Getting to Yes!

Someone once said that negotiating is the art of “Getting to Yes.” “Getting to Yes” is also the single most important part of the mortgage business. “Yes, your loan is approved,” is about a light-year ahead of, “No, your loan is denied.”

Now this may sound a little silly to you because most people start out with the assumption that their loan is going to be approved. The statistics tell a different story. In studies of racial bias in lending, even the group with the highest approval rating is only 70 percent. My assistant used to work at a company that only approved 20 percent of the applications they received.

Now I don’t for a minute believe that all the borrowers who were denied weren’t creditworthy. It’s just that they were dealing with people who didn’t know how to get the loans approved.

I approach the process a little differently than many lenders, but my process is sure more successful than most. How successful? The last time I was unable to get a client a loan, once I told them I could, was 1987. That’s almost 20 years and over 2,000 loans with a zero failure rate.

The reason a loan doesn’t get approved is that there is a problem. There are only two kinds of problems: solvable problems and unsolvable problems. I know how to solve the solvable problems and I know how to recognize the unsolvable ones.

When I take an application therefore, the first thing I do is see where a problem might be. Obviously a first step is a credit report. What are the FICO scores? Are there derogatory entries that are disqualifying? If so, we know it right away. I recently took an application from a borrower who failed to mention that she had been in foreclosure on a property last year. I know that FannieMae and most other lenders take a dim view of that because they think that a year from now they’ll be involved in another foreclosure. So in that case, I knew immediately that I’ll have to go to a lender with different standards.

Perhaps income is hard to document, and not because the borrower is cheating on taxes. It may be a case of rapidly rising income where a borrower easily qualifies on the basis of current income. But our industry likes to average the two prior years, and when you do that, they don’t qualify.

I am working on one such case right now, a young lawyer who is doing very well in his second year of practice. I had to find a lender who would just look at the current year, not average it with 2003. We showed them his diploma and made the case that there is always a period of lower income the first year, and that it is not likely to repeat itself. If this makes sense to you, I can assure you that several lenders said that they wouldn’t even consider it. Of course, I kept at it until I found one that would, and they did it at “A-paper” rates too.

These are obvious kinds of problems, but there are lots and lots of other ones too. That’s why the Underwriting Manual at any lender is 300 pages thick or more. Those pages contain all the rules, the “do’s” and “don’ts.” You simply cannot comprehend how easy it is to find a “don’t” that applies to you.

On top of that there are a lot of pricing penalties that 99 percent of borrowers are unaware of. On a typical rate sheet, there may be ten or twenty add-on’s. A common one a .375 point add-on for a cash-out refinance. Another is a .5 point add on for an interest-only loan. They are different at every lender and if I know all of them, I can take the application to a lender that has slightly different rules.

Many, loan officers, maybe even most, can’t figure out how to solve these problems. They know how to quote you a rate because that’s their job. They aren’t even supposed to solve a problem, even if they detect one. That’s someone else’s job. Their job is to take the application, send it off for processing, and in a big institution like a huge bank that might be a processing center hundreds of miles away. At THAT place, they really don’t care about YOU.

Finally, I will fully admit that in the case of some of those 2,000 loans I got funded, the initial response from a lender’s underwriting department was, “No.” These were perfectly good loans which they EVENTUALLY approved after a little of my problem solving, but I was the one who had to do it. In my twenty-five years in the business, I find few lenders who have much interest in solving the problems themselves. If the loan officer is clueless, the result is that you don’t get the home.

The obvious conclusion here is that you need to find someone who knows what s/he’s doing, and you can’t determine that by calling around asking, “What are your rates?”

Be careful out there.