The Lessons of 2007: At What Point Would You Decline A Loan For Someone Headed For A Train Wreck??

I recently had a featured blog called,  Be Truthful With Your Lender from Day One - Desperate Acts and Lies Can Kill Deals.   In the post I wrote about some very dishonest borrowers I had recently dealt with.

Konnie McKee, an agent from Prince William County, Virginia made this comment:

"I had a client, school teacher, who bought a $780K home, and I tried to talk her out of it...she went stated income...and 6 months later she is in foreclosure...the loan officer knew she could not afford it...but he pressed on...at what point would you have declined to do a loan for someone who, you knew, was headed for a train wreck...?"

This is a very interesting question for a loan officer.  Especially today.   It really got me thinking.  

Now, I can get up on a pedestal and tell you that I have never done a stated loan for someone who I believed was lying about their income.   That would be a lie.

And I could take the holy high road and say I honestly believed that all of my borrowers through the years could afford their house payments.   But that would be a lie too.

I have done loans in the past for people where I thought they may be overstating their income and I have done loans in the past where I though someone may be stretched a bit too far. 

I can't tell you if I was right or not and I am hopeful I was wrong.  However, based on the statistics regarding foreclosures, I doubt that my record is unblemished.

Now, I can assure you that, regardless of my opinion in both situations, I took the information presented to me by the borrower, moved the loan forward so it could be processed professionally and then sent to the bank underwriter for the final decision.  

I wasn't asked for my opinion but was I responsible to give it?  Is it the loan officer's job to make the determination if someone is lying or not?  

Until the Mortgage Mess of 2007, I used to think not.  I used to think that we were simply there to help people get loans.   We would speak with the client, interview them for the loan application, put what they say into the application, gather some supporting documentation, and then we send it on its way for validation.   Then it was up to an underwriter to decide to approve or decline.  I felt it was 100% their responsibility.

I think most loan officers felt the same way.   However, we must take responsibility for our share of the mess that has been created today.  

We certainly aren't alone in our responsibilities.   I believe everyone from overly-aggressive agents, to greedy tycoons on Wall Street, to the banks themselves, must take all their fair share.   We loan officers must accept our share as well...and its not a very small share.

But how about today?  Have we learned our lesson?  Have we changed?  Have you changed? 

I got a call today from an agent who wanted to know if he could take his client out and show him $500,000 homes.  I told him the client only makes $40,000 a year.    He asked me "can he go stated?"

I got a sick feeling in my stomach and I wanted to jump through the phone and shake this guy.  I have learned the lesson.   He obviously has not.

I can unequivocally say that I will not be a party to that "train wreck" or any one like it.   Will you?