I have always felt that a business relationship is based upon mutual respect, but recently the relationships between companies in the lending field has almost become combative. Although everyone wants to do business, everyone is afraid of getting stuck with a loan that they cannot sell to the next company up the line. If they are stuck with such a loan, they will likely have to sell it to someone else at a loss.
The bizarre thing is that this isn't happening because of any deterioration in loan quality. By "quality" I mean that the borrowers make the payments on time and ultimately they pay back the money borrowed. It is virtually impossible to originate a bad loan today. Why?
Appraisals must be ordered through an Appraisal Management Company, a virtually fraud-proof, anonymous process.
Every borrower must sign a Form 4506T that allows the lenders to get a summary of the borrower's last two year’s 1040s — and you cannot lie about income without risking major fallout with the IRS.
The credit report is the third part of the process and it is also fraud-proof.
So how do you do a bad loan? You can't. In fact, according to people who keep track of such things, every indication is that the initial quality of loans is higher than it has been in years. I'd bet that these loans will have a very low default rate.
I am suggesting that the Quality Control auditors won't be able to find out anything wrong with the loans. So what are they doing? They are rejecting loans for the most trivial of reasons, the inconsequential things that should be overlooked. The people who process loans are covering their behinds for fear of being fired. Believe me; that is exactly what they are afraid of.
We had one loan that got caught cross-wise because when the appraiser measured the house, he came up with a larger area than the County records show. What likely happened was that the County made a mistake back in 1987 when the house was built. Appraisers tell me that happens all the time. But the assumption the underwriter made was that the owner had made an "unpermitted addition" that cannot be counted in the value. I had to "prove" that such addition hadn't been made. Do you realize how hard it is to prove something that didn't happen?
In another case, the borrower's name on her insurance coverage did not include her middle initial. The loan documents had her full name, so this didn't conform. Was this important? Not at all. Was her insurance coverage invalid because of the lack of a middle initial? Of course not.
Finally, we have these new Good Faith Estimate and Closing Statement forms that are creating most of these problems.
This is supposed to be a "zero tolerance" policy and funding was held up because there was a discrepancy of $10 between the appraisal fee as shown on the estimated closing statement and what the funder thought it should have been. Obviously, $10 is irrelevant and what "zero tolerance" really means is that in the worst case I would have had to come up with it. But her interpretation of "zero tolerance" was that was a mistake in the loan funding, so she didn't fund it.
If you are about to get a loan, brace yourself because this will happen to you. Just don't get angry if and when it does. Just get what they ask for. It'll be easier than fighting it.
Randy Johnson – Author of How to Save Thousands of Dollars on your Home Mortgage and Savvy Borrower
articles, Randy is a mortgage broker who has financed over $1 billion
in properties. He writes about home buying and real estate finance
topics for CreditBloggers.com.
Randy Johnson Randy is a Credit.com contributor and seasoned mortgage expert. He writes about home buying, mortgage laws and real estate finance issues. He has financed over $1 billion in properties, is the author of How to Save Thousands of Dollars on your Home Mortgage and he is a feature columnist for Savvy Borrower.
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