 |
| 30 Yr Fix |
6.26% |
-0.11% |
| 15 Yr Fix |
5.78% |
-0.13% |
| 1 Yr ARM |
5.10% |
-0.07% |
| 5/1 ARM |
5.80% |
-0.02% |
| 30 Yr Tres |
4.66% |
0.02% |
| Fed Prime |
5.00% |
-0.25% |
|
|
|
|
 |
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Are Mortgage Pre-Approvals All They Are Trumped Up To Be?
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In 2002, Steve, a nice young man with a good job, serious savings, and excellent
credit made an attractive offer on a two family house in a Boston suburb.
It had to be an attractive bid as there were three others, all of them at or
above the listing price. Steve had lost out on several earlier offers in the
hot New England Market so this time he did everything right. He had a home inspector
on his speed dial so he could move quickly from offer to closing and with the
help of his agent he put together a clean and sensible offer. Most important,
he had a pre-approval letter from a lender stating that he
was qualified to buy into exactly the kind of situation he was bidding on: an
attractive property in excellent condition with a strong and demonstrable rental
history and excellent cash flow. He would be owner occupant of the smaller unit,
about to be vacated by a long time tenant, and the larger unit was occupied
by three young women in the third year of their tenancy.
The home inspection was perfect and the property appraised out for $5 thousand
more than the contract price.
In other words, a textbook situation.
Then the roof fell in.
A week before the mortgage commitment date - the time
at which the buyer must notify the seller that he cannot get a mortgage and
therefore cannot perform on his obligation to buy the house (at which point
the entire deposit, some $25,000 in this case is at risk) the loan officer started
making some disquieting noises. The original lender was not happy with Steve's
income. The loan to value, even at the higher appraisal, wasn't quite
enough to qualify for the program. One hour before the drop-dead deadline the
loan officer admitted that he might not be able to issue the mortgage
commitment letter and Steve, backed into a corner, withdrew his offer
in order to save his deposit.
When confronted by a nearly apoplectic real estate agent the loan officer said
that he had issued to pre-approval letter "to keep Steve on board."
Happily, Steve did, in the end, get the house. Perhaps not so happily the loan
officer also collected his commission although no one was speaking to him at
the closing. But, it turns out that this is apparently not an isolated occurrence.
Kenneth Harney, a nationally syndicated real estate writer, recently reported
in Realty Times and The Washington Post that a new study which polled over 1,700
real estate agents around the country revealed that faulty mortgage
loan pre-approvals are a major reason why sales fall apart before settlement.
The study faulted the growing number of mortgage applicants using sub prime
and other non-conventional mortgage programs and opting for "stated
income" mortgages. In such cases the pre-approvals are issued
based on that stated income and lenders are often less than thorough in checking
out credit and other factors before issuing pre-approved loan letters.
While pre-approval letters that prove to be less than advertised can throw
a house sale into disarray, there are also those pre-approvals that convince
homeowners seeking to refinance that they are qualified to receive an attractive
interest rate which vanishes only after the homeowner has paid a non-refundable
application or appraisal fee.
Information at this point is anecdotal which is why we would like to conduct
our own Mortgagenewsdaily.com survey. If you, as a consumer, real estate agent,
or mortgage loan officer have encountered pre-approvals that were not worth
the paper they were faxed on, please tell us your stories. Send them to the email address listed below
and please provide some contact info - phone numbers appreciated -
so that we can follow up with you. All sources will be kept confidential if
the correspondent desires. If you would just like to tell your story, you may also post it in the comments section below. No personal information is required for comments.
Click here to email .
