however, part of our job is to establish a rapport, and gain our clients' trust. I need a snapshot of their financial situation so that I don't take them to a co-op that won't approve their purchase.

If you're an agent who doesn't know how to pre-qualify a buyer, you need to learn fast or risk wasting your time.

Did I miss anything? Lenn, thank you for bringing this to our attention.

Tom B. You wrote: "I work for an FDIC insured bank and our LOS software flags a file once the necessary data is entered"

Are you a real estate agent or a banker???

Michael. It would appear that you are right. This is what happens when someone doesn't want to do something but doesn't want the parties to know why. So they claim a "higher authority" that gets them off the hook.

Phil. BINGO!

Craig. Working in an areas that covers two states and many counties with different advantages/disadvantages for buyers depending on their income, credit, type of loan, one loan officer/lender geography sensitive programs, etc., just won't work for me.

TOM BRANCH. YOU'RE MY HERO!!

I have no patience with real estate agents don't pre-qualify, don't get financial statements and don't understand basic mortgage fiancing.

HOW ON EARTH DO THEY KNOW WHICH LENDER TO USE FOR A PARTICULAR BUYER????????

I get calls every day from buyer who ask about this program or that program that I advertise. The loan officer their agent referred them to has no knowledge or ability to use the program, but the buyer would benefit. Since the agent is dependent on that loan officer, the buyer may lose bit time.

Louis S. You wrote:

"If you're an agent who doesn't know how to pre-qualify a buyer, you need to learn fast or risk wasting your time.

Did I miss anything? Lenn, thank you for bringing this to our attention."

Thank you for that. I'm happy to find ANOTHER real estate agent who knows his job and is willing to do it.

Paul. Thanks for that. Perhaps what this situation with RESPA and the new forms/procedures will do is make agents learn their business and make loan officers be more specific about what they are "approving".

Dan Q. Thanks. Another agent who understands the value of knowing your buyer's ability to buy. If a buyer is not willing to give me a Financial Statement, they need another agent. I work on a contingency fee basis so there is no fee until settlement. I'm not willing to work at the level I do for a buyer who want me to work in the dark. No way.

Usually here in Georgia we work with prequal letters so it is not as much of a thing as it may be in other markets . We are happy to have buyers that look like they can buy !!!

It's gotten to the point that when a buyer tells me that he's an "all cash" buyer, I still clarify the amount and source of his available cash, and his income (to make sure he can cover the monthly charges).

A fellow broker had an all-cash condo buyer. She didn't know that he intended to re-finance another property in order to pay "all cash" for the apartment. The deal fell apart when the buyer found out that he couldn't get the loan, and didn't sign the contract. [In New York the attorneys generate the contracts. We are not "in contract" until both parties have signed. I once had a contract fully executed in four hours, but it can take two weeks, and sometimes more]

Lenn,

I'm actually both. Real Estate is my primary business but I'm still a bank MLO. I have access to systems and do my own Conditional Qualifications. I usually pass the loan off to another MLO when they're my real estate clients. At least I'm sure that the people I work with are reasonably qualified. It also allows me to keep up with changes so I can better serve my clients.

Note, I suggest that all agents get teamed up with an MLO they can trust and depend upon.

Tom

I will go with Jeff's comment. Also he said water cooler chit chat after 6 martinis. If I had 6 martinis I wouldn't be able to see a water cooler let alone converse there.

After reading all this I can see that I have to tighten up my questions as a listing agent and be sure to work with LO's that will make my buyers come in with the strongest offer. I guess I have to go back & be sure that we are all working on the same page.

Thanks Lenn for bringing this to light.

I view a pre-qual as taking an application and getting an automated approval. I view a pre-approval as the pre-qual plus validating income, assets and etc. I then have another category for a pre-approval with an underwriting decision. This is the pre-approval being reviewed by an underwriter and accepted pending disclosures, appraisal, clear title and a purchase contract. I don't know of any reason why you can't issue a pre-approval letter as long as the potential buyer cooperates by providing you with everything you need. In my world, a full pre-approval with an underwriting decision speeds up the process for me because I don't have to wait in underwriting after the buyer receives an accepted contract. It also delays the buyers ability to make offers immediately. Every Realtor and buyer wants a true pre-approval, but are you willing to wait for it?

