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DIARY of a BAD Pre-Approval Letter,Prequal,Loan Comittment..Which is it? What items do you disagree with?

By Darin Osenberg

Mortgage and Lending with Funky Quail Vintage

May 07, 2009 03:36 AM

This is EXACTLY what will happen to your deal when you provide a PRE-APPROVAL LETTER, PRE-QUAL LETTER, or whatever this letter is, to a seller!!!!!! KABOOOOOOOOOOOMMMMMMMMMMM!

There will be a TEST after this, so this will be FUN! KEEP READING!!!!!

All I know, is if OUR Company provided a letter like this to a REALTOR in WISCONSIN, they would blast me!

I am going to provide everyone with the actual working text and format of the pre-approval letter my friend received a week ago from HER realtor on a potential BUYER of her home in Georgia! I will let everyone READING this chime in on what type of letter they THINK this is, as well as if you are a Realtor that would ACCEPT this letter, or if you are a LENDER that is busting out LAUGHING right now!

I have seen a couple of blogs written lately about this very subject, and when this ACTUAL LETTER CAME ALONG, I couldnt help myself!

Check out this blog by Janet Guilbalt

or my most recent one by One Source Mtg,LLC

This letter was provided by a BANK in Georgia, and to keep from getting SUED, I am not going to mention their name! I am however, going to change the names to protect both the INNOCENT and the GUILTY! Suffice it to say, I advised my friend to accept another offer!

One additional note is that this customer was already into the APPRAISAL STAGE on another home and backed out. He is receiving a VA LOAN! Purchase Price on the OTP was $218,000.00. By the way, yes, the letter was signed...

___________________________________________

Dated: 4/23/2009

Joe T Plumber

Dear Joe T Plumber

Thank you for choosing Dewey Cheatum & How Bank! Based on the preliminary review of your credit report and the information you provided, it appears that you would likely qualify for the following:

Loan Type: VA

Purchase Price: $210,000

Occupancy: Owner Occupied

Interest Rate: 5.00

This pre-qualification letter is based on the limited information you provided and is not a loan committment. Please call your mortgage consultant to schedule an apointment to complete your application and discuss the additional documentation and verifications that will be needed to proceed with the loan process. **

If we do not hear from you within 30 days from the date of this letter, we will consider your pre-qualification request closed, and you will have to provide updated information to obtain further consideration for home financing.

Sincerely,

Dewey Cheatum

* Interest rate is used for example purposes only and is not guaranteed.

** For Your Information

A loan approval is contingent on a review of various documents,underwriting criteria and investor requirements. Examples of those requirements are:

1. Verification of information contained in your application
2. No change in your employment and income status.
3. No change in your financial liabilities
4. Proof that all of your debts were paid in a timely manner.
5. Satisfactory property appraisal when you select a property.
6. Subject to Fannie Mae, Freddie Mac,FHA,VA, and any other regulatory requirement.
7. Other ________________________________________-

At the bottom it says:

Pre-Qualification Letter

Rev 1/09

THis letter has NO PHONE# ON IT NOR THE ADDRESS OF THE LENDING INSTITUTION!

Now, I dont know about you...but could they PLEASE ADD some more adverbs?? This is a joke! I cannot believe my eyes! Neither can my friend on the right here!

My friend turned this offer down....

I challenge all Realtors, Lenders, and Consumers to tell me ONLY 5 things wrong with this LETTER!

Just for the record I have found:

YIKES!

If nothing more, this shows once again the need to educate and to be accurate, ethical, and forthcoming!

I am looking for MAXIMUM coverage with this blog! Let's make this the biggest response yet!

"I love the smell of Napalm in the morning...It smells like...VICTORY!"

WE ALL KNOW THIS LETTER STINKS!

NOW, tell me why!

I already gave you TWO!!

Update 5/8/09

It has been made very clear to me, that I should have been State specific when I did this blog. For this, I apologize. I tried to address those concerns in the followup, as well as put that if YOUR STATE did not apply...please subtract the item from it. Sorry if that was misleading in any way!

Additionally, the POINT of the BLOG was to show people that there is a HUGE difference in perception of what a pre-qualification is, a pre-approval, and/or LOAN COMMITTMENT!

