The mortgage profession, like almost any other industry out there is extremely competitive and congested. Unlike many other businesses however, the regulation and scrutiny that the industry is subject-to is second to almost none. On the one hand, that makes the barrier of entry a lot more difficult – keeping out low quality providers, but hopefully also makes the choices and options more cost-effective for the end consumer. Yet, as I have discussed in the past, the overwhelming reason why a client chooses a bank often merely because of the perceived lowest rates and terms, without much regard for much else. That also explains why banks have such high rejection rates, as we will learn why.
Getting “the best deal” should certainly be one of the biggest reasons why a consumer chooses to work with a particular lender, provided, in my opinion, that they are not sacrificing the service and ease to get that done. However, there is another factor of consideration that is becoming more and more relevant of late, and that is “product differentiation”. Over 80% of the residential mortgages in the marketplace today are being sold to the governmental agencies which include Fannie Mae, Freddie Mac and Ginnie Mae. This should make the loan product offerings more universal and indistinguishable, but that is far from the case.
What has occurred in the mortgage world however since the housing crash has been that banks have been self-imposing restrictions on the loans that they are willing to do, to limit their loan delinquencies and issues. When you are an enormous bank that is set up with fulfillment centers to process loan applications like a factory, you have to put rigid systems in place to ensure that everyone fits into the pre-defined box that you have designated. People don’t get paid to think, and people don’t have to think outside the box because it is not in their best interest to get loans approved, but merely to follow processes and protocols.
In that regard, there are many layers of restrictions that banks put in place to make sure that all of their loans are uniform, and conform to their desired matrix offering. From loan-to-value restrictions, where banks will not lend unless there is a specific percentage of equity in the property, despite the fact that some programs offer loans with as little as 3.5% of a Downpayment; To minimum credit score requirements that banks demand, even though the agencies will approve loans with lower parameters; To income qualification ratios that are capped at 43% or 45% of the debt-to-income qualifications, despite the fact that there are programs that permit ratios to 50% or even higher; To paperwork demands that might require two years of tax returns or two months of bank account verifications, when there are programs that require substantially less documentation.
All in all, these self-imposed limitations have a purpose and place, but more often than not it is to the banks benefit, not the borrower. There are many lenders, Approved Funding being one of the better ones, where we are able to look at the full picture of a loan file and make the necessary determination and accommodation to go outside the box and permit a deal from getting approved than many might automatically reject. Thinking “outside the box” is not only a great competitive advantage, but also a mindset that permits us to navigate through many loan challenges that might occur during the processing and underwriting of our loans. This approach has helped us not only approve more loans than our friendly competitors, but helped us earn the reputation of a common-sense lender that is willing to listen to circumstance before rendering a decision.
Special shout out to Marc and Jamie Srolovits!
By Shmuel Shayowitz
Shmuel Shayowitz (NMLS#19871) is President and Chief Lending Officer at Approved Funding, a privately held local mortgage banker and direct lender. Approved Funding is a mortgage company offering competitive interest rates as well specialty niche programs on all types of Residential and Commercial properties. Shmuel has over 20 years of industry experience including licenses and certifications as certified mortgage underwriter, residential review appraiser, licensed real estate agent, and direct FHA specialized underwriter. He can be reached via email at [email protected].
