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What is delaying my mortgage approval?!?!?

By Ken Cook

Real Estate Technology with Content, coding, marketing, host.

September 14, 2011 06:54 AM

Want your closings to be smoother? Learn this very important role within the mortgage industry. Even if you "think" you know but you don't sit in a high volume mortgage lender every day I encourage you to read.

georgia home loan approved We industry insiders have a terrible habit of using industry terms to our customers and clients. Mortgage folk tend to throw around words like "conditions", "decision engine", "stips", and a slew of other words which are easily understood when you know the context. These are words that each directly affect your loan or your client's loan and are each ordered and filled by different roles in the mortgage industry. Like any other job if you don't do it every day, as a professional, chances are you really don't know who all the players are and what responsibilities each has. In an effort to help your loans go smoother let's look at two roles who work closely together but have entirely different responsibilities.

While different lenders and brokers have different job descriptions for loan processors I am going to detail the job description I created for my companies about a dozen years ago which works better than any I have ever seen at any other lender. The point is arguable but we always had the best reputation with underwriters, auditors and clients. Admittedly there were times we drove the loan officer crazy but we started with the unchallengeable policy: "We do not submit crap to the underwriters." Unfortunately this is not true of a large percentage of companies as any underwriter will tell you. Even companies with in-house underwriters still have to deal with "crap" from their processors. So, without delay here is what a real processor should do ...

The processor has the responsibility of making sure the loan meets the guidelines for the loan program it is being submitted for and that the appropriate and necessary documentation accompanies the loan to prove to the underwriter this loan is a "close-able" loan. Some of the steps the processor must do are:

Verify the information on the application to be factually accurate as evidenced by supporting documentation, fraud guard checks, public record and private/personal documents.
The name must be accurate or a good explanation provided. (You'd be surprised how many people don't know their legal name.)
The address must be accurate and include directionals (NW, SW, NE), the accurate street designation (Trail, Way, BLVD), and must contain a ZIP +4. (You have no idea how many people submit the wrong address or an address which is not where they actually live.)
The processor is charged with verifying social security numbers, tax records, any obvious liens against the property, and other public records. (Years ago my Managing Processor Googled a borrower and found her obituary. This uncovered a mortgage fraud ring which we promptly reported to the authorities.)
Each document must be examined for forgery or other flags such as inaccuracy in withholding taxes on pay stubs. My processors were required to be Fraud Certified by Interthinx.
Order verifications of employment, insurance and rent. You would think those would be easy to get but I have heard processors having to call employers eight to twelve times. The same goes for insurance. You would think an insurance agent or company (and most do) would simply hit send on their email or drop a doc in a fax machine but noooooo ... have actually had processors almost break down under extreme pressure of having to close for the buyer but not getting any co-operation from one or all of these three.
Explanations for big deposits. Yes, we have lost loans because a buyer could not paper trail a $10,000 deposit days before closing. In reality the loan officer should be required to get this verification but it inevitably falls on the desk of the processor.
Examine the appraisal when it comes in to make sure the property is within parameters and there are no damaging comment on the appraisal such as "subject-to" (meaning the property needs repairs) or that the remaining viability of the property is only 12 months. Septic tank can be a killer, too.
Examine the borrower signatures on all documents and application to make sure they are consistent.
Order the title and appraisal from the appropriate providers and co-ordinate the closing with the attorney's office.
Stack the file according to the underwriter's requirements (it sounds simply but having to sort through 200-350 pages of different size documents, scan them in to digital format, label them according to requirements and get them into the appropriate digital folder can take hours).

The above are just a few of the tasks a real processor would do. Higher volume shops and small broker shops often use the "my processor stacks the file and shoves it into underwriting" technique.

Now here is what the big deal is and why it is important to use a loan officer who has a well experience processor who knows how to do all of the above: more loans close more smoothly. True the loan officer may hate it because they think the processor is holding up the file, and they are, but the processor in reality is making sure the underwriter only looks at the file once or at most twice. You see the underwriters are very busy and if they start seeing one file too many times they are going to either find a reason to suspend or deny or simply set that file aside and work on ones from processors they know do the job right.

So how do you know?

Ask your loan officer how long it takes the file to get through processing and to the underwriter. Anything less than 3 days is probably dangerous. What this means is the processor isn't actually looking at the documentation they ordered they are sending the file to the underwriter without it even being in the file. This would include verifications, title and appraisal. Why this is bad is because if there is an issue that is legitimately an error the processor can work with the loan officer and the borrower to clear it up before the underwriter even looks at the file and has a chance to deny or suspend the loan.

In reality you want the processor to know more about the loan than the underwriter. My processors have always been able to actually teach many loan officers as well as underwriters because they were so well trained and familiar with the guidelines for the various loan products we offered. True, loan officers didn't necessarily like my way of doing it when they were first hired because the processors wanted a complete file submitted to them and they would only submit a complete file to underwriting.

You're in luck!

My processor still operates this way. In fact I have had the same processor for 12 years. When we tell you the loan is going to close on X date you can bet it's closing on X date. Furthermore because I have a processor who knows the guidelines she will tell me long before the file goes to underwriting if there is an issue with any of the documentation I have received from the borrower, the sales contract, the appraisal, the title ... you name it. We know up front and can deal with it before it goes to underwriting to be denied or suspended.

I'm sure we'll have a loan officer or production manager or two completely disagree with me ... I don't think we'll find one borrower or real estate agent who does.

How can you help the process go smoother?

As a buyer you can be very accurate on your loan application with your name, address, employment history, banking information, etc. You can also find the exact contact information in your organization for the person empowered to verify your employment. You can warn your insurance agent the processor will be asking for a "dec page" and get the accurate contact information for the person charged with the responsibility of issuing this document. You can make sure you have the last two months of bank statements (all pages front, back and blank), the last 2 years of tax returns and W2s, explanations for any cash deposits other than payroll over about $500 in the last 2 months, letters of explanation for anything the processor asks for.

As an agent you can help encourage your buyers to be speedy in returning the appropriate and accurate documentation to the processor. When the processor has to stop and play telephone hockey with a few departments to find the person who actually issues the VEO it can delay your closing as well as others stacked up behind you (or yours if the widget head in front of you turns in crappy files).

So if this is the "right" way, what is the "wrong" way?

There are production lending companies who really only care about one thing: volume, volume, volume. They have the "throw it against the wall and see what sticks" mentality and just depend on massive amounts of applications in hopes a high number, even if it is a low percentage, get squeezed through the sieve. In this environment the loan officer and the processor can be lightly trained and highly disposable. Their job is simply to get the application, order a few verifications and throw the file to underwriting. You'll almost always find this setup in a digitized, online lender who's primary business may or may not be mortgages. Ever wonder why a company known for something else jumps into the mortgage business? Think about it ...

Underwriters who work in this type of environment are highly stressed because they end up with so much trash on their desk that should never have reached it they may simply look at a file and deny it when a good processor and loan officer would have turned in a file that proves the deal worthy of funding. Forget trying to close at the end of the month in one of these numbers only sweat shops. What underwriters will do in that case when they are overwhelmed with files that have to be sent back to the processor for more and more stips is suspend the file until after the first of the month when their desk has cleared a bit and they are able to actually look at the files and create a massive stip list for the processor.

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