Pre-Approvals: Are They Mortgage Zombies?

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Mortgage and Lending with NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 IL Lic 031.0006220/WI

 

Pre-Approvals:  Are They Mortgage Zombies?

 
Mortgage Pre-Approval & Service     A recent Wall Street Journal article discussed the decline of Pre-Approval applications among top Lenders and Banks.  The statistics they offer show that Pre-Approvals have pretty much died as a tool or service offered by many Banks and Lender.  Just like Zombies, they are dead, but still walking.

     For purposes of defining a Pre-Approval used within that WSJ article, a Pre-Approval is deemed to be:
 
     A full Loan Application.  Signed, documented with Credit Reports, Paystubs, W-2's or 1099's, Federal Tax Returns, Bank Statements, processed by a Lender, and submitted to an Underwriter for review. 
 
     What is NOT included within the Pre-Approval is:
 
     A Sales Contract, Appraisal, Title Report, Flood Certification, and any property-related issues.
 
     In other words, the WSJ Pre-Approval pertains to a proposed payment and loan amount in a proposed loan program, at a proposed rate, and a proposed loan to value ratio.  
 
     Using this strict definition, I agree with the article and the trend they report being seen within our business.  Pre-Approvals within this format and definition are disappearing from many Lender's menu of processes and services. 
 
     Why?
 
     I believe the process (as they describe it) should really be called a "Commitment to Lend", albeit subject to changes in: Property Taxes, Insurance, potential for Homeowner's Association Dues, Interest Rates, Credit Scores, (Credit Reports have expiration dates, typically 90 days after being pulled), and anything else related to having a SPECIFIC property ... AFTER a Contract has been written and secured.
 
     The process ... again, as it is described in the WSJ ... is rarely utilized, unless the Borrower(s) and loan candidate is marginal in one area of the Approval Process ... i.e. the Approval (or Denial) could go either way.  An experienced Loan Officer will likely know the results (or lack thereof) after doing the "due diligence" of Pre-Qualifying a client.  It's true that in some cases, if there are unusual or extenuating circumstances involved, a LO might want a 2nd opinion from an Underwriter.  But again, an experienced LO typically will have a good idea of the strength of their Borrower.    
     Lending institutions are paying processors and Underwriters to process and approve/deny Pre-Approval Applications.  These types of Apps typically take as much time to process, document, and submit to review as a "real deal" does.  Considering the large percentage of "fallout" from these Applications, they have become to be seen as more of a burden to Lender and Banks, than a positive.
 
     Very few prospective Buyers are willing to extend time or effort to complete a Full Mortgage Application just to receive a Pre-Approval Letter that goes in tandem with an offer on a property.  Definitely understandable.  And time typically does not allow for it either within the timeframe of viewing and placing offers on homes.  Especially now that homes are selling so briskly in many housing markets and multiple offers are being seen once again on many homes. 

     Still, the requests for Mortgage Pre-Approvals limps on. (Dare I say it, like a Zombie?).  Again, why?
 
     The only feasible action within the Chicagoland area remains that Buyers/Borrowers be screened well by an experienced Mortgage Lender.  That the Lender pulls a Credit Report, thoroughly interviews a prospect, verifies a Paystub, Bank Statement, W-2, and Tax Return ... then issues a Pre-Approval Letter or Pre-Qualification Letter based on the results found in that documentable information.
 
    The Wall Street Journal is right ... the Pre-Approval process is not perfect.  But to a great degree, the success found within the process relies on the strength, soundness, and validity of the individual Mortgage Lender's opinion, knowledge, and experience provided.  That's very important to remember as you're researching which Mortgage Lender to work with ...
 
 
     *  Looking to Buy a Home or Refinance within the Lincoln-Way area, Will County, or elsewhere in ChicagolandContact me!  I'll put my 36 years of mortgage experience and expertise hard to work on your behalf.
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Gene Mundt

 Mortgage Originator  -  NMLS #216987    

                                 IL Lic. #031.0006220  -  WI License #216987                                                                                                    

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Topic:
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Tags:
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Rainmaker
647,093
Kathy Sheehan
Bay Equity, LLC 770-634-4021 - Atlanta, GA
Senior Loan Officer
Good morning Gene! You once again have nailed it!
Oct 04, 2013 12:27 AM #1
Rainmaker
1,229,211
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Kathy .. thank you!  Glad I nailed the Zombies!!