I firmly believe that this borrower COULD HAVE, and SHOULD have provided an approval/committment. This letter as a whole not only was worthless, but a waste of time! It means nothing! All documentation had been provided by the consumer, and that is why they were at the appraisal stage!

Thanks for reading! - Darin

2nd Update 5/08/09

My issue is two fold: I am not questioning the crappyness of this document, just that I don't understand its point! On it's own, it is a prequalification at best. However, once you factor in that the borrower had ALREADY made application, clearly gotten approved, as well as provided ALL the documentation I state in the retort, it should have been, and could have been a LOAN COMMITTMENT, subject to the items I describe! I apologize if I was vague! Secondly, that this was a bank..NONE of this should have happened, and proves two things...Banks are no more trust worthy than a mortgage banker, broker, correspondent lender, or credit union. Also, that there is a huge difference between regions, areas, as well as TRAINING on what is appropriate, and what is accurate! More directly, on what a pre qualification letter is! Again, the whole point of the excercise was to prove that everyone has a difference of opinion on this! Is there a right or wrong?? Im not sure...I am only SURE that no matter who's situation or shoes you are in...perception is reality...And the reality is, that it doesnt matter as long as it is accepted right?? Tell that to Manny Ramirez today!!

I think Manny would agree with me in that this lender could have and should have, provided an approval with subject to conditions! Not this piece of crap!

Thanks for reading! If you liked this, or have any questions, feel free to SUBSCRIBE to my blog at:

or email me at Darin@osmwi.com

Thanks! Darin

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Re-Blog

Comments(14)

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Kim Curran

RE/MAX Unlimited of Northern Virginia - Bristow, VA

Yikes is right! Can you imagine how many people are duped by these things?

May 07, 2009 03:51 AM

Jeanna Martinez

RE/MAX Access - Schertz, TX

That is just plain scary!

May 07, 2009 04:09 AM

Jason Crouch

Austin Texas Homes, LLC - Austin, TX

Broker - Austin Texas Real Estate (512-796-7653)

Darin - This has to be one of the weakest examples of a pre-qual letter that I have EVER witnessed.

May 07, 2009 04:12 AM

Robert Rauf

CMG Home Loans - Toms River, NJ

NICE! What burns me is some one actually referred the Yahoo that would put their name on such a hunk of junk!

May 07, 2009 04:19 AM

Darin Osenberg

Funky Quail Vintage - Nashville, TN

Kim- Thanks for commenting! isn't this CRAZY!!!????? WOW! You know, there will always be snake oil salesmen, wont there?? Again many thanks!

Jeanna - Thanks for visiting! My friend who was sent this has bought & sold 6 homes in her adult life...Her REALTOR said to me that she should be "glad she had a friend like me"....now I ask you...what was this 20 year VETERAN REALTOR thinking when she ACCEPTED this letter and put it with the offer?? OMG...this is insane! Thanks again!

Jason - One thing that noone is mentioning is that this borrower was at the appraisal stage and had to submit his COE & DD214....This makes him submit, VERY Detailed documentation! I agree, this is a joke! Thanks for commenting!!!

Darin

May 07, 2009 04:48 AM

Jim & Maria Hart

Brand Name Real Estate - Charleston, SC

Charleston, SC Real Estate

Are the brokers at this company soooo busy that they can't even provide a proper pre-qual letter?!

May 07, 2009 04:48 AM

Darin Osenberg

Funky Quail Vintage - Nashville, TN

Robert - As always, thank you for commenting! I always appreciate your comments! You said it PERFECTLY...A HUNK OF JUNK! Crazy that someone would not only refer someone to this lender, but I know here in Wisconsin, they would have physically been laughed at....and the next thing you know, there would be a call from the Realtors Broker! Thanks again!

Darin

May 07, 2009 04:50 AM

Darin Osenberg

Funky Quail Vintage - Nashville, TN

Jim & Maria - Thanks for visiting! You know, I have been told in blog, on the street, and by other people that they go to a BANK because they feel "safe" , and they immediately trust them because they are Federally insured! THIS WAS NOT A BROKER!!! Sad part, this letter came from a BANK..and one of it's loan officers! DOUBLE YIKES! One more feather in the Mtg Banker/Brokers cap!! In my humble opinion anyway... Often times a prequal or pre approval letter, has to be APPROVED by the BANK, and they put it in a format that everyone can use but cannot change the language in! Thanks again guys! I appreciate your stopping by!

