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Mortgage denials aren’t just a problem for homebuyers. When mortgage denials are up the entire mortgage industry stands to lose.
Every time a consumer is denied a mortgage loan, it sets off a chain of events that impacts all of us. The loan officer doesn’t get paid, the lender doesn’t make money, the realtor is at a loss and the industry’s reputation is maligned. All have long-term effects that could cost you future customers. Consumers who are denied a mortgage loan often end up feeling dismayed, disconnected, and discouraged. They may then take their mortgage and banking business elsewhere. This is particularly harmful when cross-selling opportunities arise.
Among minorities, mortgage denials are an even greater problem. Black and Latino homebuyers are less likely to be approved for mortgage loans than their White counterparts. Research has shown that with the number of minorities continuing to rise in the United States, Black and Latino consumers will be the homebuyers of tomorrow. How will you expand your customer base when customers feel alienated by being denied a loan?
What the industry can do to decrease denials
Since everybody loses when a mortgage loan is denied, we can all benefit from the work of strong counseling organizations who can help stop mortgage denials in their tracks. Counseling organizations work with consumers to assess their readiness for homeownership and if they’re not ready, we work with them until they are.
Borrowers need more than mere information and advice. They need a step-by-step personal mortgage-ready plan, and a system designed to monitor and motivate them so they stick to that plan. According to a study by the Federal Reserve Board, 47 percent of Americans couldn’t come up with $400 if a financial emergency struck. I’ve come across people whose lives were turned upside down because they needed new tires, got a divorce, had high student loan debt and could not save a dime.
When people don’t get the pre-purchase financial guidance they need, challenging circumstances can turn into financial disasters. When borrowers aren’t equipped to make wise financial decisions on a daily basis they are more likely to have credit challenges yet many expect to be approved with a 500 credit score. The health of the mortgage industry depends on getting people financially prepared and approved for sustainable homeownership.
The impact of denials is great, but counseling organizations can mitigate some of those denials and maximize closings. HomeFree-USA has looked at a multitude of mortgage programs and we understand what borrowers must do to be prepared for certain mortgage products. Our job is to ensure that homebuyers are financially ready to buy a home before they come to you. With us, homebuyers are more likely to be approved and successful in their quest to buy a home.
In a world with more mortgage approvals, lenders are happy, real estate professionals are happy and most importantly your homebuyers are happy. Successful homebuyers believe that the lending community is working with them and not against them. When that happens, all of us win.
Marcia Griffin is founder and president of HomeFree-USA, a leading homeownership organization with 68 results-oriented culturally and ethnically diverse non-profit partners nationwide. HomeFree-USA has offices in Washington, DC, throughout Maryland, Atlanta, and South Florida.