Should Realtors “Interview” Lenders?

I got what I thought was a very interesting and thoughtful e-mail last week from Jessica Horton, a Realtor down in Georgia, who I’ve gotten to know.   She and I have chatted a bit both online and over the phone about the markets, the dynamics of today’s lending rules and the ins and outs of structuring deals.   Oh, and we are both authors on the Bloodhound Blog.

I’ve taken Jessica’s e-mail and my response and turned them into a post.    I’ve eliminated a few minor conversational tidbits but I’ve left the majority of our e-mail conversation intact.

Why am I reposting this?

For three main reasons:

1. I’ve been in the mortgage business for 21 years now and I have never seen as challenging of an environment as we have now.   Yeah, we’ve had ups and downs and economic slow times, but a combination of falling property values, rising unemployment and tightening underwriting guidelines have made this the most challenging market I’ve ever been in.
2. The days of assuming that any lender can get a loan done and that anyone can get a mortgage are over and they aren’t coming back any time soon.
3. I found it very refreshing that a Realtor is taking a good hard look at who they want to recommend to their clients and not looking at it only from the standpoint of “who’s going to buy me lunch.”

I found it very refreshing that Jessica was talking to a number (I don’t know how many) lenders and was attempting to understand better how they work and what their processes and procedures are for making sure that things go smoothly.    With the HVCC and the new MDIA and the pending changes from Fannie Mae and Freddie Mac, the rate a lender offers will always be important, but their ability to get things done is more important than it has ever been.

Take a few minutes and read through the exchange.   Jessica’s questions are in “normal” print and my answers are in bold and italics.

Tom

Jessica,

See below.   Thanks for giving me this opportunity.

Tom Vanderwell

---

From: Jessica Wynn Horton [mailto:jessicahorton30292@gmail.com]
Sent: Wednesday, July 29, 2009 1:58 PM
To: Tom Vanderwell at Straight Talk About Mortgages
Subject: A few questions for you

Tom:
In an effort to better serve my clients, I am asking lenders the following questions:
1. How does your PQ process work.

A couple of thoughts about a prequalification first.   My view of a prequalification is that it’s a 10 to 20 minute review of the borrower’s financial information where the buyer tells me the information and I assume that he’s telling me the accurate information.   Nothing is verified in terms of running credit or looking at income or asset or liability information, it’s all stated and assumed right.

What is the time line.   Since it only needs 10 to 20 minutes, it’s very easy to do by phone and needs very little advance notice.
How and when do you perform a pre-qualification – due to family time constraints, I like to schedule appts either between 8 and 5 or after 8:00 pm (by then my younger kids are in bed).   Exceptions can be made to that.
How long does it take
Does this happen face to face, phone, web or remote  I prefer to do a prequalification by phone.
What is your process of a PQ  – We basically discuss the  four tiers of mortgage lending:

Income

Assets – downpayment and also cash reserves

Credit – how good or bad and how much – monthly payments, balances (so that we can determine if any can be short termed) etc.

Collateral – how much are they looking to spend – do they want a condo, house, mobile home on land, etc.

Do you charge a fee to the client  – not for a prequalification.
Is a credit report reviewed  – No, for two simple reasons.  Every time that a credit report is run it costs a few points on a credit score.   In addition to that, starting with loans that are sold to Fannie Mae and Freddie Mac on October 1, all credit inquiries need to be addressed by the borrower in writing and if it’s a mortgage inquiry, documentation is needed from the other lender that the loan has been “dispositioned.”

2.  How does your Pre-Approval Process work?

How does it differ from the PQ process  – a prequalification is all stated income, stated asset, stated credit.   When we do a preapproval, everything is verified.
How and when do you perform a PA .  Here’s the “scenario” that I like to use for a preapproval:

Step 1 – Client fills out an application – I’ve attached a pdf file that is the 1003 application.   I like to have the borrowers complete that (starting about half way down the first page) so that I know they are completing the information truthfully (at least from their standpoint) and I’ve also got evidence that they are “okay” with me running their credit.

Step 2 – they either fax or e-mail the completed application to me.