Darin

May 07, 2009 05:01 AM

Jeff Belonger

Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ

The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

Darin..... I loved the banks name, Dewey Cheatum & How Bank... I know the CEO's of this company. Larry, Moe, and Curly... lol

Seriously... you found 13 mistakes? I would say this... your title says pre-approvsal letter, but at one point, you talk about pre-qual letters. There is a difference and not saying that you don't know the difference, I know you do. But to determine the 13 items, could make it harder, because each is different.

On the letter, it does say pre-qaulification letter.... so if it states that, I find nothing wrong with that. Because when I hand out pre-qual letters, I run their credit and ask them income and asset questions. I also ask how long they have been on the job and if they rent or own. Have they had any large deposits in the last 30 to 60 days.. and about their goals. I also ask about the type of property and go over property taxes, homeowners insurance, and if they are in the flood zone. Lastly, I ask if they have had any BK's, foreclosures, have or owe child support or separate maintenance.

So, I am trying to figure out the 13 mistakes that you have found based on what you stated. Here is a copy of my pre-approval...

________________________________________________________________

Infinity Home Mortgage Company, Inc

Pre-Approval Certificate

April 13th, 2009

Homebuyers -

Property -

INFINITY HOME MORTGAGE COMPANY has pre-approved the above referenced client(s). Based on the information provided in regards to income & assets, and a preliminary review of the credit report, the client(s) qualify for a maximum purchase price of $605,000.00.

The Approval was based on a FHA loan.

Sale Price.....................$605,000.00

Mortgage Amount........$583,825.00 + MIP of $10,216.00

Property taxes used :$8,200/yr Homeowners & Flood Ins. :$1,908/yr

Sincerely,

Jeffrey J. Belonger

Branch Manager Cell : 609-440-5133

INFINITY HOME MORTGAGE COMPANY

NOTE: THIS LETTER IS NEITHER A COMMITMENT TO LEND NOR A LOAN APPROVAL.

______________________________________________________________________

** 660 N. Kings Highway * Suite 203 * Cherry Hill, NJ 08034 * (856) 470-1101 **

A Licensed Mortgage Banker of the New Jersey Department of Banking

_________________________________________________________________

In regards to your statement about the pre-qual letter or pre-approval letter be on a format from the bank, that nobody can change??? First off, I am a banker and have been 16 out of 16 1/2 years... secondly, this is not a commitment letter, which I would agree should be a format that nobody can change... in my opinion, a pre-approval or even a pre-qual letter should be very standard and not confusing... because an underwriter would have to fully underwrite it then, to have everything else listed. And if that took place, then you would just issue a commitment letter. And speaking of commitment letters, I just wrote about this and many lenders missing commitment dates.

Commitment Letters - How important are they?

To answer your question though.,.. here is what I see...

The companies name is not on top. It states in the letter that they reviewed your credit and other items provided.
Okay, it doesn't specifically state what items. The main pieces mentioned should be credit, income, and assets.
It doesn't give me a complete term. 30 yr? Fixed rate or an adjustable.
And then as you mentioned, no phone number and or address.
They stated a purchase price, but not a loan amount???
Lastly, did you put this in there or did they? Interest rate is used for example purposes only and is not guaranteed. If they did, I see no reason to have that in there. It sounds like they are protecting themselves from a bait & switch of the borrower then... lol

Other than that, I can't find 13, unless you number phone number and address as two separate items, just as term and what kind of loan program such as fixed or adjustable. But I would love to hear what you think is missing outside the basics. I hope you aren't looking for first born or shoe size... lol

jeff belonger

May 07, 2009 07:07 AM

Darin Osenberg

Funky Quail Vintage - Nashville, TN

DOG GONE IT!

We had a POWER OUTAGE here, and I lost EVERYTHING i just typed in Response to Jeff's comments!!

