How to Make Sure Your Mortgage Has The Best Chance of Getting Approved.

Times are tough to be in the mortgage industry and consumers are feeling the trickle down effect. The (obvious) reason is that lenders have really tightened up their approval standards. While this may be generally interpreted as an actual change in underwriting criteria, i.e. raising minimum credit scores and lowering maximum loan to value (LTV) ratio’s, there are also other standards that have been raised. While mortgage origination is more of a science than an art nowadays, clean documentation and other proper file aesthetics can mean the difference between a potential borrower being approved or denied.

Mortgage Origination is the process of creating a ‘file’ or ‘package’ that has all of the required paperwork for a lender to underwrite the mortgage for approval, in a specific order…Underwriting is the task (usually by the lender) of insuring everything that has been represented by a consumer (and broker/banker) is backed up by proper validation of required documentation. RESPA (compliance), income, asset, credit etc docs must all be in a specific order, dictated by the individual lender that will fund the loan.

When I ran a mortgage brokerage, we were sticklers (and known) for what’s called a ‘clean package’…a file that was in meticulous order and easy for an underwriter to navigate through. We removed all staples, sticky notes, paper clips, and placed each required set of documents behind their own labeled tab within the file. Once in order my originators and processors sat down and wrote a summary letter about the client, file, and specifically anything about the situation that was in any way out of the ordinary. When you picked up one of our files, not a single piece of paper would or could fall out.

This is quite contrary to how many mortgage outfits submitted their files to underwriting. It was/is not atypical for an originator to loosely throw all the docs into a manila folder, cram it into an overnight carriers envelope and send it off…then wonder why it took 3 weeks for the client to get underwritten. Underwriters are human, they gravitate toward the easiest path to complete their job. Sitting at their desk, they look at two files: One that reads like a book and one that falls apart like a newspaper in a windstorm. Which would you want to work on first?

During the refi-boom, a mortgage outfit could get away with such sloppy practices. Investors were frothing at the mouth to write and book new business, so pretty much anything flew. Underwriters (UW) would work through what they could and stip the originator for what they couldn’t find (stip: re-request missing documents). A UW was also a $10/hr temp position, which brings $10/hr temp talent. Well, times have changed. Lenders have downsized their staffs considerably, axing most all of the phat, and lets just say that investors are no longer beating doors down to fund mortgages. As a result of these events, lenders and their permanent UW’s aren’t putting up with any more sh*t files either.

You hear more and more about ‘qualified borrowers’ getting denied a mortgage. A big factor in this is mortgage originator sloppiness. If the file isn’t stacked and packaged right the first time, it’s likely to get the smack down. Lenders are getting real tight on re-submittals too…as in they’re not allowing them, a one and done scenario. New systems are in place to check on multiple consumer submittals to multiple lenders. Multiple submittals will get a qualified borrower turned down too. Today it’s entirely possible (actually more of a regular reality) for a perfectly qualified borrower to get denied a loan because of mortgage originator ignorance. Lenders simply aren’t putting up with what looks like second hand junk, regardless if the consumer is truly qualifiable…where lenders used to look for reasons to approve a loan, they now look for reasons to deny them.

How can a consumer insure to the best of their ability that their mortgage professional does business, well, professionally?

1. Ask if they use a processor and how much experience they have together. A good processor is almost as important as a good loan officer/ mortgage originator. My business stayed in business because I has a great processor (actually two). A good processor can make a marginal loan officer successful, a bad processor can make the best loan officer a failure. Good processors are often the unknown success factors behind great mortgage company’s.
2. Go to their physical office. Look around, is it neat and tidy or does it look like the floor of the New York Stock Exchange at 4:30pm? If you see files stacked on the floor and paper everywhere, walk out.
3. Inspect the RESPA package you receive to sign, it’s likely to reflect the type of package that will be sent to the lender. Is it orderly and easy to follow, or a bunch of papers clipped together with wrinkles and folds?
4. Look for general signs of practical professionalism. A broker/banker that is quick to say ’sure, no problem’ to all of your questions, wants, and needs, is probably one to stay away from. A mortgage professional should represent their abilities with caution, carefully stating and addressing expectations with a conservative tone.

Mortgage origination is a profession that deals with tens of millions of dollars, it’s about time that those in the industry treated the position with the dignity and professionalism that it should command.