When I first meet with a borrower, I typically tell them two things: First, I am not so much your loan officer anymore, but your advocate and tour guide through the loan process.
Second, if I do my job correctly, your settlement will be a happy, yet boring and uneventful hour.
So the question becomes: To get to that boring settlement, how do we make the loan process work in a way that borrowers don’t feel as if they have been water boarded?
First, today’s borrowers have to understand that although they feel they are highly qualified to get a half million dollar loan, they have to realize that they are on trial. They have to be ready to prove anything and everything about their financial wherewithal.
Guilty until proven innocent in the court of mortgage originations.
Exasperated borrowers may wonder why a summary page to their checking account just won’t do. Why do you need all seven pages, especially when Page 7 is blank?
The reason: Because!
All of this voracious document-gathering is now in place because years before the mortgage crisis, it didn’t fully exist. Ultimately, when investors purchased loans originated by mortgage brokers and correspondent lenders, and then closely examined to see if all of their written guidelines were being adhered to, they found out the file was sloppy and error filled.
Among the missing
They expected to purchase quality loans. What they got was junk. Missing explanations. Missing documents. Liberal interpretations of underwriting guidelines.
As the old Green Bay Packers Coach Vince Lombardi would famously shout: “What the hell is going on out there?”
This is what helped send the mortgage industry into a freefall. The agreement between lender and investor basically states that if you sell me something that isn’t properly underwritten to our published guidelines and therefore not acceptable to us, it’s not our loan anymore, it’s yours. And with that they would shove that $400,000 mortgage right back onto the lender’s lap. Have that happen multiple times involving billions of dollars, and soon you find lenders and brokers dropping like flies.
And that’s what happened in 2007 and 2008.
According to government statistics, less than 2 percent of loans originated in 2009 that were resold to Freddie Mac and Fannie Mae went into default after 18 months, down from more than 22 percent for 2007 loans.
That is why in today’s lending world, a borrower has to be prepared to hand it all over. For small and medium mortgage operations to survive, they need to document everything so they won’t be subject to buybacks.
The worst thing borrowers can do to themselves is to become their own underwriter and determine what the loan officer really needs or doesn’t need. Using the “This should work…” philosophy doesn’t work in the end, and many times leads to confrontation between the loan officer and the borrower.
The loan officer’s job in the beginning is to set the proper expectations about what underwriting will require, and to assess what will be the most challenging aspects to a file.
For example, if I have a borrower who has fantastic credit, who is willing to put down 30 or 40 percent to purchase a new home, but who just left his W2-salaried job in December 2011 to start his own company last January and is now self-employed — forget it. New business owners are high risk and don’t have a track record, so even if they have enough money where they can show they don’t even need the loan, they are not going to get one. Come back to us in two years and we’ll re-evaluate.
The best thing a borrower can do is listen to the loan officer and the requests for the documentation that processing and underwriting will require to get the loan through the system without hiccups.
If the person you are working with asks for “A, B, C and D,” don’t come back with “A, D, F and R.” All that will do is delay the process as the loan officer requests, again, “B and C” because that is what underwriting is requiring.
The perfect app
Ultimately, the loan officer is looking for the “perfect loan application.”
The goal of any good loan officer in putting together a borrower’s file is that they don’t want to give an underwriter an opportunity to think about the file. Give the underwriter everything needed, in good, legible order and with a side explanation of what the file is about — what may still be missing and what may be coming. That is how loan officers make friends with underwriters.
So if you are considering getting a mortgage you might want to get the following items in order and handy:
-W2s and federal tax returns for the last two years. Include all pages and schedules for each tax return.
-Your last two most-recent paystubs that will show a year-to-date total
-Your last two most-recent bank/brokerage/retirement fund statements with all pages to each statement. And if there are large non-payroll deposits going into the checking or savings account you will be required to explain those.
-Copy of your driver’s license.
I like to call this the starter set of documents. Be prepared to explain anything that might come up during the process.
But remember, if you ask your loan officer why he needs a specific document, you should now understand why he answers with, “Because!”
Robert Nusgart is a loan officer with Mortgage Master Inc. in Baltimore. He can be reached at 443-632-0858 or by email at firstname.lastname@example.org. Visit his website at www.RobertNusgart.com for the latest mortgage and financial news.