Why Haven’t Loan Officers Been Told These Facts?

Test Your Technical Knowledge

1. A loan officer obtains sufficient information from a prospect to determine they will not qualify for financing and communicates this to them. So what is the next best thing to do according to the Equal Credit Opportunity Act (ECOA) and implementing Regulation B?

a) The loan officer should avoid taking notes, keeping any document, or otherwise creating a written record of the inquiry.

b) Due to the casual and informal approach of the consumer, the loan officer has no further obligations.

c) Because the MLO has communicated an adverse action to the prospect regarding their credit inquiry, he treated the prequalification request as an application. Therefore, he must first make a written record of the application, then comply with the notice requirements.

d) No further action is required as long as the loan officer declines the application within three days of application. The ECOA notice requirements do not apply.

The best answer is c)

1002.2(f)-3 When an inquiry or prequalification request becomes an application: If in giving information to the consumer, the creditor also evaluates information about the consumer, decides to decline the request, and communicates this to the consumer, the creditor has treated the inquiry or prequalification request as an application and must then comply with the notification requirements. Whether the inquiry or prequalification request becomes an application depends on how the creditor responds to the consumer, not on what the consumer says or asks.

1002.9-5 Prequalification Requests or Inquiries: Whether a creditor must provide a notice of action taken for a prequalification request depends on the creditor’s response to the request.

Examples of prequalifications: A lender may treat the request as an inquiry/prequalification if the creditor evaluates specific information about the consumer and tells the consumer the loan amount, rate, and other credit terms the consumer could qualify for under various loan programs.

A lender may treat the interaction as a prequalification or inquiry if describing the process the consumer must follow to submit a mortgage application and the information the creditor will analyze in reaching a credit decision.

However, a creditor has treated a prequalification request as an application and is subject to the adverse action notice requirements if, after evaluating information, the creditor decides that it will not approve the request and communicates that decision to the consumer. For example, if the creditor tells the consumer that it would not approve an application for a mortgage because of a bankruptcy in the consumer’s record, the creditor has denied a credit application.

2. A prospect calls and needs a “preapproval letter” to present a purchase offer. The MLO obtains enough information to prequalify the request and issues a preapproval letter but carefully avoids recognizing any property address. The letter stipulates that the approval is subject to standard documentary requirements, an acceptable appraisal, and title report. Does the MLO have an application according to the ECOA?

a) YES. The MLO reviews the request and issues a written commitment to extend terms subject to specific conditions.

b) NO. The MLO did not take a written application.

c) NO. The MLO avoided capturing the property address; therefore, there is no application under either TILA or RESPA.

d) YES. On loans secured by a dwelling, there is an application anytime an MLO provides any underwriting guidance to any credit inquirer.

The best answer is a)

1002.2(f)-5(i-ii) Examples of an application: A person asks a financial institution to “preapprove” her for a loan. After a comprehensive analysis of her creditworthiness, the lender reviews the request under a particular loan program like the FHA guarantee. Then, the lender issues a written commitment valid for a designated period to extend a loan up to a specified amount. The written commitment typically includes conditions that require identifying adequate collateral. Preapprovals usually condition the terms by stipulating no material change in the applicant’s financial condition or creditworthiness before funding the loan. In addition, the written commitment often includes limited conditions unrelated to the financial condition or creditworthiness of the applicant—for example, certification of a clear termite inspection for a home purchase loan.

If the creditor’s program does not provide for giving written commitments, requests for preapprovals are treated as prequalification requests for purposes of the regulation. Monikers are not determinative. The lender’s process and the substance of the written “preapproval or prequalification” are dispositive.

An application also includes the financial institution evaluating the person’s creditworthiness and determining that she does not qualify for a preapproval.

Lenders that recognize the application event and deliberately take adverse action could have an opportunity to rehabilitate the prospect or launch a remediation plan.

Do you have a program for prospective borrowers who are not ready for mortgage financing? Think of the possibilities. In most cases, these prospective borrowers may be rehabilitated into future borrowers and, better yet, raving fans. Think about regular interactions and follow-ups with these folks, their friends, family, neighbors, and co-workers. The Journal will cover this prospective goldmine in our Blue Ocean series.

Are you throwing away living advertisements for your business? Adverse actions – a goldmine under your nose. He who is forgiven little loves little – but the one who is forgiven much greatly loves the one who forgave him.


Behind the Scenes
The Taper Tantrum Watch Those Refinances, No On and Off Switch for Rate Changes

Leveraging a Blue Ocean Strategy to Grow Your Business

To Explore Strange New Worlds, to Seek Out New Life and New Civilizations, to Boldly go Where no Person has Gone Before :).

Last week, the Journal tackled the workhouse mentality many mortgage professionals experience when leveraging the loan manufacture for referrals.

The best time to collect referrals from borrowers is while their loan application is in process. They become hyper-alert to anything real estate including the mortgage needs of those around them.

For some people, asking a customer for referrals is the height of merit. “Only after I demonstrate my professionalism by a praiseworthy closing am I worthy of my customer’s trust and referrals.” Really? Heck, how would you ever get a loan in the door if that were the criterion? Must you close a prospect’s loan before meriting their trust? Think about that for a moment. It is a logical fallacy. Do you expect the applicants to trust you before closing on their loan? Of course! But when it comes to their friends, family, neighbors, and coworkers, do you wait until you earn their trust by virtue of a well-closed mortgage?

