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Cruddy, Useless, #*^($*@! Mortgage Pre-Qual Letters and How to Spot Them!

By
Education & Training with HD Realty BK662006

There has always been a lot of incompetence in the mortgage business, but when the money was flowing it really didn't matter because if you had a heartbeat you could get financed, so inexperienced mortgage brokers could still be successful. But now that money has tightened up, you can't risk your deals on a mortgage broker or an approval that is bogus.

This deal was kind of funny. When the buyer's agent submitted the offer, they included a very weak pre-qualification letter. When I called the loan officer who's name and number was at the bottom to ask for some clarification, they had disappeared! POOF! Gone. (Imagine that!)

I told the buyer's agent and she said "Oh My!" So today I get a different preapproval letter from a different company and broker. This is what prompted our lesson for today.

So first, go take a look at the letter HERE. (it is in .pdf format and you can print it or just look on the screen. I have blacked out the client's and company name and cut off their logo header and their signature at the bottom. Nothing else has been changed) Got it? Ok, here we go:

Right in the first paragraph is says: 1) he has been pre-approved then 2) this loan pre-qualification and 3) This is not a loan approval. So which is it? Is he approved or not?

Then it goes on to say that "Loan approval is subject to completion of a mortgage application... WHAT!?!?! I read that to say he hasn't even made loan application yet! I'm sure that's not the case, but I've got to give this letter to the lender I'm trying to negotiate the short sale with...and that's how THEY'RE going to interpret it!

Let me suggest what you SHOULD be seeing in a pre-approval letter. I look for things like: "Mr. Smith has made loan application with our company and we have received a preliminary approval from automated underwriting. This approval is subject to verifications and full underwriter approval and is subject to change" or something loosely resembling that. It will also usually list things like: satisfactory appraisal, title, seller contribution of X%, etc.

Here's the real scoop: A good loan officer can take a full 1003 loan application (pronounced "ten-oh-three") in 5-10 minutes. It then takes all of about 5-10 minutes OR LESS to run it through automated underwriting system. So from first contact, a good loan officer can have a REAL approval letter to you in 10-20 minutes. There. Now you know the truth. This includes FHA and VA loans.

The other thing that I didn't like in this letter was the 4th bullet point: "LTV 97% financing and buyer will need 3% in down payment assistance from seller".

Two things jump out at me.

1. As of 1/1/09, FHA loans are now 3.5% down, so the LTV would be 96.5%, UNLESS the case number was assigned prior to 12/31/08, which if it was already assigned, I would probably have received an APPROVAL not a pre-qual.

2. There has been no such thing as "down payment assistance from the seller" since October first of last year when programs such as Nehemiah and Ameridream were squashed by FHA guideline changes. Did they really mean to say 3% closing cost assistance? Don't know, but again, I have to provide this letter to my negotiator, so it must be very clear that the buyers are qualified or my short sale will get de-railed.

These things SCREAM inexperience to me. I wrote a few months ago about the importance of having an experienced FHA lender doing your deals, and this is just further proof. A broker with 10 years experience costs your borrower about the same as someone with 10 hours experience, so please be careful who you're referring your buyers to.

Hope you enjoyed today's lesson!

Andy

P.S. I answered my husband Tim's mortgage line yesterday while he was out at an appointment and it was one of the agents that gets my newsletter every week calling to see if anyone would even answer the phone! It seems she had given out 3 mortgage broker names to clients over the weekend and 2 of them were out of business! Can you imagine if they went out of business mid-stream in one of your deals? Wow! So the answer is YES, Tim is still in business and (usually) answers his phone!

 

Andy Tolbert, Foreclosure and Short Sale Trainer, www.AndyTolbert.com.  Need mortgage help in Florida? Her husband Tim can be reached at 407-831-2277 and answers the phone most of the time!

Comments (7)

Beth Forbes
The mortgage help you want when you need it. - Center Valley, PA
Your 24/7 loan officer

I don't know whether to laugh or cry! Okay, I'll laugh. That has to be the worst "pre" letter I've ever seen! I'd give that other agent your husband's information. It sounds like she could use his services. I'll issue a prequalification letter based on 1003, credit and AUS approval. Like you said, 10-20 minutes start to finish but I'll only issue a preapproval letter after I have all supporting docs in hand.

Jan 06, 2009 09:02 AM
Lisa Spalding
Casa Latino Four Corners, REALTOR, CDPE - Longwood, FL
REALTOR, CDPE

He he.  Or Wah Wah!  Man, I cannot BELIEVE the level of ineptitude some people aspire to.  Hmm.  Too bad this type of loan officer is in charge of the Buyers that like your short sale.  Less than 1% chance (MUCH less!) of getting any kind of acceptance with that loan officer.  Sad.  I like Beth's suggestion above--have 'em speak with your hubby (or ANY decent LO) just to see if they qualify for any loan at this point.  :)

Jan 06, 2009 01:59 PM
Rob Arnold
Sand Dollar Realty Group, Inc. - Altamonte Springs, FL
Metro Orlando Full Service - Investor Friendly & F

As I learned way back in GRI 1 class, the only important information on the pre-qual letter is the name and the phone number of the loan officer / mortgage broker.  Everything else is pretty much wasted ink.  From the phone number I call the person up and find out where things really stand with their loan.

Jan 07, 2009 06:15 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Andy,

I couldn't help but laugh myself at that letter. I had never seen one that bad! Be glad you have your husband to fall back on and if you ever do need another real lender, shout out across the Wekiva...

Gerry Suarez, Jr.

Your FHA Loan Pro!

Jan 07, 2009 09:32 AM
Gene Allen
Fathom Realty - Cary, NC
Realty Consultant for Cary Real Estate

I always say that type of letter you can't even wipe your butt with it.

Jan 07, 2009 12:58 PM
Maya Thomas, Broker
Tampa, FL
Please see my client recommendations.

Hi Andy,
You and Tim ROCK! 

Anyone who hasn't been to one of Andy's seminars is missing out.  If you are on the Education Committee for your board you should add her to your calendar.  Your members will be very happy and learn valuable information that they can put to work the same day.  Her CD's are outstanding. 

Andy has made my life easier and helped me provide better service to my clients who have referred friends to me.  Thanks Andy!  I use what you taught me every day.

Feb 25, 2009 11:30 PM
Meredith Tanguay
Keller Williams Realty - Exclusive Homes Group - Ipswich, MA

As agents with a fiduciary responsibility to our buyers, we need to stay involved in the financing process. Too often we hand off to the LO, who does NOT have a fiduciary responsibility to the buyer. Even if you are not a mortgage expert, strive to learn and calibrate your BS meter, for yours will often go off before the buyer's does!

 

Feb 26, 2009 10:29 AM