The following is a guest post by David Reed, author of Decoding the New Mortgage Market: Insider Secrets for Getting the Best Loan Without Getting Ripped Off (AMACOM 2010), on finding a good loan officer. Submit a comment below to win a copy of his new book.
How do you identify a good loan officer? The best loan officers have been around for a while. They’ve gained experience in the lending industry. This isn’t uncommon for any business—those who have been in the business longer than others are either lucky or very good at what they do. But in the lending business there’s an additional reason why years in the business is critical: automated underwriting.
AUS applications introduced in the late 1990s marked a brand new way of approving loans. It streamlined the process, while at the same time cutting out certain efficiencies in the mortgage industry. It made my life and my loan processors’ lives a whole lot easier.
With an AUS, a loan officer simply “plugs in” the loan application data, hits the “send” button and within a few seconds the loan approval is issued along with a list of required information to close the loan.
AUS applications really made it big in the early 2000s, right about the same time as rates hit then-record lows and so many people were refinancing their home loan. Over the next few years, the nation enjoyed a substantial housing boom with home sales all across the country setting new records. With this new influx of both purchase and refinance business, lots of people quit what they were doing and went to work as loan officers. There wasn’t really a whole lot to learn, just open the door and let some new business walk in. The new loan officer didn’t need to know how loans were approved just how to enter the loan information into the AUS and wait for the approval.
Loan guidelines became more and more relaxed, which resulted in even more loans. New loan officers thought themselves fairly smart when they were “approving” all those new loans. Soon, of course, the housing bubble burst, and lots of loan officers went out of business and went back to what they were doing before.
But if loan officers never understand how loans are approved in the first place by reviewing credit histories, calculating debt ratios, and putting people in the correct loan program, then they won’t know what to do when a loan gets turned down.
“Sorry,” the loan officer says. “But your loan has been turned down.”
“Why?” you say.
“Not sure exactly. This is all I can do.”
Automated underwriting systems were designed to streamline the process, not make up for lack of mortgage skills. Loan officers who have been around pre-1997, before the AUS applications came into full force, know how to manually approve a loan. They know how much someone can afford before the loan is submitted to the AUS. They know how to fit monthly payments in order to meet debt ratio requirements. They know the nuances of the various loan programs and which ones will work and which ones will not.
I recall a client who worked in the marketing department for the corporate offices of one of the world’s largest real estate companies. She had been shopping for her first home, and obviously working for a large real estate organization allowed her to choose almost any real estate agent she wanted to. She had read one of my books and decided to give me a call.
“David, I’m having trouble getting qualified. I found a house and made an offer, but I’m getting declined and my mortgage broker says I have to wait to save up some more money,” she said. In fact, the mortgage broker she was working with was referred to her by her own real estate agent. She told me her situation, and after a few minutes, I said, “Stop right there. You’re on the wrong loan program. I can fix this.”
Sure enough, she had beaten her head against the wall while her mortgage broker was submitting her loan to this lender and that lender trying to get an approval, but she kept getting turned down time after time—for the very same reason. The broker kept thinking that maybe if she submitted the loan enough times, then certainly some lender would finally approve her.
She had great credit, good income, and a down payment. So what was the problem?
She was putting 10 percent down, and her down payment money was coming from a gift from her father. The mortgage broker was submitting her to different wholesale lenders on a conventional Fannie loan.
The problem was that conventional lenders require 5 percent down from the borrowers’ very own funds if the gift represented less than 20 percent of the sales price of the home. The gift was for 10 percent. She didn’t have 5 percent of her own money saved up, and that’s why she kept getting declined. She applied on my website, I downloaded the application and ran her loan through FHA’s automated underwriting system. Voila! Approval!
FHA only requires a borrower to have $500 in a transaction when there is a gift involved. But the mortgage broker wasn’t familiar with FHA loans or apparently intelligent enough to know that submitting the same file over and over again under the same guidelines will have the very same result.
This client had been trying to close on her house for nearly two months and had thought she was going to lose the house. In fact, had she not called me or another experienced loan officer she might still be waiting.
If you can find a loan officer that has been in the business since before 1997, you can bet two things:
1. The loan officer is good enough to be in the business for this long to weather the ups and downs in the industry.
2. The loan officer knows the inner workings of loan programs and legitimate ways to get deals closed when others can’t.
It’s possible that you don’t know where to start to find the best loan officer.
There are some tips to help you find a good loan officer, but first, I’ll tell you where not to look: the Internet.
There are websites such as Bankrate.com that post interest rates from various lenders. Bankrate.com has plenty of market commentary and actually some very good articles about lending in general and some specific articles on mortgage loans. It also lets lenders pay to advertise on its site. Bankrate.com has a grid with different lenders (most likely none you’ve ever heard of) showing their company information, their rates, and the different loan programs they might offer.
It’s a real shell game, because it’s hard to determine who actually has the best rate. In fact, you’ll see some phenomenally good rates—some seen nowhere else! In truth, this can be nothing more than a bait-and-switch tactic. Remember, lenders set their rates on the very same index every day, and one lender can’t be remarkably lower than anyone else. It just can’t happen.
Even if you did decide to use one of those lenders, you’re likely to get hooked up with a 1–800 number and a customer service person who lives nowhere near where you do. Mortgage loans can be too complicated to leave to a customer service person. You need someone local who has established themselves in the lending industry.
If you don’t have a favorite loan officer you like to use or you can’t stand the last one you had, then I suggest finding some good real estate agents in your area and ask them for referrals. Good mortgage loan officers build their businesses around top agents, and they keep those top agents happy by providing their clients with competitive rates and solid customer service.
Okay, so maybe not all of the loan officers out there have gray hair. Maybe they’ve only been in the business for a few years. I’ll grant that everyone has to start in any business at some point, and someone is always a rookie at least once. But this is your mortgage, and you’ll be paying on it long after the loan officer shakes your hand thanking you for your business. You want all the competitive edge you can get.
David Reed is the author of many books including Mortgages 101 and Mortgage Confidential. As a senior loan officer, he has closed more than 2,000 mortgage loans. He is a columnist for Realty Times and Mortgage Originator magazine. He lives in Austin, TX.
And now for the GIVEAWAY! The first five commenters on this post will receive a free copy of David Reed’s new book Decoding the New Mortgage Market: Insider Secrets for Getting the Best Loan Without Getting Ripped Off. Good luck!