Why you should get a FULL loan approval and not just a PRE-approval prior to purchasing a home

Steve Lupton, our in house mortgage broker, just sent this letter out to the agents in our office. I thought it was worth sharing:

"The past few months have been challenging for our credit markets. The intense media coverage of recent events has made us all somewhat aware that our industry landscape is changing. Headlines like: sub prime mess, credit crunch, housing bubble and the like are daily fare on TV. Erratic credit markets driven by emotion and fear are impacting our industry’s ability to conduct business. Let’s take a look at some issues and some solutions. Remember, the greatest opportunities in any business come at times like these.

The sub prime mortgage mess has spilled over into all mortgage products. Investors who provide the capital necessary for the housing industry have little or no appetite for collateralized debt obligations (or pools of mortgages). In this declining investment market, the only certainty is that these investment portfolios will be worth less tomorrow than they are today. In an effort to reduce their exposure to the declining market, investors will stop buying new issues and look to unload what they own. They have a unique outlet when “unloading”, aside from merely selling at a loss. If they can find ANY deficiency in a mortgage agreement, they can insist that the originator of the mortgage buy it back. The intensity of the scrutiny of mortgage originations is unparalleled in this industry. Six months ago a mortgage application with a debt ratio 20 points over suggested guidelines was perfectly acceptable. Today a mortgage .000001 out of range doesn’t work. There is zero tolerance for any loan application that doesn’t comply with underwriting guidelines because originators like me cannot give investors the option of forcing me to repurchase loans. Therefore, you cannot assume that ANY borrower is immune from this scrutiny. There is no such thing as a “slam dunk” approval today from any mortgage bank. All mortgage banks are dealing with this phenomenon. Deserving credit profiles will be approved, but under a much more powerful microscope.

Let’s talk about some solutions. You have the good fortune of working in an agency with an in-house mortgage banking department. Please take full advantage. Going forward you should make use of this resource for your client’s benefit and your benefit. You should always get your client Fully Approved before you begin to shop for a home. With an underwriter’s Full Approval you will: 1. know that you can close the deal. 2. Have a leg up on the competition who isn’t Fully Approved. 3. Make your client essentially a cash buyer. 4. Give your client the extra time needed to comply with the meticulous application process.

I will Fully Approve all of your clients at no cost and no obligation. They are encouraged to do their due diligence for mortgage terms and conditions. I am simply responding to today’s realities in an effort to give your clients the best home buying experience in the industry."

Steve Lupton
Metrocities Mortgage
Senior Loan Officer
(908) 522-6500