ARgghhh

May 07, 2009 08:47 AM

Darin Osenberg

Funky Quail Vintage - Nashville, TN

Jeff, thank you for posting your pre-approval letter on here for others to see how you do it. This is a great letter to show a REALTOR , or buyer that you have actually REVIEWED their documentation, and came up with a viable solutation for them! It also CLEARLY states what the borrower is looking for. This is important because if a SELLER KNOWS that there (either through discussion with his realtor, or friends and family), are going to be problems with a VA/FHA appraisal, that MAY NOT BE AN ISSUE on a conventional appraisal..it is CRITICAL that the LOAN TYPE BE ON THERE! For example, if there is flaking paint on the window sills, more than likely it will have to be addressed on an FHA /VA loan, but MAYBE NOT on a conventional product. These items are also critical concerning WEATHER RELATED TIMES or areas!

The reason I put a link into Janet G's blog, as well as my own personal one, was to SHOW the difference in perception of what a pre-qualification is, a preapproval is, a loan approval is, and/or a loan committment is. If you read on Janet's blog, you will notice that she and I differ quite vastly on what we consider a "pregrade" etc....The entire POINT of putting it in there is to show JOHN Q PUBLIC /Realtors, and other LENDERS that we need to be specific in what we are looking for. You will note in MY BLOG, that some Realtors want the LOAN COMMITTMENT to be SIGNED by the borrower, and others don't. Hence, not only do we have to deal with the LENDERS different perspectives of a pre approval letter/APPROVAL, but also consumers, and REALTORS!!

** NOTE ** I think I trapped everyone reading, because MANY people that have called and EMAILED me, rather than leaving comments...DIDNT CATCH the fact that this borrower had ALREADY BEEN APPROVED FOR A VA LOAN, and was at the APPRAISAL STAGE on another home that he back out of!

For purposes of clarification as well, I think the WHOLE LETTER is one big mistake! I guess some people have missed the point...and that is probably ME not being clear enough! It is NOT ENOUGH that this is such a bad letter, or that there are technical mistakes...I ask myself, WHY is this a pre-approval letter, or prequal letter...whatever ...AT ALL?? I ARGUE that it should be an APPROVAL LETTER SUBJECT TO : VA approved Appraisal, satisfactory ins coverage, clear title, and review of the OTP!

Here is what I found that I DIDNT LIKE, or technical mistakes, some State Specific! I actually COMBINED a few...as to not make the # inflated!

1. NO phone# to contact, not even an email address.

2. NO address of the lending institution

3. No license noted on the bottom. ( we are required to do this in Wisconsin) so ,if your state is NOT, then make my# 12...Sorry!

4. No equal Housing Symbol. In the US, Federally chartered and insured BANKS have to put this on any type of lending correspondence!

5. No Amortization - In Wisconsin our OTP"S require a term to be put in there! Ie; 30 yrs Granted this primarily focuses on Loan Committments, but sellers prefer to see the terms as well! Our companies pre approvals clearly State this...

6. No Fixed or ARM comment. Again, goes to the OTP, and my only issue here is that you opened the door...time to go through it!

7. Purchase Price 218k, amount on document 210k

8. Since when did Freddie,Fannie, fha, and VA become REGULATORY REQUIREMENTS! I realize bad grammar here, but just stating what is on there!

Now, I get to my questions that arise from the SITUATION, and would severely PUZZLE me if I was the seller, or Realtor.

9. On a VA loan, there is quite a bit of documentation that must be given by the borrower that includes assets, income, documentation, and to take it to the last stage of the appraisal this had to be reviewed and given. Why does the letter say "limited information you provided"?

10. I WILL BE GENEROUS HERE< and count these two as ONE! COE & DD214 Forms. Huh? A VA LOAN MAKES THESE documents THE SINGLE MOST IMPORTANT DOCUMENTS THAT A CUSTOMER CAN PROVIDE, and clearly WOULD HAVE BEEN PROVIDED if again...AT THE APPRAISAL stage! Has the 1003 been completed?? (application)...Why has only a credit bureau and limited documentation been reviewed?? What documentation!

11. Why does the letter say, "Please call your mortgage consultant to schedule an apointment to complete your application and discuss the additional documentation and verifications that will be needed to proceed with the loan process. **" The letter is SIGNED BY THE GUY who is doing the loan....Granted this is a general letter..but AGAIN, this borrower was alledgedly APPROVED AND AT APPRAISAL STAGE!!!

12. This is a BANK right?? Why is it subject to INVESTOR requirements?? OR, has the "relationship" that the bank has to mortgages they close not been accurately explained?? I think NOT!!!