Kyle Jan Phoenix AZ Homes for Sale (Pacific Funding Group, Inc.)

Listen for the agents I deal with, I will produce whatever documentation is needed. From the Pre-Qual to the Pre-Approval and if the credit is bad I will help repair their credit until they qualify. The main thing is helping others reach their goals. If they want to own a home then we will map out a plan and they will or die trying. Its as simple as that and again Kyle if your quality your in demand period.

Lenn, Richie's comment confuses me too. An agent (or borrower) talk with an underwriter? (Except for your lunch, of course). On what planet? Be it wholesale or retail, orgination or management; if an agent or borrower EVER, EVER tried to call an underwriter directly I got a immediate phone call: "Deborah, call your client and deal with their questions. And, let them know there will be NO opportunity to talk with the underwriter directly."

Why? Because direct communication and contact with an underwriter and any interested parties would open the lender up to possible violation of Fair Housing, Equal Opportunity, HMDA...to name a few..rules. It is called a lawsuit waiting to happen.

Lyn. Absolutely. The comments here have been spectacular. Agents need to understand what is going on, buyer's agents and seller's agents.

Joe. What's a martini?

Tom. That matter of "teaming up" with a LO is one of the problems we have. Agents get lazy, don't keep up, blindly send buyers to a trusted LO, who may not have the best programs, may not be the good LO that the agent thinks they are. We need to know what we're doing. In your case, you surely do.

Louis. GOOD FOR YOU. I have a very strict protocol with cash buyers. I want to know where and how much cash they have and I also want a higher than average earnest money. Cash buyers with low EM are notorious for walking. Low EM with cash buyers are no more than "walking money". I do not know why agents are too easy with cash buyers.

Missy. The "locked in to the fee" matter is the LO concern. It's not mine. Based on what we're reading here, we can still get pre-approval somethings so we can submit offers with "comfort" somethings.

Bill G. It would appear that the LO was pre-occupied with the GFE and whether or not he'd be locked in to fees. That's quite remote from the matter of credit/ability to buy letter.

Ed S. Smart move. If we know the process for the LO, we can better prepare our buyers. Most of our buyers are pre-qual, pre-appr. by phone. Our area is huge.

Michael P. I disagree completely. I provide Financial Statements and require them to review a contract. I also let listing agents know that, THIS IS A VERY STRONG BUYER. Just because they are qualified for more doesn't mean that the buyer is willing to pay more. I have found that a strong buyer is usually in a better negotiating position.

Gabe. I hope you don't mean guidelines from any government entity.

Deborah. Richie cleared that up. He is both a LO and an agent.

Lenn: You're welcome. I appreciate you understanding our business. It makes it go so much easier these days. It's a tough deal now. We issue pre-qual. or pre-approval letters and then the lenders change their overlays or guidelines. This is especially true when a realtor wants a letter without an address chosen. The bottom line is this. The deal isn't and has never been done until funded. In the meantime, great communication and trust is needed. As you know. not every transaction goes smoothly. I always appreciate a realtor's patience if something goes awry. Thanks again!

Paul. I'm not looking for Pre-approvals any longer. I just want a letter that states that the MLO has reviewed the credit report, verified the income and cash to close.

I'll present the supporting info in a Financial Statement.

It's really the "reviewed the credit report" that I want as much for my own comfort as for the letter.

@ Tom.. comment #50.. I couldn't agree more with your comment. I just wrote a post in regards to what both Lenn asked and what Marilyn wrote about. thanks

Lenn... a good discussion from a few... I am worried about some loan officers though and how they view such policy's, yet think it's directly from HUD or a RESPA issue. Just like many of the comments on Marilyn's post, many of the loan officers answers are lender overlays and it sounds like they aren't sure which is which. I think there is a delusion in regards to Good Faith Estimates and how that relates to good faith estimates, such as the comment that Deborah made. The two aren't really related. As you stated in one of your comments, you could care less about the lenders and the fees, if the lender had the wrong fee and now the lender has to pay the difference. Yes, that is on the lender... but it has nothing to do with pre=approval letters... again, just many lenders being very careful in what they put out there. Just my opinion. And I just wrote about this in a post. thanks But I didn't want to spam link in my comment. ;o)

jeff belonger

Lets keep it simple. The only thing that has really changed is instead of calling it a pre-approval they call it a pre-qualification. We do the exact same thing as we did before, we just call it something different. We still pull credit, review income, and Assets. Then we run it through the Automated Decision Engine and isse a pre-qualification instead of a pre-approval.

