Aren’t They Smart Enough to . . . . . . .

I wish I had a nickel for every time I’ve heard that one.   Sometimes it’s after a lender has asked for more documentation.  Other times it’s after they denied a loan for some idiotic reason.   Whatever the reason, it is important to understand that getting a loan isn’t about a lender being smart or not being smart, it’s about rules.

We all have to spend time dealing with bureaucracies of one kind or another. Some are infamous, say your state’s Department of Motor Vehicles. It seems as if whichever line you stand in, it’s the wrong one. And no matter what form you were given at Window A, when you take it to Window B, as you were instructed, they tell you it was the wrong form!   We’ve all been there.

The mortgage business is no different; it’s just a HUGE bunch of interlinking bureaucracies. Bureaucracies operate by following the Rules and those are contained in the Rulebook!   The important thing to employees of bureaucracies is not so much that they follow the rules, it’s important not to get caught NOT following the rules.

Take approving loans, the heart and soul of the business.   The overwhelming majority of underwriters actually don’t care if your loan is approved or not.   They may say, “We don’t get paid unless we approve loans,” but the fact is that they get paid a salary and they make the same amount whether they approve a loan or deny a loan.   Their job is to make sure that none of the rules are broken if they were to fund it.  

They go through a package with a fine-toothed comb.   They ignore the many good things about a file because that’s not what they were looking for.   I’ve had many an underwriter hand back a file and say, “I couldn’t find anything wrong with it.” And that really is their attitude!

It’s not like these are bad people. Most are actually quite nice and I like them as humans.   It’s just they way their jobs are defined and their perception about what will happen if they break a rule, like they will get “written up” or maybe even fired.   Truth is, I have never seen an underwriter fired for making a mistake.

Another sad commentary on the mortgage business is that management doesn’t seem too worried about the lost profit on loans NOT funded, those that were kicked out somewhere in the process. If I were running a big company the way I run mine, we’d do everything that we could to salvage the loans that some underwriter thought was bad.   And I bet that we could figure out a way to salvage at least half of the turn-downs.

What usually happens is that those who are denied generally move down the food chain a notch or two and have to go to what we call “Alt A” lenders or, ever worse, “Sub-Prime” lenders whose rates are much higher.   There is even a perversity here in that borrowers who have had their applications denied are pretty easy to work over, and they will take even an awful deal if they are desperate enough.   And guess who made more money on them?

I know that some lenders, particularly those who have been accused of discrimination in lending are supposed to take every loan that was approved as an Alt A or Sub-Prime loan and see if they can’t figure out how to get the client a better deal if he deserves it.   Whether this works in practice, I don’t know.

So what does this mean for you?   A common theme in my writing is that you should seek out competent help.   In particular, the best mortgage brokers make it part of their business to understand the different rules that each lender has so that when they see a loan with a particular issue, they know where to take it so it will sail through and get approved quickly.

I wish I had a nickel for every time I’ve heard that one.   Sometimes it’s after a lender has asked for more documentation.   Other times it’s after they denied a loan for some idiotic reason.   Whatever the reason, it is important to understand that getting a loan isn’t about a lender being smart or not being smart, it’s about rules.

We all have to spend time dealing with bureaucracies of one kind or another. Some are infamous, say your state’s Department of Motor Vehicles. It seems as if whichever line you stand in, it’s the wrong one. And no matter what form you were given at Window A, when you take it to Window B, as you were instructed, they tell you it was the wrong form!   We’ve all been there.

The mortgage business is no different; it’s just a HUGE bunch of interlinking bureaucracies. Bureaucracies operate by following the Rules and those are contained in the Rulebook!   The important thing to employees of bureaucracies is not so much that they follow the rules, it’s important not to get caught NOT following the rules.

Take approving loans, the heart and soul of the business.   The overwhelming majority of underwriters actually don’t care if your loan is approved or not.   They may say, “We don’t get paid unless we approve loans,” but the fact is that they get paid a salary and they make the same amount whether they approve a loan or deny a loan.   Their job is to make sure that none of the rules are broken if they were to fund it.  

They go through a package with a fine-toothed comb.   They ignore the many good things about a file because that’s not what they were looking for.   I’ve had many an underwriter hand back a file and say, “I couldn’t find anything wrong with it.” And that really is their attitude!

It’s not like these are bad people. Most are actually quite nice and I like them as humans.   It’s just they way their jobs are defined and their perception about what will happen if they break a rule, like they will get “written up” or maybe even fired.   Truth is, I have never seen an underwriter fired for making a mistake.

Another sad commentary on the mortgage business is that management doesn’t seem too worried about the lost profit on loans NOT funded, those that were kicked out somewhere in the process. If I were running a big company the way I run mine, we’d do everything that we could to salvage the loans that some underwriter thought was bad.   And I bet that we could figure out a way to salvage at least half of the turn-downs.

What usually happens is that those who are denied generally move down the food chain a notch or two and have to go to what we call “Alt A” lenders or, ever worse, “Sub-Prime” lenders whose rates are much higher.   There is even a perversity here in that borrowers who have had their applications denied are pretty easy to work over, and they will take even an awful deal if they are desperate enough.   And guess who made more money on them?

I know that some lenders, particularly those who have been accused of discrimination in lending are supposed to take every loan that was approved as an Alt A or Sub-Prime loan and see if they can’t figure out how to get the client a better deal if he deserves it.   Whether this works in practice, I don’t know.

So what does this mean for you?   A common theme in my writing is that you should seek out competent help.   In particular, the best mortgage brokers make it part of their business to understand the different rules that each lender has so that when they see a loan with a particular issue, they know where to take it so it will sail through and get approved quickly.

Good luck.