Saturday, July 31, 2010

BEWARE – Disputed credit items are a “show stopper”!


We just had a transaction where Fannie Mae declined a file because of a “disputed” item on a credit report!

The Fannie Mae computer model (aka: DU) is now calling-out items on the credit report which have been classified as “Disputed”. You may say, “So why is this such a big deal? This account was settled years ago?”…. Ha! Don’t be so quick to discount this as a minor issue.

Just this last week, I had 2 loan applications where this actually happened and it caused serious problems. One application was a purchase and they will NOT be able to close their transaction. It’s a bummer for the agent since she spent so much time with these clients. I just hate to see agents who are 100% commission waste time on something that could have been avoided!

Here’s what happened……

For the most part, every loan application is submitted through the Fannie Mae or Freddie Mac underwriting software programs. These programs analyze the consumer’s credit scores, income, job history, etc., etc. Of course, one of the main elements of this analysis is a consumer’s credit score. When a consumer reports an account as “disputed”, then the credit bureaus set aside this item from the credit score calculations. The theory is that if the consumer says there is a problem with this account, then obviously it needs to be expunged from the scores. Great idea?!

Not so fast… this is where things get “tricky”. Fannie/Freddie say, “OK. Let’s just have the bureaus finalize this issue and move-on.” To get the bureaus to do this is like getting your brother in-law to admit he drinks too much! It can be a very thorny process.

In my recent transaction, these Borrowers had an erroneous $75 bill from a radiologist back in 2008. This bill went to collection and now was being reported by a collection agency. To get this cleared off of ALL three bureaus, we needed to get a letter from the radiologist AND then the collection agency! This is a very lengthy process and most consumers are not aware of the potential time delay.

So what do most people do, when they think they are wrongly charged for something? File a DISPUTE! “I’ll show those idiots!” Well, you might have just lost the opportunity to buy a property.

There is a solution but it takes a seasoned financial person to help (vs. a salesman!).

AGENTS: Before you start investing a lot of time with your prospects, get them to a good Loan Officer. This doesn’t mean you let the consumer randomly get some easy approval letter. You need to have them get “signed-off” by a real pro.

CONSUMERS: Some buyers (actually most) just want to get a quick/easy pre-approval letter. That’s like thinking that if you don’t floss your teeth that it won’t matter. As we all know, that will come back to “haunt” you later. Spend quality time on this issue. Be mentally ready to unload ALL of your income/asset paperwork. Help the Loan Officer give you a complete financial check-up. No one likes this process but a helpful consumer goes a long way in getting the pre-approval done properly.

Remember….. “An informed consumer is a happy consumer!”

Ken Doss
Community West Bank
Santa Barbara, CA
805/692-4382
kdoss@communitywestbank.com

Wednesday, July 7, 2010

"Catch Me if You Can!” - A Loan Officer's Motto?


We caught a loan officer trying to trick a consumer into a loan! Protect yourself and see how it’s done.

This last week, I was helping a past client here in Santa Barbara to determine if a quote from a major lender was competitive. I couldn’t do the loan since her property was a rented condominium with special HOA concerns. I suggested that she consider her current lender because they may waive rules pertaining to the HOA.

Here’s an ugly but, unfortunately, all too common series of events where the lender was trying to “trick” a consumer into selecting a loan. If you can learn from the below, maybe you can avoid the same situation. If this was Sixty Minutes, the person being interviewed would have their face is in the shadows with a garbled voice!

Here’s what happened……

The original email had a rate that was somewhat on the high side. This loan officer was most likely “fishing” to see if someone would respond to such a high rate.

In the second round of emails, the rate magically dropped about .375% but the spreadsheet didn’t show any points, I told my past client, “Ask them if this is a ‘zero point’ loan?” Hmmm….. I was guessing that there must be points but they simply “forgot” to put this on the spreadsheet.

Did this loan “professional” sense that they had a “fish on the hook?” The updated spreadsheet (3rdemail) now stated the points. What happened? How did this cost now magically appear? Why wasn’t this in the initial email? At this juncture, I started to take a closer look at the quote and it didn’t seem too bad. My bank had better rates/points but the existing lender might be the only option anyway (i.e., rental/HOA). It wasn’t the best but it was close.

I’ve been a Loan Officer for almost 20 years and have closed over 1,000 escrows. Even with all of this experience, I almost missed an important item! Just as I was getting ready to hit the “send” button to tell my past client “close enough”, I noticed something! I said to myself, “What a minute. This doesn’t look right.” I realized that the manner in-which the spreadsheet was formatted (Lots of numbers. Easy to get lost) made one assume there wasn’t any 3rd party costs. So I said to my past client, “Ask them to confirm that these are the only costs. No 3rd party items such as appraisal, escrow/title, credit, flood, recording, etc., etc.”

Well this question sure did get an interesting “curt” response! Did you ever see the crime movie, “Catch Me If You Can!” with DiCapio? Well, we caught them “red-handed”. This loan officer said something like, “Of course there are other fees. I mentioned that in our phone conversation.” Ha!.. Initially, the loan officer sends out some high rate just to see what may happen. Then, they “forgot” the points. Lastly, they deliberately didn’t show the 3rdparty costs. You’ve got to be kidding me!! I told my past client, “We caught them. They are done. I’ll introduce to you a friend of mine who is a great loan professional here in Santa Barbara.”

Here’s what everyone needs to think about….. It is very difficult to get the “best deal”. “Shopping” for a mortgage should be easier. There are so many “tricks” that it really makes it almost impossible. Here’s the solution: Go with a local lender who was recommended by a friend, CPA, Realtor or attorney. There are very good and honest loan professionals in every community.

Remember… some banks can “shop” the rates for you through multiple sources. Brokers do the same type of shopping but their processing can be a little more burdensome. Caution, the smooth processing of a loan application can vary. To insure a timely closing, select a veteran loan officer who has attention to detail!

“Shoppers” beware… call a friend!

Ken Doss
Community West Bank
Santa Barbara, CA
805-692-4382
kdoss@communitywestbank.com