About four (maybe 5) years ago, I went on an appointment to try and qualify a certain family for a mortgage. This was before I was "the boss." I was just a "Senior Loan Officer", beating the streets for any mortgage clients that I could find. I used to always offer to drive to them if they were too busy to visit my office and this was one of those cases.
I pulled Mom and Dad's credit over the telephone and inquired as to their income. I did my loan officer type calculations and figured out that I could qualify them for an Arizona FHA mortgage, but very little else. (This was before the Option ARM.)
When I walked into their apartment, I was a bit taken aback. It was a young couple with four children and they were living in a two-bedroom, one-bathroom apartment. One bedroom for the parents and two sets of bunks, four beds, in the second bedroom.
It was a little chaotic, but I am not all critizing the poor mother- the fact that she was even sane and her kids were well-mannered and healthy was a major accomplishment. The stress level must have been huge.
Oh yeah, there was a puppy too. No kidding.
They needed a new home mortgage badly.
Many of you who read my posts already know this, but just in case:
You don't qualify for the total mortgage principal amount; you qualify for the monthly payment.
You qualify, of course, based on how much you earn, minus how much you spend, and exactly what is left over for a mortgage payment.
In theory you could easily qualify for a $100,000 home, even if you only earned minimum wage. Absolutely. You could be a high school student who has worked in a fast food restaurant for the past two years and have absolutely no down payment whatsoever. As long as you do not have bad credit, and interest rates are especially low, we will guarantee that we can get you a $100,000 loan.
Except here's the tough part about getting a mortgage loan when you earn minimum wage:
When we say interest rates must be "especially low," we mean interest rates need to be at 1% or less. (At the time of this writing, interest rates are about 5%.)
But if interest rates ever hit 1% (and at the speed they are currently dropping, who is to say?)-- you will be able to buy a $100,000 house even if you earn minimum wage. As long as you aren't driving a Beemer and rolling in 22" chrome wheels...you can do it.
But I digress. Back to the story:
This has never happened to me as a loan officer.
It turned out the family had no money for closing costs. This is not usually a problem (or so I thought), because I could offer them a higher rate, increasing my "yield spread premium," and thereby earning more money for my company on the "back end."
With the extra back-end (rate increase) revenue, I can apply those extra funds to pay for my client's title fees, appraisal, termite inspection, and whatever else.
But that idea didn't pan out.
The income she quoted me when I took the mortgage application over the telephone wasn't entirely accurate.
She certainly didn't lie to me when I took the application. She made a simple mistake. But mistake or not, because it wasn't accurate, my over-the-phone pre-assurance that I could easily qualify her for an FHA mortgage was about to change.
The only way I could qualify this family for a mortgage was to offer them a rate that so low (below wholesale), that my company could not earn any money at all and I could not even be expected to be reimbursed for my personal expendatures.
When a business does something for free, it's not ONLY that they aren't getting paid. They are also losing any money that was invested into that time and resource.
In other words, I could help them, but it would cost me money. It would cost me money for credit reports and tax return information and FedEx fees...ink and postage...and time that I would normally be spending helping clients who would be helping me put food on my table.
So I had a choice to make: I could give them a 6% rate, but my commission would only be about $2500 and that would just cover their title fees and taxes and appraisal.
Quick Sidebar: If you are a consumer considering a home mortgage, you should know that there are third parties that need to be paid in the process; parties that have absolutely nothing to do with your bank or mortgage company.
You need to have your home appraised; you need to pay a title company for title research and lien clearances; you have to pay for insurance.
So when I say I could only make" a $2500 commission, what I mean is that $2500 would be just enough money for me to pay the fees that the client would normally be paying on their own. Normally, a borrower hires their own appraiser-- and as a lender, I have nothing to do with it.
If I raised the rate to 6.125%, so that I could pay every cent of their personal fees that were unassociated with the mortgage, they couldn't qualify for the payment.
The tiny difference of 1/8th of one percentage point was all it took to raise the payment enough to make them "unqualified." We are talking about $15 per month extra.
But I couldn't allow these people to live in squalor, not all those kids and a puppy on top of it!
So I called the Realtor and told her that I qualified her borrowers for an Arizona FHA Mortgage. About 35 days later, they moved into their new Gilbert AZ home.
Why did I tell this story? To let everyone know that I am a big softie? Nope, not at all.
In fact, I'm not "soft" at all; I just acted like a human being as far as I am concerned. Trust me, if she had a Prada bag and was driving a new car, I would have told them to hit the road! I want a Prada bag! No, they were genuinely just broke and it wasn't really their fault. They were just going through a tough spot at the moment, but those kids needed a place to lay their heads.
What goes around comes around.
About six months later, all settled into their new home, "Mary" gives me a call. She says she wants to be a loan officer. She has no skills or qualifications, but I thought she would make a great loan officer. Heck, she convinced me to try and get them a home loan when they (by most bank's standards) did not qualify.
Today, she is-- without a doubt-- my best loan officer. She is an Arizona-Home-Loan-Closing-machine. I am so glad I didn't walk away from that deal, because I've received everything back in spades. She is a very successful loan officer, probably because of her own humble beginnings, and now her once-poor faily owns two beautiful homes! I swear it. She also bought a boat.
More importantly, "Mary" has become one of my closest friends. When I went through chemotherapy in 2005, she spoon-fed me homemade soup and stroked my bald head until I fell asleep.
So, yeah. I'm glad I did that loan for free.
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