It’s unusual. Unprecedented, even. Lenders changing guidelines mid-stream, after you have your loan approval. You get your client’s loan approved; you collect the approval “conditions” and send them over the bank to clear with the Underwriting staff so you can schedule a closing.
All of a sudden the Lender changes it’s “mind.” Now, there’s either new conditions piled on top of the ones you submitted, or the loan is out and out cancelled. And if there are new conditions, you can bet they will very unreasonable ones. As if the Lender is looking for problems on the loan that don’t exist.
After all the lies and fraud and bad mortgage loans originated in the past few years, the kneejerk reaction is beyond precedent. It’s as if the banks don’t want to make any loans.
The problem comes down to the state of the mortgage industry, today. This problem is symptomatic of what’s happening industry-wide as a result of the “mortgage meltdown” of 2007.
In my opinion, Wall Street is not giving the banks any direction. Will the Street buy the packaged loans, as they have always done, or not? Without the ability to move loans in this way, the mortgage-lending industry is hamstrung.
While Wall Street gave our industry TOO MUCH direction in the past few years, i.e., “Give us EVERYTHING!” now the Street doesn’t seem to be answering the phone when the mortgage industry rings up. And if they do answer the phone, it’s a bad connection.
Frankly, it’s beyond all reason. There’s no sense to it in that there are basic lending guidelines in place, the foundation, if you will, of the mortgage lending industry. You would think that, in the event of such cataclysmic results from garbage mortgage loans, we would at least be able to revert to the basics and continue to approve mortgage loans.
The fact is people still need to borrow mortgage money, regardless of market conditions or interest rates. And those people are being told, “NO” even when they meet the basic qualifying criteria as written in the guidelines.
For instance, there is a FNMA program designed to make it easy for people of Low-to-Moderate Income purchase homes with little or no money down. It’s called by different names at different Lenders, the most common being “My Community.”
The program guidelines allow for a borrower to have NO credit, and to provide “alternative” credit such as utility bills, phone bills, etc. to provide a credit history. (This is a long-standing tradition with FHA loans)
Well, while the guidelines allow for it, the FNMA loan approval software doesn’t (commonly called “DU” or Desktop Underwriter). Therefore, to approve a loan like that, you must have a human being underwrite the loan; someone who can read the file and signoff for the approval. The human underwriter would have the guidelines at hand, could check the loan application against those and make a decision on the loan, whether that be approval or denial.
Except, there are NO humans underwriting loans at the banks right now. The banks say, “If the FNMA software doesn’t approve it, don’t talk to us.”
Whoa. It’s nuts out here.