When it's a Challenge to Get a Loan

"Do you swear to tell the truth, the whole truth, and nothing but the truth?"  Sometimes I feel like I should be swearing in my borrowers.  Even more so recently.  Here's why:

1) I bring part of this on myself.  I LOVE finding a way to get a loan done when a borrower has been denied somewhere else.  Often, there is a simple solution that only requires a little more knowledge (about self employed borrowers, working with credit, etc...)  At least half of the time someone comes to me in this situation, I am able to get them into a home.  I LOVE that!

2) Slam dunk borrowers don't have anything to hide.... and if one little thing comes up, then it's not usually a big deal.  Big picture, they're still well qualified.  No issue.  However, those guys that are getting through by the skin of their teeth, one little thing can send them over the edge.  Now if I know the WHOLE TRUTH up front, we can usually deal with it.  If they're been trying to keep it hidden and it slips out at the last minute.... Honestly, I can usually still deal with it, but not always in two days or two hours.

3) With rental inventory almost non existent and rents soaring, we're dealing with more and more challenged borrowers, and I expect that trend to continue through the summer.

Here's how you can help:
I know some of you coach your buyers to not tell us everything, because you know that there are some things that might kill the deal if we know about it. Please don't do that! It might be something we can deal with; if it is not something we can deal with, then there is a reason they should not be purchasing a home.  Instead, coach your buyers to tell us the WHOLE truth.  They wouldn't keep secrets from an attorney who is trying to defend them, and they shouldn't keep secrets from the loan officer who is trying to defend them.  If we know in the beginning, we can present it in the best possible light.... and hopefully still get them into a home.  If we find out at the end.... if something triggers something that triggers something else that exposes it all.... then things start to fall apart.
I love problem solving.  In order to solve a problem, I need to fully understand the problem.

Here's what happens on our side:
If we get an automated approval, we don't have to collect as much information and documentation as if it is referred to an underwriter for a manual underwrite.  The automated approval system looks at all kinds of things to determine the findings.  One of those things is assets.  So let's say that the borrower has $3,000 in their bank account when we take the application and their application is approved based on that information.  Then we verify the account before closing, and it only has $1,000.  Even if they don't need the funds to close, this makes the loan a bigger risk, and the system could "flip" the file from an automated approval to a manual underwrite.  No big deal really.... a little bit of a pain in the butt because we'll have to get a little more documentation to back up their story.  Other than an hour or two out of someone's day, no problem.... unless they can't back it up.... unless we didn't know the whole story.... unless they didn't tell the whole truth.

Here's what I'm doing about it:
Moving forward, on all of our files, we will be treating them as if it was a manual underwrite, even if we have an automated approval.  That means that we'll be requesting more documentation than most other lenders.  But it also means that if something comes up to "flip" a file from an automated approval to a manual underwrite, that everything will chug along like nothing happened.

We live and we learn.  If more challenging borrowers are headed our way  (and I believe they are), we need to adapt.