Part of the dilemma in leveraging the loan manufacture for referrals is the lack of forethought and specificity that often constitutes the ham-handed referral solicitation. For example, “If you know anyone that might need a mortgage, send them my way!” That’s okay, and some people might positively respond. Better than nothing. Many ham-handed referral hogs shamelessly plead for business – and will get it. Power to you if that is your shtick.

Alternatively, why not give the applicant a practical means to make referrals in a way that also makes them feel good. In this way rather than asking the applicant for something for yourself, you are giving them and those they care for yet another gift. Naturally, with any referral, you could further heighten the referring party’s positive feelings by appropriately acknowledging their thoughtfulness and care.

Understand, most folks are highly distracted. What are we thinking, that people walk around with signs that say “I need a Mortgage!” To cut through the noise, get specific – you want people, not mortgages. You want to serve people. One of the mistakes you might be making is asking for mortgage referrals. Buyers are busy. Think of everything these folks have to do to get settled into a new home. New job requirements, inspections, school logistics, packing up their stuff and getting a mortgage processed. Then along comes the mortgage professional asking for referrals. The request for referrals might appear tone-deaf to say the least.

You want the referral source target to refer you to people, not mortgages. No strings attached. Forget about whether or not the people referred need a mortgage. You are an oracle of real estate wisdom, someone in the mortgage business that is good to know. Like doctors, lawyers, and accountants – the best time to find a mortgage professional is BEFORE you need one.

You must leverage the power of specificity to elicit the names of people that should know you. It would be helpful if you suggest specific actions to your referral sources. “Mr. and Mrs. Applicant, do you know any teachers or firefighters? Great. Would you please pass these cards along? I can email you the information if that is easier for you to send to someone that might need it. XYZ Mortgage provides special financing for educators and first responders. That includes police, firefighters, and teachers. The card contains a few highlights of the unique financing benefits available to these folks. The card is also a $100 voucher redeemable by the persons you refer to us. Would you mind giving these to someone that could benefit? It doesn’t matter if they plan on buying a home or not. Just to ensure they have a mortgage professional when they need one. By the way, here is a $100 voucher for you too.”

Remember – you cannot exchange a thing of value such as the voucher for a referral. If giving gifts like the voucher, it should be a closing gift you give to all your customers. If you give the voucher exclusively to applicants that give you referrals or otherwise tie the referrals to an exchange of a thing of value, you will violate RESPA Section 8(a). In other words, give the voucher to everyone that closes their mortgage with you.

You’re going to need some marketing collateral. Have some fun and design a great marketing postcard. Talk to a few vendors – get competitive bids. Don’t mail this stuff yourself. Use a mailing service. Alternatively, use email. The first rule of business – learn to make money while you sleep.

Next week the Journal provides a basic template for systematic improvements to your referral business.


Tip of the Week

Project Management Skills for Loan Origination – Communication

Last week the Journal defined the third of the four communication and influence styles. The Performist, unlike the Amiableaholic, the performist embraces more direct communication. Like the Amiableaholic, conflict is a total turnoff.

The Performist will make everything okay, whether it needs fixing or not. They are movers and shakers, quick to embrace change. They like the center stage.

This week, the Journal breaks down the fourth communication and influence style, the Automabot. The Automabot is orderly and will often cringe at changing the status quo. They are workers and managers that require clear guidance and structure. Show them what to do. Avoid asking them to tackle a task requiring innovation and agility. Rigid, like a board, is the Automabot. These folks are often outwardly unemotional and even cold. They suffer more than most from perfectionism and waste far too much effort building things that satisfy their concepts of goodness.

Scope creep is the term used to describe the unauthorized or unknown drifting away from stated goals or objectives. Automabots are great at building a watch when someone asks for the time. Automabots often fail to see the big picture and can appear arrogant regarding the importance of their work. Watch for dead or dying plants and dusty family pictures on the fringes of their workspace.

Automabots want to see clear action items and need organization. Make sure you have accurate data, facts, and plans that hold water. Identify the pros and cons of ideas. Most of all, give them room and time to process information in their own time. Automabots are cautious and must feel as though they’ve thought things through. They make a Directator look spontaneous and carefree.

Part of the benefit of identifying key stakeholders’ communication and influence style is the need to think about the person more than their role. Often, MLOs see stakeholders by role. Instead, think of your stakeholders as persons first. The “people” awareness enables you to lead, interact and communicate with key stakeholders more effectively.


2021 CE – Sneak Preview

Is now a good time to go long or short on the stock market? Is the residential real estate market overbought? Time to sell? Are you confused about where to invest your hard-earned money? Stop messing around and make the best investment you will ever make – invest in yourself. Yes, that means professional development. Be the best version of yourself that you can be. Expand your horizons. Why not get on one or more of the developing market waves?

Are you interested in Low-Moderate-Household-Income lending? Do you wonder about getting started with loan manufacture requiring alternative credit (nontraditional credit)? Have you heard all the horror stories about collaborations with Housing Finance agencies? Grab the bull by the horns and take some chances. Join us for a primer on getting started with these types of loan programs.

CE should be an opportunity for professional development. That you might expect – but we promise that you will have fun at the same time. So how can you enjoy hours and hours of law, ethics, and regulation? Well, swing on by the LoanOfficerSchool.com 2021 continuing education classes and find out!