Why, because now you must have a contract in addition to credit, income, and assets to make a complete application. Upon recieving a contract the underwriter will review the clients application and issue a conditional approval. Just like we have always done it.

The reason Fannie Mae changed the rule is so that Loan Officers could be held to a much higher standard when quoting a borrower. It has virtually eliminated the bait and switch which was so common in my industry. I would love the new rule even more if they could make the Good Faith Estimate more consumer friendly. Currently it is missing vital information needed by the client such as cash to close and total monthly payment.

I hope this helps

Phil. That's about the way I see it.

Sadly, now, when we present a "Pre-Qualification" letter and the listing agent who lives in a cave comes back and says "we must have a "Pre-Approval" letter, what then??????

Sadly too, I would estimate that, with 80% of practicing agents, when the matter of mortgage financing is presented, their eyes glaze over.

Perhaps, if nothing else, perhaps more agents will spend some quality time learning their job.

This is great Lenn, a controversy with many opinions. I love it. I have read thru half of it and have to go. Will bookmark and finish later. Thanks for the excitement!

Evelyn. Thanks for stopping by. There is a WEALTH of information in these comments.

Wow, Lenn... lots of great info. (Thanks for posting!) I'm bookmarking this for future reference.

Lenn,

I hope you will pardon my shock that you were unaware. I have read most of your blogs and you not only seem better educated than most agents but you also seem very outspoken and critical of the current administration.

The opportunity for you and others in the industry to speak out was available on my blog (only one comment from a realtor who thinks the new GFE is "transparent"). The mortgage bankers lobby is very small and ineffective because the two biggest potential participants (Bank of America and Wells Fargo) choose to lobby as a bank not a mortgage banker. That's right your tax dollars propped up the very two lenders who allowed the legislation to pass back in January.

Wait until Wednesday when the new "FINREG" is signed. If this legislation is passed you may be left with Wells and B of A as your only available lender. And zero point loans a thing of the past.

I have spent the past 36 years in this industry as a Realtor and a Mortgage banker. I am horrified that the Realtors have no understanding of what takes place in the industry that drives their business. While your imput may seem futile I would stand up and be counted somewhere other than AR. Write your congressmen. Coplain loudly to the people who can help. Ask the Realtor lobby to spend your PAC money where it will help.

Peter

Lenn.....Don't be confused.....I did loans for about 5 years and then went into private money hard money loans. I also did appraisals for about 5 years as well. Currently, I work with different loan officers who cross qualify or pre-qualify clients. In cases where we are hesitant about locking a deal in, we pursue verification of data until we are satisfied.....the upfront diligence allows for record COE times of which all parties support. Thank you for taking the time to read my profile......and a most excellent post/comments.

Best

Peter - I recently made a comment pertaining to lending and making sure that my clients were qualified and comfortable in their decision and was shot down by several who said that is NOT my job to determine if my clients were qualified or not! I beg to differ! This is a HUGE part of my job when representing buyers--especially now.

The horror is when you're representing the SELLERS and the buyer's agent presents you with a prequalification letter that is, plain and simply, garbage! They've given the lender the ability to pull their credit and that's it! Not a true pre-qual.

And, why aren't these agents helping their clients calculate their own PITI? Perhaps it's because they don't think it's their JOB--or as Lenn said, their eyes have glazed over!

JUL

2010

Lenn, WOW! You asked for it and got it. This is another amazing thread sparked by your blog. As you have said before, the comments have greatly enriched the post.

Some of my favorite poiints:

This is EXACTLY why you need to work and strongly recommend that your buyers work with LOs that you know and who have a track record:

It is very important to note, however, that the point Jeff is driving home is the key- whatever type of letter you get, it's only as good as the Loan Originator you're getting it from.

I made it my business to learn about the process early on. Buyers want simple explanations of the process while you're together and it's not always feasible to talk that minute to a LO. Also, they want to discuss with you what the LO told them, so you have to have some idea of what's going on.

I have no patience with real estate agents don't pre-qualify, don't get financial statements and don't understand basic mortgage financing.