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Comments (21)
| To Xavier - if you're issuing preapproval letters before running the loan through automated underwriting then you are wrong. I was a loan officer at one time. Now I am a buyer. The broker gave me a preapproval letter for an FHA loan and said everything looked great. Now, after appraisal, title, etc. he is saying he may not be able to do it because of my credit. My credit was pulled weeks ago so this is bogus. All my ratios are in guide and all the vendor work is fine. Hopefully the company will stand by their preapproval because the LO is not. |
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| Above Posted By:
JoeB
| Wed, 27 Feb 2008 16:12:51 EST |
| I know that there is a difference between pre qualification letters and pre approval letters. Pre approvals should have gone through the underwriting process already and buyers should have produced needed proof of income, etc. However, I am teetering on the brink of bankruptcy after having 4 contracts on my house fall through due to financing. Three of which had a pre approval letter when the offer was made. There just are no guarantees in life and blaming lenders and realtors just isn't fair. I guess a pre approval is better than nothing but in my case, not by much. |
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| Above Posted By:
Cindy
| Fri, 15 Feb 2008 18:09:54 EST |
| I am in the very beginning stages of homebuying. I have the advantage of knowing a broker/agent and a LO. Their advice to me was to first prepare all the necessary documents ie. anything to verify income that way all the information could be proven accurate in one step, making the approval/commitment letter more valid. I think it is up to the borrower to be accurate and honest at the very start, there's no use in providing false info because it only come back to bite you. |
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| Above Posted By:
Diana
| Sat, 3 Nov 2007 19:34:23 EST |
| We are in the same boat. Signed a contract in Feb 07 and waiting on lender to close loan. We received a pre qual letter but are told it still nedds to go through the state and UW again. We are getting bond money and this loan takes forever. If anyone is familiar with this loan please respond with some info. Thanks |
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| Above Posted By:
Serena
| Thu, 31 May 2007 12:23:18 EST |
| I too received the preapproval letter. Inspected the house, paid attorney, LO requested appraisal, did that. Still waiting for the commitment letter. It will be three months in a few days. The seller has since moved on. Haven't heard from the LO in about three weeks. I do believe that all scenarios should be thoroughly researched by the professionals before these letters are handed out, giving buyers false hope. |
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| Above Posted By:
Hopeful
| Sun, 27 May 2007 13:38:53 EST |
| I have learned you have to put the lawyer and realtor right in there place at the begining of the transaction. We are the LO's and we hold the key to getting a buyer into there home. Everyone else is just coming for the ride. I have fought with so many attorneis and realtors. Everyone is doing their job, but always let them now who is in charge. |
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| Above Posted By:
Ricky
| Tue, 24 Apr 2007 13:00:11 EST |
| Then Consumers and Agents are Shocked when an LO can't get a loan done the way they wanted it. They don't understand that there are adjustments to pricing for alt loans that makes the rate go up, they don't understand that ALL documention requested is needed before a real pre-approval can happen. Then they get mad at the LO when the LO has no control over the rates. Yes there are some sharks out there. Makes me sick and I'm tired of being expected to work for free. |
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| Above Posted By:
Kacy
| Wed, 11 Apr 2007 08:28:40 EST |
| I am a Loan Officer and quite frankly fed up with the business and ready to find a new path. Real Estate Agents and Consumers don't understand the process at all and need to be educated on how Mortgage Lending really works. Real Estate Agents demand pre-approvals in a short amount of time and Consumers think Loan Officers should work for free. Consumers constantly give L.O.'s incorrect information about their income, savings, time at job etc. only for us to find out in the middle of the process. |
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| Above Posted By:
Kacy
| Wed, 11 Apr 2007 08:23:39 EST |
| Gosh people sometimes are just good at complaining. 10 years ago they complained of the complexity and length of the mortgage process and now they complain for a pre-approval falling thr the cracks. People, the process was revamped so you can get approved at the beggining of the process to speed up the transaction, getting approved for a mortgage used to take months not weeks, borrowers sometimes are quick in stating how much they make, etc but take forever to support it, it's both the loan officer and the borrowers. |
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| Above Posted By:
GL
| Thu, 30 Nov 2006 11:21:45 EST |
| In response to Dave:
1. Appraisals can not be portable most cases b/c of fraudulent practices the last couple of years. Lenders need to foremost stay responsible and UW according to true values not inflted ones.
