Jay Beckingham

Why? Why? Why? are there no uniform standards for pre-approval letters?

Let's start with do we all agree and/or understand what it is, the old preapproval letter that is. If I have this right, a buyer and their agent are trying to represent to a seller and their agent that the buyer should be able to acquire the mortgage that is necessary for them to purchase the property that they are submitting an offer on.

Preapproval; pre means before, therefore it would follow that preapproval means before the approval. Let's not lose sight of that!

What documentation is needed, or what documentation does the loan officer, the usual grantor of the preapproval letter, have in his/her possession, to issue this letter?

When the buyers Realtor receives the preapproval letter do they know the answer to the above question, or do they inquire about this? I cannot remember any Realtor asking me what I had for documentation, ie: what I based the letter on.

Credit;

If the lender doesn't have a tri-merged credit report in their possession, shred the letter. Approvals are based on middle scores or lower middle scores in the case of joint applicants. Only a tri-merged report will give you 3 scores. A single or double in file doesn't do this and in my opinion has little to no value. It certainly wouldn't justify spending Sunday afternoon showing the buyer 5 properties, just one man's opinion.

What is the middle score? Do you ask? It not only effects approvals, but also pricing in today's world.

Income;

To fill out an application I'm asking the applicant for the last two years of tax returns, all schedules, the last two years of w2's, and 30 days of recent paystubs, with year to date income. Wouldn't you think a requirement for a preapproval should be at least a w2 from last year and recent paystub with year to date income? I mean we've got fax machines, some people still use those, don't they. We've got scanners and email. How hard is it to get this info. Not hard at all.

The self employed need the last 2 years of tax returns (all schedules), period. There's just no other way. That is still actually a problem, in that we are now into October, and will need some sort of year to date profit and loss.

Assets;

Even cash deals require a bank/asset statement showing sufficient funds to close to submit an offer. Why shouldn't a buyer acquiring a mortgage be required to provide the same documentation.

Okay, if I give you a preapproval letter based on the documentation stated above, you may actually have something there. Certainly more than what you've gotten in the past.

Realtors; insist on it! Require preapproval letters with some strength.

Require that every preapproval letter, from every loan officer, has at least the minimum documentation, or send it back.

So why do we not have to meet any uniform standards for preapproval letters.

Simple.

It's not required!

It's truly amazing how we, in the real estate industry, can adapt to change. I guess a large part of this developed ability is because we have to.

When you mention HVCC to a lender or a Realtor, you'll probably see a scowl on their face, or you may receive a nasty comment, particuarly if they have recently had a problem appraisal on a recent transaction.

HVCC, what's it do?

The intention, in its broadest sense, was to isolate appraisers and the appraisal process from any outside influence over their work, that is determining an opinion of value for a specific property. Like any regulation it has it's good points, maybe, and its bad points.

Here's where we start;

No employee, director, officer, or agent of the lender, or any other third party acting as a joint venture partner, independent contractor, appraisal management company, or partner on behalf of the lender, shall influence or attempt to influence the development, reporting, result, or review of an appraisal through coercion, extortion, collusion, compensation, instruction, inducement, intimidation, bribery, or in any other manner...

WOW!!!

Or in any other manner, what was left out?

In an article and video on Realtor.org Jerome Nagy, NAR policy analyst, states that the intent is to set up a "Firewall" between the lending participates and the appraisers. He further states that this does not have to be an AMC (Appraisal Management Company), but that many/most lenders select this method.

Realtor.org reprots that in a survey conducted with approximately 30,000 member responses, 37% reported that they had had transactions voided due to appraisal issues.

37%.....I don't like that number!

The most difficult part for me is that some of the appraisals may have been accurate, in that the purchase price couldn't be supported by recent sales. How many? Don't know.

I found it interesting that while the restricitons for appraisal communication with appraisers is fairly stringent that in FNMA FAQ'S (frequently asked questions), published in July of 2009, it said that the code does not specifically prohibit communication with an appraiser by a Realtor.

Here's what I don't like or understand;

Credibility; if it is the answer to inflated appraisals, why was it not adopted by the governmental agencies. I mean who likes regulation more than them? The answer is;

NO BODY!

Why are the AMC's not more closely regulated?

Why do I continually see appraisers from outside the market area? How much local market knowledge can they have if they're attempting to cover large parts of the state? Can this be done effectively?