Step 3 – I run it through the automated underwriting (DU or LP – or both if needed) and get them all of the necessary compliance documents (TIL, GFE, Borrower’s Authorization etc) along with a list of the documentation that we need to completely verify everything and get the loan totally approved.

Step 4 – Customer gets me the signed application documents and the income and asset documentation we need.

Step 5 – The complete file is submitted to underwriting for a review by the underwriters and sign off from them.
How long ?

Step 1 – depends on the customer.

Step 2 – depends on the customer

Step 3 – less than 24 hours, if I know it’s coming and it’s time sensitive, it can be done in less than an hour or two.

Step 4 – depends on the customer.  As part of “Straight Talk Lending,” I’m committing to e-mailing the initial compliance documents within 24 hours of the submitted application.   I would like to have the documentation back within 3 days.

Step 5 – 2 to 6 days from receipt of documents in Step 4 depending on loan type, etc.

Does it happen face to face, phone, web or remote
What is your process of a PA
Do you charge a fee to the client  – The new Reg Z rules allow us to charge a credit report fee.   So far, I haven’t seen people abusing it, so I don’t expect to begin charging one.
When is a credit report reviewed  – immediately upon receipt of a completed application.

3.  Loan Application Process

How is this completed and by who
Is this done face to face (b/c of the new legislation)  – due to the geographic challenges, I won’t be traveling down to Georgia to meet with your clients, so I expect most of them to be done the way I outlined above.   A face to face application compared to a phone or mail app reduces the time to close by 3 days but except in extreme rush’s, you wouldn’t have the appraisal back yet any way.
When is the Good Faith and Truth in Lending provided to the client .   I’ll be e-mailing documents within 24 hours of receipt of the application.   In addition, our operations department in Cincinnati will be sending the GFE and the TIL.   So they’ll get them twice.
When do you lock loans and do you charge a fee .   That has changed since yesterday.   Let me lay it out:

Purchase – Preapproval already in process – client can lock a rate as soon as they have an accepted purchase agreement and a “close by” date.   At the time of locking the rate, they need to make a $295 non-refundable deposit (can be done by credit card).

Purchase – application not started before they sign purchase agreement – they can lock the rate at application without having to pay a fee.   On the 4th business day after application, I’ll be contacting them to collect the $295 non-refundable deposit and that’s the point at which we’ll order the appraisal.

Does that make sense?

Refinance transactions – they can lock the rate at application and then on the 4th business day after application, I’ll contact them to collect the $295 and proceed with the appraisal etc.

Do you quote accurate GFE’s (b/c new legislation requires .125% redisclosure)  As accurate as possible.   I’ll be looking for input from your preferred title providers as to the local fees in terms of closing, title etc.
How & when do you preform updates and to whom do you provide them to  – Part of my new “Straight Talk Lending” is going to involve updates to buyer and both Realtors on at least a twice a week if not more often than that.
Do you or your company have any service guarantees in place?    In terms of an official guarantee, no.   In terms of a reputation and integrity, I can guarantee that your clients will get straight answers, quality service, solid advice and competitive rates and terms.

4. What is your take on the new legislation?

Check out what I wrote last Wednesday at It’s Starting Tomorrow…..

While there are some small benefits for customers, the increased regulation and bureaucracy is going to turn the mortgage world into a world where we have to be:

• More demanding of our customers.   I”m going to need more documentation than I have ever had before.
• Less accommodating – “No, I’m sorry, your paystub isn’t going to be enough.   I need your last 2 years W-2’s, a current paystub and your 2008 1040’s.”
• More organized – organization and systems will be even more important than ever before.

I am asking these questions to better understand your side of the transaction so that I will be better able to serve my clients
and not put unrealistic demands in Purchase & Sale contracts.  Please respond when you have time. I look forward to doing
business with you in the near future.
–
All my best,
Jessica Wynn Horton
Broker/Owner
C: 678.871.9660
F: 888.621.7080
E: jessica@jessicahorton.com
W: www.jessicahorton.com
Jessica Horton & Associates