I Caught My Dog Issuing Pre-Approvals (True Story)
I made the horrible mistake of teaching my dog Kevin how to run Fannie Mae’s automated loan approval software, known as Desktop Underwriter or “DU.”
It was easy to teach him b/c all he has to do is gather info from borrowers and input data.
BUT, THIS is why it was a huge mistake!
Without my knowledge, Kevin built a website (Woofet Mortgage) with his dog walker and started to offer immediate “real-time pre-approvals.”
And as sure as the sun rises, deals started to blow up in escrow left and right – and my phone was ringing non-stop with irate borrowers and agents!!
Here are only a few of the things Kevin missed with his quickie “real-time pre-approvals:”
- Unseasoned commission income. A borrower was making $20,000 per month, but $12,000 of that was commission income and the borrower had only been on the job for 7 months. As a result, Fannie Mae would only accept the borrower’s $8,000 of base income.
- Retiring in two months. A borrower who had been on the job for 22 years was planning to retire in two months. Lenders of course require proof that employment will continue indefinitely, so that deal collapsed until Kevin restructured his retirement income.
- Child support ending in two years. A borrower was receiving $8,000 per month in child support for her two kids, aged 16 and 18. Kevin, however, did not review the divorce decree that clearly indicated that child support would end when the kids turned 18. Lenders require support payments to continue for at least three years before they can use them for qualifying income, so that deal died too.
- UNEXPLAINED DEPOSITS – THE BIGGIE! This was the most common problem b/c Kevin was not reviewing bank statements for unexplained large deposits. All lenders require unusually large deposits to be explained and paper-trailed. Kevin missed every one, and all of his irate borrowers had to scramble to paper-trail everything at the 11th hour. The problem was that many could not provide sufficient paper-trails and their deals blew up.
Needless to say, when all of this came to light, I was furious! I was so furious in fact that Kevin ran away. He, however, quickly found a new home at a lender that embraced his tactics. It would be tacky for me to name that lender, but I will say that Kevin frequently reminds me that they “do everything Better.” I’m highly skeptical though.
BIGGEST FRUSTRATION OF ALL FROM “QUICKIE PRE-APPROVALS”
What most upsets quickie pre-approval borrowers is that they think they are done with the process once they get their quickie pre-approval.
BUT, a DU approval is only the tip of the iceberg. ALL lenders require all necessary documentation no matter what.
Quickie pre-approval recipients go crazy b/c they have to unexpectedly scramble to come up with everything on very short notice as soon as they are in escrow.
Quickie pre-approval borrowers feel very misled once they figure out they are in the same boat with every other borrower.
TWO BIG TAKEAWAYS
- Pre-Approvals require far more than just a DU run. A complete file and every document (bank statements, employment verifications, tax returns, divorce decrees, etc.) needs to be reviewed with a fine-toothed comb. A DU approval alone is almost worthless.
- Think twice before buying a corgi! My brother warned me not to get a corgi. Now I know why.
Founder/Broker | JVM Lending
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