2. In some states is against the law to issue a commitment letter before an appraisal is done. Besides how can a lender commit not knowing the state in which the property is, please be real.
|
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| Above Posted By:
GL
| Thu, 30 Nov 2006 11:16:26 EST |
| Faithful, I know exactly how you feel. I too am waiting for final approval, after being pre-approved. I received a commitment letter with amendments. My closing date is up in the air, and my landlord is expecting me out by the end of the month. I just pray that everything works out well, and I have faith that it will. Just thought that you may find comfort in knowing that you aren't alone. |
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| Above Posted By:
Faithful II
| Mon, 18 Sep 2006 17:31:57 EST |
| This is the most stressful time in my life. I've been pre-approved and now am waiting the final word to close the mortgage. Yes, there must be lots of horror stories, and then again, maybe perchance, I'll be one of the lucky ones, like Steve, to get the home of my dreams. |
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| Above Posted By:
faithful
| Tue, 12 Sep 2006 16:24:43 EST |
| I have been a loan officer for over 5 years. I agree to some point. I have had the hard loans and the ones that did not close and watched other Lo's nightmares! With that experiance I only let my borrowers go out looking for property's after they have been through underwriting and submitted condtions that do not apply to the property that way all we are waiting for is the property condtions and you will have a smooth closing. So go through underwriting before you find the home of your dreams.
|
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| Above Posted By:
Staci
| Tue, 11 Apr 2006 17:30:19 EST |
| The broker, acting as my daughter's real estate agent submitted the offer based on financing and then ordered the appraisal.The lender, turned down the loan because of no rental history on a no doc loan.The broker offered another loan at a higher rate. The seller's agent threatened to take her to court if she didn't take it. Beware of paying that appraisal fee!! On top of it all the seller's agent wanted to know the appraisal value and the broker wanted to give it to her!! |
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| Above Posted By:
sara
| Tue, 15 Nov 2005 20:20:26 EST |
| Congress need to pass two laws 1) all appraisals need to be portable. 2) lenders need to offer loan COMMITTMENT before ordering an appraisal (subject to property coming in a min value) |
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| Above Posted By:
sara
| Tue, 15 Nov 2005 20:18:39 EST |
| Well, what about a preapproval letter merged with a letter of commitment, that's what I got, and relyed on TO MY DEEPEST REGRET. Soon, I guess I'll be begging to get back my earnest money deposit. What do you think can I successfully go after this mtg broker he had no investor at the stated terms which came from an investor who might oneday be willing to invest money in my area, Central Mexico.
Mtg. Broker in the gerat state of Oregon. Can I get get help? |
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| Above Posted By:
Dave
| Thu, 3 Nov 2005 00:39:09 EST |
| Pre-approvals are based on the initial information given to the LO by the borrower. Often times the borrowers information is not accurate when it comes to income and documenting the loan info. |
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| Above Posted By:
Jo Ann
| Fri, 23 Sep 2005 23:32:50 EST |
| I have issued hundreds of pre-qual letters. The applications do NOT have to be looked at by an underwriter nor put through an automated system for a commitment. It is simply a pre-approval based on the 1003 and credit. The 1003 structures the loan which includes the employment and income. The credit gives the score and all perinent credit info. The L.O. can and should issue a pre-approval letter based on that information alone. Bottomline is, if its NOT YET funded, its NOT completely "approved". |
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| Above Posted By:
Xavier
| Tue, 13 Sep 2005 00:14:41 EST |
| Pre-approval letters are not even worth the paper they are typed on. These letters have so many loop holes (swiss cheese letters is what they are commonly called) that they are not valid. I live in the Las Vegas, NV area and any reputable real estate professional will not accept them any more when presenting a offer or accepting a offer. People type them up without even reviewing credit most of the time. Most realtors want a approval letter or commitment letter from a lender. |
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| Above Posted By:
Sandy
| Wed, 7 Sep 2005 18:35:10 EST |
| My wife and I have been real estate investors for the past 4 years. As a new loan officer (me) and new real estate agent (she) we are finding that there are a lot of situations where transactions are not on the up-and-up. Unfortunately, this makes it difficult for the LO's and Realtors who are honest and integritable. Thanks for articles such as this one. I have learned so much about the real estate business in such a short time. |
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| Above Posted By:
Reggie Carson
| Wed, 7 Sep 2005 15:58:52 EST |
| Im an UW of years for a Wholesale Mtg Lender. The stmnt of Pre-qual is true. A Mtg Broker will submit an app & based on credit & the 1003 an UW will give the Brkr their DU or LP findings. Findings still must be validated. If the income is off or if the loan $ change, property type changes, things go wrong. A pre-qual says based on what is stated you are apprvd as long as I can validate it. |
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| Above Posted By:
Anonymous
| Wed, 24 Aug 2005 12:54:03 EST |
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