Dear Loan Officers,
Please interview your borrowers better.... The better the interview the less likely unknown challenges come up. If there is a question that you need clarification on - get the documentation BEFORE the Prequalify letter goes out.
Current Nightmare I Am Going Through Now
My loan officer is working with a borrower who wants to buy a home - Let's name the borrower Ted.
Ted finalized a divorce 2 years ago.
Ted is a successful import/export guy - He is a salaried employee with bonus potential.
Ted opened a side business in the middle of 2023. The side business has taken off and is earning him very good money.
In the interview process, my LO pulled a credit report and there was an existing mortgage on it. He asked Ted about this mortgage. Ted said his ex-wife has the home and she has been making the payments. LO asked if Ted could prove that she has been making her payments from her own bank account that Ted is not tied to. Ted assured him that the ex makes the payments from an account he is not tied to.
In the interview process, my LO asked about the new company Ted started. Ted advised that he is making over $300K in profits. Ted is going to use the monies from his business for the down payment and closing costs.
In the interview process, my LO asked Ted what does he average in bonus income a month. Ted said about $2000 a month...
The LO provided a pre-approval letter based on the information provided. An offer was accepted and I got the file to process....
First challenge - We find out that ex-wife is using a bank account they shared during their marriage - therefore, we have to hit him with the entire PITI+HOA debt (over $4000 a month)
Second challenge - Because borrower is using his business funds for the down payment. We need the 2023 1040 and business returns.... Returns show a $30K start up loss -so now we have ANOTHER hit of $2500 a month in income..
Third challenge - Bonus income - we could not prove that the bonus income will continue as the employer would not comment on this. The VOE showed the bonus income for 2024 and 2023 and 2022 - (we also provided end of the year pay stubs) - lender wanted employer to confirm how often the bonuses were paid out - if we use what is on the current pay stub and not average last year - our income also can drop significantly.
Borrower wanted to put as little as possible down and get an conventional loan with no impounds....
Now that is NOT possible as we now have a mortgage of $4000 - we did not have before. We have a $2500 a month income loss that we did not have before and the bonus income dropped drastically. Our DTI is now 70....
Working and working and working the numbers - I came up with a FHA option but would have to put a lot more down and pay off 3 small credit cards and our DTI is now 57 and we got an approve/eligible. Ted was PISSED.... We advised if he did NOT use his business assets and simply got a 401K loan for the down payment - we would not need to show the tax returns thus the large loss on his schedule E. Ted refused this option.
We tried another alternative and contacted our friends at Loan Stream for a NON QM purchase, primary home option. They had a 12 month bank statement program (they accepted self employed 12 months with a history in the industry, which we did). We were able to flip it to less money down and terms the borrower wanted... Because the loan continguency was coming up - LO did not think it would be wise to go that way as it would take longer to close. Ted seemed to like it better as there would be less down. But Ted would not make up his mind.
Monday, Ted contacts the LO and out of no where he has a Non QM friend that can do this loan and there are ZERO costs. He wanted us to transfer the FHA appraisal to the NON QM lender (makes no sense as the appraisal is FHA not Non QM) - We advised Ted if we transfer the appraisal our loan will be cancelled. We suggested that he provide a copy of the appraisal to the new lender and see where it goes.... Ted agreed. In the meanwhile, I suggested that we move forward as Ted has already paid a lot of money for the HOA certification and appraisal. Only need a few minor minor documents - Ted has not responded to our muliple requests...
Today, Ted advised the LO that the newer lender is breaking promises and now trusts no one.. What the Hell - seriously.. Ted still won't provide the minimum documents I need for our Clear to Close and his loan continguency is up!
One thing I am seeing a lot lately is desperate loan officers. Loan officers that are afraid to state the facts and process up front to potential clients. Because of this I have to deal with non-responsive or angry borrowers that feel very confused. Educating the borrowers at the very beginning of the application process is critical.
Gathering documentation to support what the borrower states to be true is extremely critical. With this loan - We could have easily started with a NON-QM loan knowing the facts upfront.
Moral of the story.... Interview borrowers in depth, get documenation to support what they say, and most importantly prepare them on what to expect.... (emails, disclosures to sign, items needed, more items needed, and then some more items, more disclosures etc.)
