Any reasonable underwriter can interpret mortgage-approval guidelines, and these interpretations can help loans close. In fact, experienced loan officers who also understand many of these guidelines can discuss loan qualifications directly with an underwriter to come to a consensus and approve the loan. Thus, a mortgage banker has a better ability to negotiate guidelines with an underwriter.
And when problems arise, and they do, a banker can have an edge. Why can bankers fix problems quicker than a broker? First, they have direct access to their own files. A broker does not—she has to call the wholesale lender to get things fixed, all the while going through additional channels.
For example, consider a loan submitted for approval. Everything is going well. Then there’s a problem. The underwriter notices that the borrower has two last names in her credit report. This might indicate that she was previously married. Or it could be nothing more than a mistake on the report . . . but nobody knows. So the underwriter stops what he’s doing and e-mails, calls, or contacts the wholesale lender’s account executive for that particular mortgage broker.
The account executive then calls the loan processor and says, ‘‘Your applicant has two last names on her credit report, do you know if she’s been married before or known by any other name, so we can get that cleared up?‘‘
At first glance, this isn’t any big deal, right? So what if she had two last names? What does that matter; she still qualifies for the loan, right? Two names on a credit report for a female can indicate a previous marriage. Was she married to Mr. Smith, got divorced, and now uses her maiden name, Ms. Jones? Or because Ms. Jones is such a common name, could the credit report also simply be wrong?
Here’s another example. Perhaps there is an income issue. Maybe the borrower took some vacation time and the pay isn’t reflected on the pay stub. There’s some income missing and the underwriter needs to document it in the file. Or perhaps there’s not enough insurance coverage on the home and the borrower needs more. I’m not kidding here, this happens every day somewhere in the lending business.
But the communication chain to get all this accomplished is jumbled up. First, the underwriter calls the account exec, and the account exec calls the loan processor or loan officer. The loan officer tracks down the borrower and asks her, ‘‘Were you known as Mrs. Smith at some point or are you divorced?’’ or ‘‘Your reported income doesn’t match your pay stub, what gives?’’ or some such question. Remember the telephone game, where one child whispers something to another and those words are ‘‘repeated’’ until the very last person tries to get the original statement correct? Did ‘‘My mother wears a big pink ribbon in her hair’’ turn out to be ‘‘My brother has pink underwear’’?
Like the game, the more channels information goes through, the more likely the request and the final information will get jumbled. Not just jumbled, but delayed.
In our example, the loan officer finally gets the request from the underwriter and phones the client. Ms. Jones answers. ‘‘Yes, I was married to that idiot, what’s wrong now?’’
The broker says, ‘‘We need a copy of your divorce decree so we can establish that you have no financial obligations to your ex.’’ ‘‘That was six years ago; I don’t have that decree and don’t know where to get it.’’
‘‘We’ll have to find the judge, the court records, your attorney, just someone who might have a copy of it. There’s no way around this.’’ ‘‘Okay,’’ says Ms. Jones and hangs up the phone. Now things come to a screeching halt. Gotta find that divorce decree. After several days and more than a few phone calls, Ms. Jones calls back and says, ‘‘Okay, I found a copy, I’m going to bring it over.’’
She delivers the divorce decree to the mortgage broker. The broker then sends it via overnight courier to the lender, who logs it in (along with all the other new loan files received from other mortgage brokers), and puts it in line for the underwriter who originally asked to clear up the name discrepancy.
So far, this has taken several days—not just because the borrower had to track down old papers, but because there is an ongoing time lag between the mortgage broker and the underwriter. When there are problems with a loan file, this ‘‘wall’’ between a broker and a lender can be a challenge. And it can mean your deal falling through or not.
* * *
This same scenario with a banker works a little differently. First the loan is submitted to the underwriter, typically meaning the loan moves from one part of the office to another. If not, then it goes to another building, maybe another town, but it still is with the same lender.
The underwriter picks up the file and begins underwriting. He sees there’s a discrepancy in the credit file. Instead of putting everything on hold, he calls the loan officer directly. ‘‘David, your client has two last names on her credit report. What gives?’’ ‘‘I didn’t notice that. I’ll call her. Hold on.’’
After David contacts the borrower, he calls the underwriter back and says, ‘‘She’s been divorced, but she doesn’t have a copy of her divorce decree to establish whether she has additional monthly obligations. We do have tax returns showing no income or support payments being made. This should work, shouldn’t it?’’ David asks. ‘‘Great,’’ says the underwriter. ‘‘We’re good to go.’’
* * *
I can relate this story because it happened to me several years ago. Because I was the loan officer with the mortgage banker, I was able to discuss an alternative loan condition directly with the underwriter. If I had been a broker trying to do the same thing, it would have taken days just to get a copy of the divorce decree. I wouldn’t have had direct access to the underwriter to get the problems worked out. I would have had to go through the system to get my documentation in front of the lender for review.
Although the mortgage broker may have more access to loan pricing and loan programs, the mortgage banker hands down has his or her finger on the loan’s pulse. I’ve been both, I know. Sometimes having the absolute lowest rate on the planet doesn’t matter if the loan can’t close on time.
Because in lending, reputation is everything. Never forget that.
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