In a recent article I discussed one of the reasons for the poor service borrowers are getting these days was due to the “fear factor” of lenders whose employees are terrified of losing their jobs if they make a mistake and approve a loan that should have been denied. I do not believe that there is cause for this because I have never heard of an underwriter being fired. More to the point, neither have I never heard of an employee being reprimanded over turning down a good loan. There’s the rub. The richer you are, the more complicated your file, the higher the fear factor.
It used to be that there was a team spirit between us and the lender’s underwriting and processing departments. The commonly used phrase was, “No one get’s paid unless a loan funds.” Boy, were those the old days! Now lenders look at each file as if we have hidden a hand grenade in it. If they can’t find it, it will go off and cost them their job. It is no fun dealing in this atmosphere and I hear the same thing from employees of big banks dealing with their own employees.
Here are a couple of additional items for your consideration.
Back in the old days, we dealt with the wholesale lending divisions of lenders like the same banks that dominate retail mortgage lending, Wells Fargo, BofA, Chase, Citicorp, and GMAC. Instead of dealing directly with us, these intermediary lenders now do business through smaller banks and mortgage banking companies, another intermediary. It possibly adds one more level of cost too.
The thought here, I believe, is that these intermediary companies have enough net worth so that if the investor had to buy a loan back from Fannie Mae, he could turn around and make the originator buy it back from him. At least that’s what they tell each other.
Each of these investors has its own fear factor working also and it expresses itself through “underwriting overlays.” We may get an approval from Fannie Mae’s automated underwriting system that calls for one year’s 1040s. OK. What they investor asks for, however, is two years’ 1040s. They are afraid that some time in the future, Fannie and Freddie may say, “I know we only asked you for one year’s 1040s, but you should have known to get two years.’ So buy this loan back.”
This also gives them an opportunity to lower income. For example, let’s say a borrower made $10,000 per month in 2009. On that income, he qualifies. But in 2008 he only made $8,000. A two year average is $9,000 per month and maybe now he does not qualify. That means they will not do the loan because it doesn’t meet the investor’s guidelines. Believe me, no one cares that that loan and a thousand other perfectly good loans were denied!
You can see, however, that even using the word “relationship” is hard in these circumstances. It’s a transaction business and transaction businesses can degenerate to the maxim, “What have you done for me lately?”
The other factor is that a job with a company like Chase or Wells Fargo had a little cachet to it. You might be just one more employee in a company with 100,000 or 200,000 employees, but at least from all outward appearances, you had a good employee benefit package and the possibility of a decent career.
You had to deal with the potential of someone a continent away “doing away with your division” as happened to many, many people I know who were employed by those big companies. In fact, I can safely say that except for people I have met just recently, all of the old timers I know in this business are working for a different company than they were when we first met. In some cases, it’s been four or five companies. You have to admire their ability to keep landing on their feet.
[Product Spotlight: Get a Free Credit Score Trial with Equifax 3-in1 Monitoring with Credit Score]
But there is a dark shadow here too. We are a cyclical business and in good times, we need perhaps twice as many employees as in bad times. So one of the things that happens as we enter bad times is that some good employees get laid off with the poorer ones. In fact, I have personally seen instances where the higher paid people were laid off first. You save more money when you lay off someone making $70,000 and turn the job over to someone making $40,000.
In good times, they hire people but the best potential employees, ones who had good experience but were cut the last time say, “Not me. You tell me it’s a permanent job but I know as soon as the cycle goes on the down side, I’ll be laid off again. I won’t work in this industry again, ever.” And these were our best people!
If you conclude that this is a pretty dumb way to run an industry, you’d be right. So as a borrower, be well prepared and be patient.
Image by Jeremy Brooks, via Flickr