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   ARTICLE   |   From Scotsman Guide Residential Edition   |   June 2017

Lose the Loan, Not the Lesson

Learn guidelines and ask questions to ensure every loan file is complete

Mortgage guidelines change so often that it can sometimes be hard to keep up with them. Loan originators are not expected to know every underwriting guideline, but they should at least know the basics and have a clear understanding of the program matrix. Anyone can originate a turndown, but identifying a viable loan at the beginning of the pre-qualification process is what separates great originators from the pack.

Originators want to close good loans that can then be sold on the secondary market. This all starts with originators gathering and reviewing all items required by the guidelines. If you are unsure about an upfront condition, be proactive and connect with your account executive or underwriting department to get your questions answered early.

Seek answers early

The last thing a loan originator wants to hear is that a file was declined because of a condition that could have been addressed while completing the initial loan application. From the first contact with the borrower, ask a lot of questions to determine if you need to gather supporting documentation during the qualification process.

At this first visit, find out about credit issues that might present problems, such as short sales, foreclosures, collections, judgments, late payments, charge-offs and disputes. In addition, determine income sources. Can the borrowers provide paystubs and W2s? Are they Schedule C earners, Schedule E filers, self-employed? The answers to these questions will determine what documentation will be needed.

Finally, determine the borrowers’ assets that will be used for reserves, downpayments and closing costs You will need a paper trail for these funds through checking, savings and CD accounts, as well as gift funds from donors, retirement or 401k plans.

Gathering documentation early will leave nothing to chance that may lead to a declined loan. Originating a clean and complete file from the start will ensure a smooth and stress-free loan process. Gathering as much supporting documentation as possible also will paint a better picture for underwriters and investors about what the borrowers are looking to achieve with their loan.

Specialize and study

One way to learn and stay abreast of guideline changes is to specialize in a couple of loan programs, such as U.S. Department of Veterans Affairs (VA) purchases, U.S. Department of Agriculture (USDA) refinances, or first-time homebuyer programs. This ensures you know the guidelines for those programs like the back of your hand. You also will become the go-to loan officer in your area on those programs.

Pick a niche program you would like to work with and talk with your company’s underwriters or an agency rep to find out what pitfalls to avoid before getting too deep into the loan process when originating loans under those programs. This will help you avoid uncomfortable phone calls to borrowers, homeowners and Realtors because loan requests get declined. It is your job to originate a complete and thorough loan file before submitting it to underwriting for review.

Gathering documentation early will leave nothing to chance that may lead to a declined loan. 

Underwriters will follow the same guidelines you must follow when looking to close a loan. They are looking at company guidelines and agency or investor guidelines to ensure that loan can be sold. So, before a Loan Estimate gets issued, make sure you feel confident that your loan will fund. If you have any concerns about a loan, talk with the underwriter immediately so you don’t waste your borrower’s — or anyone else’s — time, money and energy.

Take time to review

On the flip side, spend time reviewing loan approvals you get back from underwriting. See what they requested while reviewing the loan file. This will only make you a better originator. Make it a goal to submit loan files to underwriting only once to receive full loan approval. This will speed up your processing time.

The days of gathering limited amounts of paperwork and throwing incomplete loan applications to processing are over. To be a professional loan originator, you must spend quality time with borrowers and put all the pieces of the puzzle together for the underwriter to issue a clean approval.

This helps the underwriter ensure that once a loan funds, it will make it off the company’s warehouse line to make room for new loans to come through. Working with underwriting and understanding the guidelines ensure that you put the best interests of your borrowers and your company front and center.

Slow down and review all documentation. Learn what underwriting is reviewing so you can catch those issues and address them before they cause a delay. When you take short cuts, you can miss items, such as a court-ordered child deduction coming out of your borrower’s paystub every two weeks that negatively impacts the debt-to-income ratio.

In a case like this, you very well may lose the loan, but don’t lose the lesson. In addition to losing this loan because of an item you should have caught early, you also may lose the Realtor as a referral source, as well as any new business you might have gained from the borrower had you saved the loan.

You are not the one who put the borrowers in the financial position they are in, but with your guidance you can watch out for their best interests and present options that can save their loan. But you can only do that if you fully understand the program guidelines and ask the right questions upfront.

•  •  •

All originators want to close loans, but they must close loans that perform and meet guidelines to ensure they and their companies succeed. To succeed at making better loans, never be afraid to ask for help from underwriting, account executives, or agency reps. When you are unsure about a guideline — perhaps one of those in a gray area you do not quite understand — pick up the phone. That’s a much better call to make than the one to your borrowers when their loan gets declined.


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