We have been producing blogs since 2013. Over the years we have gained followers that are originators, processors, underwriters, and operations managers. So when I use the word team, lets use one of my favorite southern terms to describe who I am talking too……. All Y’All!!!
We have a problem that the team needs to address. That is the perception that getting a mortgage is paperwork heavy, months long process, and is full of confusion and stress. Honestly, we bring a lot of this on ourselves. By not addressing this problem we are only hurting our own industry by scaring away potential clients who may be great candidates. We are better than this. We can do better. I know many intelligent and driven people in this industry, and I am fully confident we can move this needle.
I am coming from the perspective of consulting branches, small to medium size lenders, and processing companies to achieve a “Three / Twelve” origination system. The three/twelve system means most loans are only touched by an underwriter three times before a clear to close is issued. This should be done in twelve days or less starting from the day of application. The key to this system is less-is-more paperwork process and standardizing as many process’s as possible to create a smooth, low paperwork, and well communicated steps to the borrower on what is going on.
Let me give you a few examples that have come across my desk in the last few weeks that created a bad experience for the borrower that was easily prevented:
The “overloaded” conforming income file
I was helping a post close audit, with a borrower who had one salary job. The imaged loan file contained the following. Four paystubs, VOE, two years W-2’s, and two years tax returns. All I can say is “wow” talk about going overboard.
The solution
Get your team signed up with income tools like The Work Number that can obtain the income for your borrower without getting one document from them. If that is not possible, use the guidelines to only get what you need. In this case we only needed one paystub and one W-2, which was easily determined by reading the DU findings.
Side note the assets can be just as bloated as the income documents. I have seen too many rate and term refinance loans that only need $100 to close, but have tens of thousands of dollars across four to six accounts in assets sent in with the file.
How we work as a team
The common thing I hear from originators is they ask for everything because they never know what the underwriter is going to ask for. So my fellow underwriters lets make sure that we follow the guidelines carefully and only get what we need, and embrace tools like Fannie Mae Day 1. Originators stand your ground a bit with the underwriters, if they ask for something that is not required by the guidelines push back (respectfully). When you respond, be clear, don’t use emotion, or statements like “I have never been asked for this before”. Simply state the facts, here is an example “hello underwriter can I ask why you need two years w-2’s the DU findings only asked for one, I am willing to comply, but I just want to understand the need for additional paperwork before I go back to the borrower”.
The pending disaster loan
Another loan audit I completed was a self-employed borrower who ended up getting gift funds and paying off all debt to qualify. Based on the notes and the dates of the documents a borrower took application on May 3rd 2018. The loan was submitted to underwriting on May 24th with one-year tax returns even though the DU findings called for two years. On June 3rd the second year tax returns were provided and the debt to income ratio went up from 41% to 54%.
The solution
I call this loan example the pending disaster loan because getting a borrower that far in the mortgage process before “pulling the rug out” may close, but I promise is not a good ending for you or the borrower.
I firmly believe that every mortgage application (even when the subject property is TBD) should be submitted to underwriting within 24 hour or less. Get the loan in to underwriting with the credit documents (credit, income, assets, there is NO need for a property or appraisal on first underwriting look) . By following this rule we avoid getting the borrower to spend hundreds of dollars before they are even approved. I won’t even mention how bad it looks on your mortgage company when the borrower has told all their friends and family about the new home they are going to get and it does not happen. If you honestly think the borrower will say “hey I tried to buy more home than I can afford” to their circle of people, that is being a bit naive to human nature. Of course, it will your be your companies fault. Plus they will tell everyone to avoid you at all costs.
How we work as a team
Operations leaders, do not let any borrower get a pre-qualification give everyone a pre-approval. The amount of headaches and problems resolved for this will do wonders for your business. I can give kudos to Movement Mortgage who embraces this philosophy.
Loan officers, stop trying to squeak one in, when you take the application… get the proper documents. The term no-problem should not be applied when you are talking to the borrower about the key documents needed to be approved. Do not allow the borrower to spend one more dime of money (i.e. appraisal) until they provide what is needed.
I can tell you one of the worst things I have to do as an underwriter is decline a loan that I can clearly see the borrower had no clue they would not be approved for. The reason I know that is when there is an appraisal, homeowners policy, and home inspections (and a U-Hual set to arrive in two days) all completed. If we would have had a chance to review the key credit documents on day one we would have avoided all the collateral damage.
This blog is a bit different for me, normally I just stick to guidelines and try not to step on toes. But I keep hearing people tell me these heart-breaking stories of “loans gone wild”.
I can’t tell you how fulfilling it is to work with a company who listens to my advice (and others who believe like I do) and puts a few key steps in place that save so much time, frustration, and capital for your company.
Team… we can and will do better…
If you are tired of the of the “loans gone wild” world reach out to us and lets talk about changing the industry.