Loan Officer Tip - Verify Income

Income verification is crucial to successfully and honestly completing an application.

• Have customers read, fax and send (overnight) income information
• Get income at the end of the application: "What I'm going to need is your income documentation - right now! Don't worry, I'll wait while you grab the needed documents."
• "Doc's" show commitment.

Always ask yourself, "Does the loan put the borrower in a better position than when they came to you?"

OCC Chief Urges a Tightening Up on Home Equity Loans

From: American Banker
By: Cheyenne Hopkins
May 23, 2008

WASHINGTON — Comptroller of the Currency John C. Dugan on Thursday suggested several improvements in home equity underwriting, including ending the practice of using the loans to finance down payments.

"We need to ask some hard questions about home equity product structure and underwriting criteria," he said in a speech sponsored by the Financial Services Roundtable's housing policy council. "In particular, we need to revisit the problems that landed lenders where we are today — particularly some of the 'shortcuts' established in reaction to aggressive competition."

After a huge growth spurt — home equity loans more than doubled from the 2002 total, to $1.1 trillion — loose underwriting and falling home values have combined to produce big losses. Losses spiked ninefold, to $2.7 billion, in the first quarter compared to the year earlier, he said.

Mr. Dugan urged lenders to improve the tools they use to value collateral and verify income and told them to steer clear of interest-only loans.

Regulators began waving a red flag on home equity lending in 2005, but Mr. Dugan said banks have been slow to change their practices. For instance, he said, questions remain on the use of collateral valuation tools such as automated valuation models.

These tools must be "closely managed, periodically validated, and supported with sound business rules," he said. "Cost alone simply cannot be the guiding principle for their use."

Mr. Dugan also criticized "reactive stated income," situations in which lenders require a borrower to detail income and authorize the lender to verify it, "as if the lender were really going to do just that," Mr. Dugan said. "Supposedly unbeknownst to the borrower, the lender deliberately chooses not to incur the additional time and cost of actually following through and verifying the income."

The comptroller stopped short of saying this practice should be stopped. "We need to think carefully about whether anything short of actual verification of income is acceptable from a safety and soundness perspective for most borrowers," he said.

The industry should also rethink interest-only structures, he said. The lack of "payment discipline encourages borrowers to assume greater levels of debt, often to the limit of their ability to make minimum monthly payments."

Mr. Dugan said banks must increase their reserves against home equity loans.

"With losses accelerating, those reserves are simply not going to be adequate, and that's why our examiners are encouraging more robust portfolio analysis and loss-reserve levels," he said.

Still, the Comptroller noted that loss rates on home equity loans remain lower than for other types of retail credit.

Memorial Day Weekend

I hope you all have a relaxing Memorial Day Weekend! And remember, on our death beds we will not ask for one more day at the office. So leave work at the office this weekend and enjoy being with friends and family!

Have a great weekend!

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Qualifying Borrowers In Today's Market - Tip #3

Tip #1 - 5/5/08

Tip #2 - 5/12/08

Verify Credit Worthiness: It is vital that you ensure that the borrower has the credit worthiness to qualify. If the borrower's FICO is less than 620, the availability of financing becomes much more challenging. A common mistake is just “taking an app” and trying to figure out later where to place it. This is a waste of everybody’s time.

Tip #3: Have at least three lender programs that can help the borrower. When there are credit issues, make sure you understand both the causes and solutions to improving it before moving forward.

By employing these techniques, you will qualify less applicants but they’ll be better quality, higher qualified applicants. This ultimately leads to higher conversion and more loans closed. It only takes 1 qualified, committed sale per day to close 15 loans per month! Additionally, you will not be putting the borrowers, or yourself, through the process only to turn them down later.

Qualifying Borrowers In Today's Market - Tip #2

Tip #1 - 5/5/08

Qualifying Affordability: Income is the second key requirement; you must be sure the borrower can really afford the loan. Not just for today, but down the road (particularly when applying for adjustable rate financing).

Tip #2: Qualify your borrowers for a full-doc program with a cushion for future adjustments in payments. Be sure to verify all forms of income on the first call by having the borrower physically read you exact pay stub, W-2 or tax return information.

Qualifying Borrowers In Today's Market - Tip #1

Qualifying Borrowers In Today's Market

The landscape has changed significantly in recent months when it comes to qualifying borrowers for mortgage refinancing. During the recent mortgage boom, nearly every homeowner qualified for a refinance. However, with the reduction in high LTV products, tightening of underwriting guidelines and a drop in property values, the savvy originator will be more strategic and diligent in identifying qualified leads, while the failing originator will employ the old methodologies. Their result will be lots of applications, but no closed loans. Over the next few weeks I will share with you some tips for qualifying borrowers in today's market.

Determining Lendable Equity: The first and foremost qualifying requirement is lendable equity. Simply put; no equity, no deal! With the recent nationwide slowdown in home sales, home values have decreased by at least 10% in most markets. Unfortunately, the borrower (and many originators) still assume property value increases.

Tip #1: Apply an 80/85% rule (depending on FICO score) to the last verified value in determining current equity potential. If there is no equity at an 80/85% calculation, there probably is no loan. This will allow for reduction in value and provide a “cushion” for equity to help the borrower pay off debt and reduce payments, taxes and term.