As published in Scotsman Guide's Residential Edition, July 2008.
As the economy constricts and lenders tighten their underwriting criteria, brokers are finding that they must present higher-quality loans than before. And, as such, many are seeing their loan volume decrease.
In their haste to generate revenues, it seems that many brokers work on practically any loan that comes their way. But too many waste time on deals that never had a chance of closing in the first place.
With the shift to lower loan-to-value requirements and a greater emphasis on documentation, mortgage brokers must understand what each lender is looking for and evaluate the possibility of whether a loan application will be approved. Not taking the necessary upfront steps to gauge the probability of a loan's success can lead to wasted effort and time for all involved.
To work effectively in this market, then, brokers must search for and work on loans that have merit and a high probability of closing. They must work smarter to succeed.
To do this, you must understand that only the higher-quality loans -- those that can make it through the current underwriting standards -- are loans you should work on. Don't waste your time with "wish to close" deals.
Become familiar with what loan processors face, criteria-wise, from each lender. If you don't understand what lenders are approving for closing, you will waste time and effort.
Understanding the criteria also will help you present it to your prospective borrowers. Sit down and clearly explain to your clients what the market will accept. Be blunt, honest and direct. Get your point across as quickly as possible.
Investing your time in a 30- to 45-minute meeting -- even if you have to walk away from a deal -- is better than working on a loan package for two or three weeks only to have the lender return it with impossible-to-meet conditions or with an outright rejection.
The sooner you understand if a deal is not plausible, the sooner you can move on to the next transaction.
Even though you may have to walk away from certain deals, your clients may appreciate the information shared. In fact, they may possibly return with a deal that has a higher probability of approval. The seed you plant with a direct and informative conversation with your clients may bear fruit in the not-so-distant future.
When you have a deal that is likely to be approved, then by all means, proceed. But be sure to work as efficiently as possible.
You should understand what information you must get and present to the processor to move the loan file through the system. Clearly explain how the loan will be structured and all the accompanying costs to the clients. Make sure that they understand what the payments will be, as well as their ability to absorb the new debt.
The conversation should help you gauge whether the loan has value and whether the client can honor the debt. Don't surprise your clients at the closing table; if they decide not to close, the ultimate surprise will be on you.
Also, avoid any perception of impropriety within the loan documentation. Get original bank statements, W-2s, etc., as often as possible. If you know that a question will be asked, provide the answer upfront and save time.
Doing all the work upfront expedites the process. In reality, once the loan package is delivered, your involvement going forward should be minimal.
In today's market, you must work smarter -- not longer. You also must be more selective. Remember, the reward is not in how many loan packages you present to a lender for approval but in how many loans actually close and earn you a commission.
Manuel V. Sicre is the
president and CEO of Phoenix Financial Services Group LLC in Miami. Phoenix is a correspondent lender serving the South Florida area. Sicre has 36 years of experience in the banking and lending industry and may be reached at (305) 403-5848 or firstname.lastname@example.org.