Doctor No

A common saying at mortgage lending companies is, “We don’t get paid unless we fund your loan.” That is supposed to make you feel good, but in fact, what they really are thinking is, “I’m not going to approve your loan if I think it means losing my job."

Anyway, they tell you this and then, without breaking stride, they then tell you why they can’t do your loan. It’s so bad at one lender that people who have known the head guy for a while refer to him as Doctor No.

There are a lot of these people in the mortgage industry, usually underwriters. Even when you give them a quickie file for an opinion, if they like it, the typical response is, “I couldn’t find anything wrong with it.” In my view they also ought to be looking at what is right with a file, not just what is wrong with it, but that’s not the case.

The way bureaucracies operate is to chew people out when they do things wrong, not reward them for doing things right. As a result, the employees are concerned about staying out of trouble, and trouble is approving a loan that breaks one of the rules. My way of looking at the world is different, that you balance good and bad, but that is not the way the mortgage business operates.

I’m going to brag a little here because the last time I couldn’t get a client a loan after I told him I could was back in 1987. Seriously, I just won’t work on a file unless I believe I can get it approved. Now I will tell you my secret:

The only reason a loan doesn’t fund is because there is a problem. There are only two types of problems, solvable ones and unsolvable ones. I know how to solve the solvable ones, and I know how to identify the unsolvable ones.

Once you identify the problems, you can usually, at least in time, make them go away. When that happens you will get the loan approved.

I think that it is also important to choose lenders carefully. We mortgage brokers get together and talk about bad lenders. Some stand out, that is to say that virtually everyone who has dealt with them has had the same negative experience. I think that this is a result of an attitude that flows all the way down through an organization from the highest levels of management.

This negativity expresses itself in other ways too, like having a bunch of picky rules that no one else has, rules that the underwriter can invoke to turn down your loan. Just today I have had a few of these unusual rules with lenders with whom we are just starting relationships:

One lender won’t do loans on properties over 10 acres. Maybe they think that anything larger is a farm.

Another lender doesn’t want to do loans on properties where an individual unit is less than 600 sq. ft. in size. I have a client with a four-plex and two of the units are 480 sq. ft.

Another lender wants cash reserves equal to six months payments, compared with the more traditional two months payment reserves.

Another wants the borrower to document large increases in bank deposits, even though this transaction is a refinance.

Of course there are other lenders with different rules and they will do all of these loan, so why didn't they?  Doctor No was put incharge of the rules.

I suspect that we will not end up having long-term relationships with these lenders because these “funny rules” are probably only the tip of an iceberg. You can see that with these rules, they have more reasons to turn loans down, and then I have to take it elsewhere. What is bizarre is that I will guarantee you that these employees don’t look upon what they do as turning down business; they look on it like they are just following the rules.

So we also work very hard finding agreeable lenders who will approve our clients’ files quickly and without a lot of hassle. In fact, it’s an important job. It makes my job easier and it makes my clients happier, a great combination. Basically what we are looking for are lenders where Doctor No used to work before they sacked him.