Gene

Oct 04, 2013 02:14 AM #2
Rainer
284,418
Steven Cook
No Longer Processing Mortgages. - Tacoma, WA

Gene -- and to think our company in just the last month or two added this to our "quiver" so that we might be better equipped for the purchase business they are seeking. 

Then there is the whole argument of getting a "generic" pre approval for a TBD property - which letter then tells the seller how much they are qualified for, even if it is several thousands above what the buyers are offering.

Oct 04, 2013 06:31 AM #3
Rainmaker
90,505
Goran Utvic
606 Homes LLC | Chicagoland Brokers Inc, Chicago IL 60656 - Chicago, IL
We Buy & Sell Chicago Houses Fast

Gene that was an excellent read thank you...The Walking Dead got's nothing on you lol. 

I think that any homebuyer would really benefit from working with a loan officer with such great knowledge and experience such as yours.

 

Oct 04, 2013 12:35 PM #4
Ambassador
2,079,869
Barbara-Jo Roberts Berberi, MA, PSA, TRC - Greater Clearwater Florida Residential Real Estate Professional
Charles Rutenberg Realty - Clearwater, FL
Palm Harbor, Dunedin, Clearwater, Safety Harbor

I love the great detailed explanation that you provide here, Gene!

Oct 05, 2013 10:03 AM #5
Rainmaker
1,229,211
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Steven:  You and I know that we are asked .. and expected ... to provide something to clients and agents to aid their negotiations and guide their expectations.  We must make sure that whatever it is that is provided .. and whatever it is called ... is of quality and dependable.  It's so frustrating when you hear otherwise ... and it totally damages the perception people have of Lenders when it is not ...

Thank you, Goran!  I appreciate your kind thumbs up!

Barbara-Jo:  Glad the info and explanation was of interest to you .. and hope it proves beneficial ...

Gene

Oct 06, 2013 01:25 AM #6
Rainmaker
1,534,031
Lyn Sims
RE/MAX Suburban - Schaumburg, IL
Schaumburg IL Real Estate

Well, sometimes the preapproval is not worth the paper it's written on. Like the zombie reference here. Sometimes antiquated ways of doing business take a long time to go away.  Agents or LO's just keep reviving them year after year.

Oct 07, 2013 03:48 AM #7
Rainmaker
1,229,211
Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi
NMLS #216987, IL Lic. 031.0006220, WI Licensed. APMC NMLS #175656 - New Lenox, IL
708.921.6331 - 40+ yrs experience

Lyn:  We have to replace it with something of value ... and as of right now, that's up for grabs as to what that is.  But your point about value is on the spot ... the opinion and the Pre-Approval is only good if the Lender's opinion and service is worth something.  Something that needs to be considered as clients and agents decide who to work with ...

Gene 

Oct 07, 2013 04:03 AM #8
Rainmaker
752,797
Robert Rauf
HomeBridge Financial Services (NJ) - Toms River, NJ

I have always said that my prequals are better than a lot of pre approvals. You cant replace experience... I have seen agents requestiong DU findings and they dont understand that you can easily cheat the system with a TBD, Garbage in equates to garbage out.  We saw one from a competitor that had DU findings with high ratios with An approve Elig.. But it had NO taxes or Insurance.. Just P&I... That comes down to someone that trusts a computer to do their job.. You need to be able to glance at numbers and know write from wrong.

I rarely use a full blown approval- only in the rare case that a buyer/shopper is flirting on the edge of guidelines and you just cant be sure w/o every piece of the puzzle. But for the typical buyer... it just is not necessary.

Oct 08, 2013 02:56 AM #9
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Rainmaker
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Gene Mundt, IL/WI Mortgage Originator - FHA/VA/Conv/Jumbo/Portfolio/Refi

708.921.6331 - 40+ yrs experience
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