Prequal letters are worthless UNLESS they contain the following info and are backed up by evidence.
Loan Type and Amount
Credit Scores and Verified Sources of Funds
DTI “Front and Back end”
With the CFPB’s RESPA enforcement actions against both Zillow and Prospect Mtg., listing agents can no longer require “written cross-qual applications” as a condition of a buyer making an offer for their listings.
Or if they do; they run the risk that they and their preferred lender become the next target of a CFPB compliance audit!
The only real guarantee a buyer can close escrow is to demand a DU” (automated loan approval) complete with lending case number AND details about a borrower which can be verified,
When examining the DU, focus on the status and view the top line for the approval’s status.
Once a borrower’s information is “analyzed” through a computerized underwriting program, the results come back as one of the following:
a) Accepted/Eligible
b) Refer Eligible
c) Approved Ineligible
d) Refer Ineligible (i.e. Declined)
“Accepted/Eligible” is obvious. “Pass Go” & collect a commission check.
The status “Refer/Eligible” is a little more nuanced. Your loan officer’s experience is critical here.
“Refer” means that, based on their experience, two underwriters (U/Ws) must now concur jointly for loan approval.
“Underwriters: Gatekeepers of Homeownership”
When dealing with U/Ws, the loan officer must be patient and thorough by addressing all of the borrower’s issues in writing BEFORE submitting the loan for approval.
The more issues (credit/debit/income) left unaddressed before the file is submitted, the more likely UWs will decline the loan.
Like being a parent, it’s always easier to say “no” than “yes”
Since the computer has “technically” declined the loan, why would a U/W stick their neck out for a marginal loan that could later end up in foreclosure (and hurt their career)?
Other Designations
1) Approved/ Ineligible:
Your borrower is marginal & does not fit into the program they were submitted. In any case, the deal MAY BE salvageable.
Often, the borrower’s debt ratios are too high, and the loan needs to be resubmitted to a lower adjustable rate.
Maybe the borrower needs to pay off debts or have a larger down payment.
2) Refer/Ineligible: The deal is dead.
The application should never have originated. The loan agent wasted your time, soured a client’s confidence in you, and cost you referrals.
In Closing
Whether you are a listing agent or a buyer’s broker, why accept a “pre-approval letter” and risk losing time, money, and future referrals?
Just demand a FULL “DU” loan approval from a buyer BEFORE accepting or making an offer.
Copywrite © August, 2018 Daniel Dobbs MHM Mortgage /// All rights reserved. No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law. For permission requests, write to the publisher, addressed “Attention: Daniel Dobbs, Author- VP-Broker Mutual Home Mortgage 265 S. Randolph #120 Brea, Ca. 92821 Cell: 949 250-3981 Dandobbs6@gmail.com NMLS #307631 BRE #00986886