Securing a loan approval in today’s lending environment seems to be harder than in years past.
..Or is this actually an illusion? As a 30 year veteran of the mortgage lending business, I would argue for the latter. I think this is because what some would call unreasonable, is actually quite reasonable if you consider the back-story and the nature of lending it’s self.
It’s well known among tenured folks in our business that the past five years has been a bumpy ride of survival-of-the-fittest. Before the bubble “popped,” we saw an alarming abundance of sub-prime lending which made the term “liar loan” unfortunately common to our vocabulary. I have to say, as I watched some of the lax rules roll-out, I felt the Loan Officer “basic training” I received years ago was suddenly “old school.” Terms like “Down payment”, “Ability to pay”, and “Willingness to pay” gave way to counterintuitive loan-approvals to many questionably-qualified folks, the likes of whom I wouldn’t lend 20 bucks!
Say it ain't so..
One could argue that underwriters were instructed to turn a blind eye, or that unsavory investment bankers were driving subprime lenders to “manufacture” loans for sale to unwitting buyers, or even that mortgage lenders themselves were to blame. These debates have gone on (and will continue) for years; suffice to say we now find ourselves in a lending environment which was born of poor decisions made by otherwise smart people.
As I alluded to in my opening statement, it’s not that qualified people are denied loans. It’s more a matter of what appears to be qualified people being subject to (arguably) over-reaching on the part of lenders.
Here is where the illusion part creeps in.
My short and simple version of the back-story which led to where we are is rooted in the simple fact that lenders seek to replenish their money supply by selling funded loans to 3rd party investors (typically Fannie Mae, and Freddie Mac). To sell these loans without fear of having to “buy them back”, lenders are faced with new and more strictly enforced rules than ever before. The dilemma faced by lenders’ intent on keeping their sold loan sold, is to instruct underwriters to “dot every “I”, and cross every “T”. No exceptions. This puts underwriters in the unenviable position of “enforcer” even when their personal opinion may be that some rules are unreasonable.
For example, let’s say you were the underwriter and lending rules required you to evaluate a person’s asset statements to ensure 1) That all funds are derived from the borrowers own resources (not borrowed) and 2) that all supporting documentation be authentic and complete.
Now, let’s say in response to a loan officer’s request for asset statements, the borrower provides the summary page of his monthly bank account statement identified as “page 1 of 5”, and let’s say that summary page shows the balance grew by $25,000 during the statement period.
If you’re the borrower and feel as though the account statement answers the basic question of “evidence of the down payment source”, you’re also likely to feel that providing more documentation to answer other questions about those funds is unnecessary. But trust me, the request for more documents is coming, ..and the frustration is about to grow. Add to this, requests for letters to explain income deviations, credit inquiries, address variations, job changes, old late payments, etc, etc, and soon you have what so many deem as “unreasonable”.
Are all these requirements really unreasonable? I say maybe not so much if we take the time to explain the background reasons, and the simplest way to go about addressing each one. If done often and early, the process of navigating loan approval requirements can turn frustration into a strategic game of “you can win”, that is, once you understand the rules.
Simply put, we need to prepare borrower’s better than we have been and set proper expectations to better align them with what is reasonably expected. This is my new “job 1” as Private Mortgage Banker and it’s among the attributes which sets me apart. Keep it in mind, and Happy Selling!
This is one of many areas of lending where I seek to assist borrowers with unique needs and aspirations. For more information about this and the full menu of loan programs offered in today’s market place, feel free to contact me anytime. I have the ability to assist my valued customers with loan approvals throughout Texas and the nation. With 30 years of experience, there are few questions I cannot answer and I’m delighted for the opportunity to answer yours. My cell phone is best for immediate contact at 832-701-8780. I’m here to help.
The fine print. I am an employee of Wells Fargo Bank but the opinions expressed here are mine alone and do not necessarily reflect the views or policies of Wells Fargo Bank, N.A.
Images courtesy of Michal Marcol and FreeDigitalPhotos.net