What is the # 1 complaint right now in the real estate and mortgage industry for home loans in San Diego? No it is not  that short sales are taking too long, or the HVCC rule, or the new TIL rules. It is that loans are not getting approved and funded! Why you may ask. Well first of all, the majority of the hard work has been done right, because it took the clients a few months to find the right home and get negotiated into contract. Now the bank just has to approve the loan. Well unfortunately this has become the biggest obstacle in today’s marketplace for home loans in San Diego. The synopsis of this article will be to give you some pointers on how to make the loan process a little smoother, and what you need to know about how underwriters are thinking and what lenders want to see from your client in this current market. I spent 6 years on the lender side as an AE and an underwriter at HSBC and Decision One, and now 6 years as a broker on the other side of the fence so to speak, so I can now appreciate how important it is to know how both sides need to operate these days to get loans funded.

What is going on with the banks?  

First of all, there is now a culture of complete fear imbedded in our lenders. Whereas just over two years ago there was a culture of “lets just get everyone into a loan and we all make some money”. Nowadays, the fear gets passed from investors to senior management to management down the chain of command on a daily basis, when it gets eventually trickled down to the underwriter who ultimately make the loan decisions, they essentially have been warned, “if this loan goes bad your job is on the line”. Of course these underwriters can’t control unemployment and unforeseen circumstances, but senior management doesn’t care, “you approved the loan”. With billions of dollars of  impending loans still out there and likely to default over the the next few years, you can understand why most lenders are a little fearful of approving some loans. So how do we get around this?

How to submit the perfect loan file for your client!

First off, It all starts when you (agent and loan officer) first start talking to the client. You need to get a full understanding of what the clients goals are what they truly can afford, and will these goals meet the expectations of the banks to give them the money they want to buy a home. There needs to be a complete application on them and this includes all explanations on credit mishaps or incomplete employment information from the past 7 years. Then one needs to underwrite all their income and assets down to the penny, then you need to submit these underwritten figures through Fannie Mae’s DU automated system. If you get an “Approve/Eligible” then you are off to a good start (just because they got a DU approval does not mean they will eventually get financing). Then make sure you are submitting these DU approval findings with your offer letters because nowadays many assets managers and sellers for home loans in San Diego will not even entertain your offer if you do not have these DU approval findings included in your offer. I run credit and these DU’s free for my clients and agents as this is a service I provide, and we are all having a very high success rate on getting our clients accepted and approved.

3 examples of how to convince the underwriter!

So now that you have your client in contract surely they will get approved right? Well, If you have been in this business since the 90’s then you will have heard many people say  recently “we are now back to old school underwriting and the 3 C’s”.  Collateral, Credit and Capacity). What is this you may ask? Well I think Capacity is the one that a lot of people are learning most about in today’s lending world. Capacity is the story and profile of your client and their ability to handle and pay back the loan. This essentially is packaging a file on your client where you can tell the underwriter and your bank the story of your client and why they deserve a loan. The days of submitting in just a few w2’s and their paystub’s that the DU approval findings ask for, is like sending someone on a trip to Ireland without an umbrella….(rains a lot over there for those who may not know J). What the underwriters are looking for is a detailed logical make sense explanation of everything on their profile. Here a few examples.

#1 example. The clients are self employed and have had declining income for the past 2 years so they are too much of a risk..loans are being turned down for this reason by many banks .Action…get a letter of explanation from the employer explaining their declining income. I had a client who had an illness in 07 and explains why their income went down. Another good reason, is that most companies in the US have had declining income recently, explain the industry they are in, for example if they are contractors then it makes sense why they have had declining income.

 #2 example. Client had low income last year and higher income this year, lender undoubtedly will take a two year average and now the client will not qualify for the loan. Action. Get a letter of explanation explaining that the client was in school at night part time and once she graduated she got promoted and got a raise and now she is earning more, make sure company HR or accountant explains on the letter the new salary, a good underwriter will now accept these new higher earnings and approve the loan.

 #3 example, Clients live in a 2800 sq feet home with 2 acres that is worth $550k and have a home loan here in San Diego, they go into contract on a 1800 sq feet home worth $325k also here in San Diego in the surburbs. Underwriter will turn this down immediately and advise that this is surely an investment property purchase, (because this is considered buying down and why would they move out of their gorgeous big home).I have seen this decision being made 8 or 9 times out of 10. Action. Here you will write up a letter of explanation advising that the clients are near retirement age and the upkeep of this bigger house is too much for them, and now that homes are so cheap they are preparing for retirement age in 3 years and want to buy a smaller house that will not have any stairs or a huge yard to manage. Once again a good underwriter will accept this because all of this makes sense.

There are many many more examples I could write about, but these are 3 of many that I run into quite a bit, if you are looking for some more examples, please free to check out my website at www.michaeladeery.com . So here is the biggest problem once the loan is turned down or suspended with a lender, once a loan gets suspended or turned down these days it is terribly difficult to get the loan either re approved, or submitted to another lender because now you have to get the appraisal transferred under the new HVCC rules and now you have to get disclosures resigned too for the new lender under the new TIL rules, these will easily push your file back another 30 days in today’s market, many sellers will not be willing to wait this long. So the point is, make sure everything is explained properly from the beginning because you may only get once chance to get your client approved. If you are lookign

How the Underwriters are thinking! 

I know some people may add, well shouldn’t this all makes sense to a lender in the first place and it their job to make sense of the numbers?. The answer is not at all. First of all do not just assume that they know your clients story. Second of all, they are all under a lot of stress and are motoring through loans due to lenders being short staffed, and are not taking the time to make the correct decision, this is leading to a lot of underwriter mistakes on calculating income..write out your income calculations on the paystubs and w2’s, this alone saves one deal a month for me. Thirdly, there is a lot of cherry picking going on, the lenders only have so much money to lend out contrary to what you may think, so they are picking the highest ficos, lowest LTV loans from the pile, so if your loan does not have the greatest ficos in the world or the clients have had a recent job change or have minimal assets, make sure all of this is presented properly so your loan will be given the same attention as the better qualified client.

In Conclusion 

I hope this article makes you a little more aware of the problems that exist on the loan side of the equation these days, that we as loan officers and lenders have to deal with. I think it is essential too that agents truly know their borrowers financial profile too so they can understand everything that needs to get done to get their client approved and funded. I myself understand the difficulties of how hard it is to get loans approved right now in this market. I funded 17 loans in June and July with the majority of these here in the home loan market of San Diego, and 7 of these loans had to be re explained and provided with a lot of additional supporting documentation so the underwriters would finally sign off on them for approval, I have no doubt that a more inexperienced loan officer who does not understand the aforementioned ways of presenting a client loan profile properly, would not have got these overturned and approved. With this being said, I must give a shout out to my two processors Kellie and Hallie, both of them have also worked on the lender side too in the past, also as underwriters, so they truly understand today’s culture and what it takes to get loans pushed through. They have both done an exceptional job recently so cheers to the girls. If you have any borrowers who need help with their home loan here in San Diego, or you have files that got stuck recently, please feel free to contact me, myself and my team will be happy to help out you and your clients so you can get your loans funded. You can also check out addtional information on my site at www.michaeladeery.com , please feel free to download any information you may find helpful.

Sincerely

Your mortgage planner

Michael Deery