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Should brokers file a class action suit against creators of sub-prime programs?

May 27, 2008

Do you want your loan approved?Serafim Ivasksecondary market, referrals, underwriters, background/employment checks There is something you can do now to enhance your chances The mortgage industry has changed in the last few months. No kidding! The broker community has become a convenient scapegoat for all of the industry's ills. Loans were being approved per lender-provided guidelines, which, in turn, was a reflection of the secondary market's unrealistic expectation regarding infinite property appreciation. This translated into an unbridled rush for market share that ultimately lowered lending standards to a point where it seemed the dead, but not yet buried could qualify for a loan. Those days are over. The "no-brainer" programs are all but extinct, and even deals that should be easy, based on excellent borrower credentials, have become increasingly difficult. The guidelines keep changing, underwriting requirements are getting tougher and programs that existed at the time of the loan origination are disappearing mid-stream, often with no comparable program to replace them. Also gone, or going, are those that based their business purely on maximizing commissions while minimizing work. The surviving professionals will be the ones who stay current with changing guidelines, do their work thoroughly and, above all, take their responsibility to the borrower, as well as the lender, seriously. In the future, there are many things that we will need to do differently in order to succeed in the newly-emerging order within the industry. There is, however, one thing that can be done immediately, starting with your very next loan. Being given good loans to begin with will greatly increase your chances of getting clean, responsive commitments and help you close your loans more quickly. Of course you want your loans approved! Since you already spent the anticipated commission (at least mentally), you want the loan approval to come fast, without being conditioned to death. You do not want surprises. You invest serious time in your deals; so you also need and expect referrals from grateful clients to result from every loan you work on. It is probably fair to say that the above describes just about every loan originator. Beyond this point, results begin to diverge for different cases and different originators. Some loans, even those that appeared easy at first, never seem to get off on the right footing. Others, however, sail right through and are cleared to close almost immediately without being subjected to condition purgatory. Sure, some underwriters are not as experienced as others. Others may enjoy occasional power trips, becoming intoxicated with the ability to have mastery over another's destiny. However, these issues of incompetence and weaknesses in human nature are present in all professions and are something that we simply need to learn to live with, within reason. For the most part, the success of your borrowers' loans depends on how thorough your own work is and on your ability to communicate all of the relevant facts to the lender clearly. Do your homework, earn your fee! First and foremost, you are responsible for learning and knowing the requirements and relative benefits of the different mortgage programs. You meet with and collect all of the needed information from the client. You match the client's needs and qualification profile with available programs. You educate the client as to what he should expect and why the program selected is the best one for his needs, or the best one he can qualify for at the time. You must do the initial background/employment checks and reverse directory searches before the loan leaves your office. By the time you (and perhaps your processor) have finished preparing the paperwork, you are the expert in everything that pertains to this borrower and the loan package that is being assembled for presentation to the underwriter. Finish the job, communicate! Your final task, and perhaps the most critical one, is communicating all of the information in a fashion that makes understanding the case easy to a lender's underwriter, who is not clairvoyant, has never heard of the client and is not familiar with specific details that may be very relevant to the case at hand. There should be no room left for guesswork. Clear communication begins with proper and accurate loan registration. Every lender has its own procedures and format that must be followed for properly describing the incoming deal. All required disclosures and documentation needed to approve the loan should be in the file from the start. Sloppy or inaccurate communication at this early stage may delay, or even lead to the unraveling of your borrower's loan. Once you have cleared this initial loan entry/registration stage, you can now proceed to communicate with the underwriter, or the undertaker. The one it will be is dependent upon the quality and accuracy of this communication! The industry tries to make this communication easy and consistent by standardizing the submission forms and procedures. However, these only address the format of the presentation. For a "plain vanilla" deal, the regular 1008 form (or the Mortgage Credit Analysis Worksheet) and 1003 form can pretty much describe the case completely. For more complex cases involving multiple borrowers, several properties, multiple income streams, or situations involving complicated credit histories or hard-to-trace asset trails, your complete knowledge of guidelines and good communication with the lender will be the key to your client getting a clean approval! If the degree of complexity in a given deal causes the underwriter to spend extra time coming back to the case over and over again, this may lead to frustration and reduce the credibility of the loan application, as well as the submitting broker/originator. This is especially true when the perceived complexity results from incomplete, piecemeal or misleading information in the original submission. In other words, poor communication! In today's mortgage climate, when unemployed underwriters may outnumber employed ones, the underwriter is not going to take chances with loans that do not make sense! The solution: More communication In the commercial lending world, it is customary to provide a brief executive summary, which describes the key points of every loan submission. A well written executive summary can make the entire balance of the loan application—including complicated financials, income histories or specific property issues—much easier to understand. This can also be a tremendous tool in residential lending! A note—a few brief sentences at the beginning of the file telling the underwriter what they are about to see and perhaps why the file is presented the way it is—may save many unnecessary phone calls and eliminate unnecessary conditions. It may even make the difference between a loan being approved or declined! This is especially true when something is missing in the original submission and will be sent in separately. This small, but helpful step will also build respect for the submitting broker or loan originator and will be remembered when the next loan arrives. Conclusion Our mortgage environment has morphed almost overnight! Most of the easy loans, which required little documentation, are gone. Going forward, we will be increasingly involved in loans requiring much more investigative detail to insure "investment grade" quality in order to be sold into the secondary market. This results in more documentation, guideline compliance issues and increased complexity. A well-researched, accurately-documented and properly-submitted file is now a prerequisite for a commitment that is not overburdened by conditions! A file that also communicates additional, helpful information to assist the underwriter is more likely to be approved quickly and earn you the respect you deserve for a job well done! Serafim Ivask is a wholesale account executive at SunTrust Mortgage Inc. and has been actively involved in the residential and commercial mortgage industry, both retail and wholesale, for more than 20 years. He may be reached at (516) 650-3078 or e-mail [email protected].
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