In 1999, my wife Heejin started a mortgage company (long before we were married) – and everything went wrong.
She went all in too – large office, new furniture, office equipment, dozens of new hires, elaborate phone system, expensive CRM, etc.
Not long after she started, though: (1) the dotcom crash hit, stalling the purchase market and wiping out much of Heejin’s own stock portfolio; (2) one of her loan officers started to steal her leads, and sell them to other firms; (3) another loan officer stole her entire database outright and aggressively pursued all of her clients; (4) an employee/family member sued her for nonsensical issues that went nowhere but cost Heejin a ton in attorney’s fees; (4) a basement flood wiped out her phone system, costing her $60,000 and putting her out of business temporarily; and (5) an overzealous district attorney fined her $300,000 for not including the correct fine print on a mailer. And when she finally started to cash flow, a competing mortgage company began to lure her top-producing loan officers away with large cash bonus offers.
It was an amazing spectacle of perseverance and resilience (and a great reminder of what a lot of startups go through – especially in the mortgage industry).
But that is not the point of the story.
The point of the story is this: two years after she started her firm, she was making six figures every month, her business was worth eight figures (she was receiving offers), and – she could NOT qualify for an A-paper jumbo loan despite having perfect credit.
I know this because I tried to help her get a loan.
I share this story because we often have business owners and startup founders come to us who are in the same situation – and they often get very frustrated when they find out they can’t qualify for A-paper loans.
Liquid Assets Only
Heejin had an eight-figure balance sheet when accounting for her business and real estate equity, but lenders did not care at all.
Most of Heejin’s “liquid assets” (marketable securities and cash) had been consumed to fund her startup phase.
And for loan qualification purposes, lenders ONLY want to see liquid assets.
Business owners often desperately want to explain to our underwriters that they have very high net worths in their businesses and/or real estate… but it makes no difference.
Jumbo lenders want to see liquid assets.
A $10 million net worth in non-marketable securities, a private business, and/or real estate equity means nothing to jumbo lenders unless there are liquid assets to go with it.
Seasoned Income Only
Heejin built a powerful system (she was one of Salesforce’s first customers), tapped some very clever niches, and the profits were rolling in.
But it made no difference to lenders because there was no “history” of income on her tax returns. Her previous year’s returns showed losses, in fact.
So, even though she could easily prove her business was generating six figures of monthly profits, lenders did not care a whit.
They require a history and documentation in the form of tax returns.
This, too, is something that business owners get very frustrated with.
They often ask if they “can just talk to our underwriter and explain everything,” but that does not work because most loans are packaged and sold on the secondary market, requiring consistent and concrete documentation.
Why This Is So Important for Agents to Understand
This is extremely important for agents to understand because they will have successful business owners come to them and say, “Oh yeah, I am extremely well qualified for financing; no worries there…”
When they often are not qualified at all for competitive financing, for the reasons illuminated above.
It’s also important to understand so agents don’t yell at their lenders for not garnering financing for their wealthy clients…
Readers would be amazed by the number of times these things happen – especially in areas with a large number of startups like Austin, the SF Bay Area, and the LA basin.