13. ONE DOES NOT LIKELY qualify for a VA loan! They either do or they do not! MORE IMPORTANTLY, there are also STATE VA LOANS! We have them here in Wisconsin! They are underwritten, approved, sold, and serviced COMPLETELY DIFFERENTLY than that of a Federal VA loan! Hence, I would argue that it should say Federal VA loan...or specifiy State!! ...Again, this MAY apply ONLY in Wisconsin! I dont know for sure...If so..back down to 12~! My total actually, and I have been generous, and CONFIDENT that I STILL missed one or two items...IS 14 !

**Note** I could personally care less if there is an interest rate on here, but OTP'S do require them. I am not even going to get into the fact that WHEN YOU PUT A RATE ON something, you have a disclaimer...and that disclalimer must include other terms...like APR, fees, etc..etc..etc..Their disclalimer IS ON HERE, but is very weak!

The point of this exercise is TWO FOLD! 1. Not to be nit picky, but to point out flaws, weaknesses etc...and create awareness! 2. To point out the HUGE disparity between a Pre qualification, pre approval, and/or approval/Loan Committment!

This seller, should have received an approval with SUBJECT TO conditions! I stand by that!

Thank you very much one & all! I am sure I will probably be providing an update as I clarify, and answer more questions! Thanks...Darin

May 08, 2009 05:43 AM

Darin Osenberg

Funky Quail Vintage - Nashville, TN

Hello! I placed an update on the BLOG today, so I hope anyone reading this will be able to see it, and it will clarify further the entire point of the blog!

I agree with commentors, as well as the phone calls and emails I have received. The things I DESCRIBE in my retort to Mr. Belongers comments ASOLUTELY describe a LOAN COMMITTMENT!

My issue is two fold: I am not questioning the crappyness of the document, just that I dont understand its point! On it's own, it is a prequalification at best. However, once you factor in that the borrower had ALREADY made application, clearly gotten approved, as well as provided ALL the documentation I state in the retort, it should have been, and could have been a LOAN COMMITTMENT, subject to the items I describe! I apologize if I was vague! Secondly, that this was a bank..NONE of this should have happened, and proves two things...Banks are no more trust worthy than a mortgage banker, broker, correspondent lender, or credit union. Also, that there is a huge difference between regions, areas, as well as TRAINING on what is appropriate, and what is accurate! More directly, on what a pre qualification letter is! Again, the whole point of the excercise was to prove that everyone has a difference of opinion on this! Is there a right or wrong?? Im not sure...I am only SURE that no matter who's situation or shoes you are in...perception is reality...And the reality is, that it doesnt matter as long as it is accepted right?? Tell that to Manny Ramirez today!!

Thanks so much for the volume of emails and phone calls! Keep them coming!

Darin

Darin@osmwi.com

May 08, 2009 06:43 AM

Sally K. & David L. Hanson

EXP Realty 414-525-0563 - Brookfield, WI

WI Real Estate Agents - Luxury - Divorce

Hey Bucky...rumor has it you are smoking out the vacation sites/sights in Tennessee...the aforementioned realtor ought to consider surrendering her license...and try doing impersonations of a less dangerous profession in a night club...blog on !

May 15, 2009 12:07 AM

Darin Osenberg

Funky Quail Vintage - Nashville, TN

Hey there! YEP, in TN for the weekend!!! Back late Monday! still on AR though!

As for this REALTOR, you could NOT be more right! She should surrend all licensing, and work in a different profession! You know, sometimes, Lenders really catch "Hell" about loans, etc..etc..etc...and even though my FATHER was a REALTOR for 20 years I dont profess to understand everything about buying & selling homes...HOWEVER< i do understand common sense, and have an innate ability to read people. I predicted this would be a problem from the start, and it has been ever since. I sent the Realtor a "shit or get off the pot" email, and she hasnt even had the common courtesy to return the email.

Just like REALTORS have an obligation to their clients that they MUST uphold, even if it means ruffling some feather...We as lenders also have the same (good lenders that is) code of responsibility as well! I think too often, people are afraid to be blunt & honest...I am NEVER that way! I love working with people that love what they do, do it well, and take pride in not only their work, but also their work ethic.

Thanks so much,and yes, I am bloggin on!

BUCKY

May 15, 2009 02:22 AM