Bill. Thanks. So am I.

Peter. This post was a request to loan officers to provide us with information about pre-qualify/pre-approve. Do you have anything to offer????

BTW, if you want more traffic on your AR blog, participate more and, if you have constructive posts/comments, you'll get noticed.

As for agents not understanding much, perhaps agents would be more likely to ASK if they aren't met with criticism for simply asking.

Richie. Thanks. This post has contributed a wealth of information for me and other agents.

Debe. I agree. This is a HUGE part of my job too when representing buyers--especially now.

I have been roundly criticized by MLO and agents for suggesting that agents are better positioned to serve buyer and seller clients if they are capable to qualifying and understanding the loan process. MLO expect us to serve up our buyer clients to them before we even develop a relationship. Nonsense. Consumers contact me for real estate help. They're not contacting me for mortgage rates.

I know from experience that not every lender offers every program or loan type. I speak with 6-10 buyers every week who are asking me about grants and programs to help them buy a home. They are already involved with a LO who can't offer them down payment or closing cost help and the buyers are on the Internet looking for help themselves BECAUSE THE LOAN OFFICER/LENDER WITH WHOM THEY ARE WORKING HAS NOTHING TO OFFER.

In my area alone, there are mortgage companies/banks that offer GRANTS, DOWN PAYMENT ASSISTANCE, CLOSING COST, 100% FINANCING, etc. Then there are mortgage companies that offer nothing more than FHA/VA/Conv. loan products.

Yet, home buyers who would qualify and benefit from GRANTS, DOWN PAYMENT ASSISTANCE, CLOSING COST, 100% FINANCING, etc., are expected to be satisfied with paying more or not even qualifying because they are working with a mortgage company that offers only the basic mortgage loans.

My web pages alert consumers that there may be 100% financing, grants, etc. to help them qualify or buy. Yet, when they ask the LO with whom they are working, that LO will tell them that there is NOTHING that will help them. Fact is, that particular lender is not approved for the special loans that would help that buyer.

Frank and Sharon. You wrote: Buyers want simple explanations of the process while you're together and it's not always feasible to talk that minute to a LO.

BINGO!! When I get a telephone inquiry or am touring with a buyer, if they ask a mortgage related question, AND THEY WILL, are we supposed to stop and track down a loan officer to answer their question???? Nonsense.

I'm a practicing real estate broker, not a shill for loan officers.

Lenn ~ Wow lots of info here and we didn't even have to pay for the class. Anything can happen until it closes. Less likely to have trouble with a educated agent and LO.

JUL

2010

June. I agree. The trend of agents who can't count is sad. We have a job to do for buyers and the time for the involvement of a lender is going to depend on the needs of the buyer, not the lenders.

Hi Lenn,

BINGO! And, isn't it nice when they put their trust in us to give them to the LO's who DO have the programs that they need/want? So many times, they have already spoken with someone who has very limited programs and half of the time, their rates are higher and the service...well, let's just say, it's not what I'd recommend!

Debe. HA! You must know what a control freak I am. I want to be in control of where buyers go for financing, based on THE BUYER'S NEED, not based on whom I know.

Thanks ReBloggers.

Re-blogged by 3 agents

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Lenn Harley, Real Estate Broker, Virginia & Maryland

Leesburg, VA

More about me…

Lenn Harley, Homefinders.com, MD & VA Homes and Real Estate

Address: Lovettsville, Fairfax, Arlington, Alexandria, Stafford, Woodbridge, King George, Fredericksburg, Leesburg in VA., Rockville, Laurel, Columbia, Baltimore, Waldorf, Frederick, Eastern Shore, Bowie, Harford, Annapolis in MD. , Maryland, Virginia

Office Phone: (800) 711-7988

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Maryland and Virginia real estate agents and brokers serving buyers and sellers with experience. Search listings in Maryland and Northern Virginia and get daily updates of new homes for sale by e-mail. Contact Lenn for a tour of homes. REALTORS available every day for home tours. Homefinders network of experienced agents and brokers includes new home specialists, resale specialists and luxury home experts. We can help you with your home buying needs. Homefinders offers discounted 5% listings for Maryland, Northern Virginia home owners. Experienced agents helping buyers and sellers in the Washington Metro area since 1985.

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