Personally, I don't think so.

Okay, enough. Does it work, is it working?

The idea was to not try to force an appraiser to;

"Hit a number"

But we furnish them with a copy of the contract, which is allowed. And it is allowed that additional data be presented to an appraiser to influence their decision, after the appraisal has been completed.

So.....

It slows down the process somewhat, with what I feel does not truly accomplish the stated goal.

So.....

In my opinion, for what it's worth;

NO! it's not working.

I keep on hearing about today's guidelines being ultra conservative or that the "Banks" don't want to lend money. The first point I'm not sure I agree with, the latter is a convenient place to place blame, in my opinion.

Conservative

If you have entered the real estate field in almost any capacity in the last 5-7 years you must feel that today's guidelines are very conservative, ultra conservative probably. I mean just 3-4 years ago lenders were willing to write a 100%, stated income, investor loan. Well as a lender I have one comment for that particular program;

What IDIOT designed the guidelines for that one!

My sincere apologies to the idiot, after all someone bought it from them!

Okay, so if the client had a pulse and wanted a house, or even if they didn't, they could have one!

Now we want tax returns, w2's paystubs, bank statements, your mother's maiden name, your shoe size, and other pertinent information as determined by an "underwriter." AND we want this information from everyone, no exceptions!

Traditional

For the above referenced "newbies," and while 5-7 years experience doesn't sound like you're new, in the big picture or today's world, you are.

Yes, we want the above referenced documentation and possibly more. This is what we used to ask for when people paid us back. That sounds like a pretty simplistic viewpoint, but we did have a better track record of being repaid when we required this type of documentation.

We based our loan decisions on your ability to repay the loan, known as capacity. Your desire to do so, known as charactor. A history of saving or cash reserves, known as capitalization. And a decent property quality, know as collateral. If you were strong, or at least acceptable in these areas we gave you a loan.

A greater influence was placed on the opinion of human beings than on things such as a computer program/approval, as we didn't have those.

The "Banks" also had portfolio loans, loans where they actually lent their own money, for their best customers who didn't fit into the above guideliones. They were considered a higher risk and received a higher rate. Imagine that!

So, what's better? Conservative or Traditional guidelines?

Well for me personally, it's copout time! There's just got to be some middle ground.

Hope we find it soon!

Should is an interesting word. When I looked for its definition I learned that it is the past tense of shall. Should by itself, very often, isn't so bad. For example; I should have a good year this year. That's an okay statement, but let's add another, killer word, to it and change the feeling entirely.

Should have; as in, I should have done something. Now that sounds different doesn't it.

It's the middle of October so we can all reflect back on the past year and possibly with some regrets state, I should have done, whatever, you choose.

We also can look forward and determine where we are going next year. It would help if at this time we had or were developing some;

Clearly defined written goals!

So that next year, hopefully, we don't look back thinking I spent the year "shoulding" all over myself.

Think about this seriously. You may agree and you may not.

As individuals involved in the real estate industry, regards of the function, in most cases our January 2010 income is being determined today!

If you agree, put it in gear. If you don't you might want to reflect back on this statement in January.

Let's give credit where credit is due. The comment;

"Don't Should all over yourself"

actually came from Tony Robbins in an interview with Darren Hardy, the publisher of Success magazine. The interview took place at the end of 2008.

So think about it, 2010 is charging at us, so watch out, and

Don't SHOULD all over yourself!

If you have ever been to a sales seminar or have spoken with, or listened to a sales trainer, or life coach, you have been told, and know that the most successful people in THE business, any business, have;

Clearly Defined WRITTEN Goals!

First question;

Do you have them?

Second question;

Have you ever had them?

Third question;

WHY NOT?

It's that time of the year, and many of you inwardly are saying to yourselves;

I've got goals, I know what I want to accomplish, I know how.

I don't need to write them down!

Do you want to be truly successful? Do you want to be accountable?

What do you have to lose?

Okay, get to it. Go over them with your broker, boss, or mentor. Get real crazy and show them to your spouse. Carry them with you. Put them in a clearly visable spot where you see them frequently, how about constantly.

No you don't have to wait until December 31st, right there with your new year's resolutions. We all know what happens with them.

If you want to be one of the "Best of the Best"

you need;

Clearly defined WRITTEN Goals!!!