Investigating Preapproval Letters
Rhonda Porter on 01 10, 2007
(Editor’s Note: Today I get to introduce yet another contributor! Rhonda Porter is a successful mortgage broker from the Eastside who has been a frequent and much appreciated commenter on RCG as of late. I’m definitely excited that we get to learn more from her years of experience in the industry… She was formally a title representative before getting into mortgage. You can learn more about Rhonda on her personal blog or her website. She can be reached via email or by simply leaving a comment below!
Yesterday, I received a phone call from a Listing Agent regarding a preapproval letter I had prepared for one of the buyers I’m working with. She wanted to confirm that my clients are indeed approved and to find out a bit more information about me since, if she did accept their offer, we would all be working together. She informed me that she calls on all preapproval letters she receives and that often times, lenders may seem not to have all the facts straight on their borrower or respond as if it’s the only transaction they have in their pipeline. Regardless, she gets a better idea of who the lender is that might be involved with her Seller’s transaction. I am really surprised I don’t receive more phone calls from Listing Agents to check out preapproval letters.
[photopress:j0403639.jpg,thumb,alignright]When I sold my house last year, I actually called on one of the preapproval letters we received. The Selling Agent who was presenting the offer thought it was “highly irregular” for me to do so. My Listing Agent did explain that I’m a lender and just had to be more assured of the financing for the transaction. When I called the phone number on the preapproval letter, the front desk did not know the loan originator (apparently she was brand spanking new) and so they transferred me to the processor. The processor told me “don’t worry…Mr. Buyer could have any type of financing he wants…zero down, 10% down…” The overall feeling left me concerned and we turned down the offer.
Personally, I think it’s fantastic for the Sellers’s Agent to call the loan originator on preapproval letters. Often times, the letters are not worth more than the paper they’re printed on but if you can get a general feel for who the loan officer is and confirm the buyer’s credit, down payment and loan terms…why not?
About the Author: Rhonda Porter
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16 Responses to “Investigating Preapproval Letters”
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Hi Rhonda,
Welcome to RCG. Question: What information about the client exactly can a loan originator offer to either the selling OR listing agent? I thought most all info given to the mortgage lender was confidential.
For example, a homebuyer might be able to put way more money down than the information shown in the pre-approval letter and may not want the listing agent to have that information in order for the buyer to protect his or her negotiating position.
Welcome! When I act as a listing agent I always call the loan officer on the preapproval letter to confirm the information on the pre-approval letter. While I understand some processors might say they can have any loan they want that can mean several things and not always just that they’ve got a lot of money, assets, or income. There are a lot of confidentiality issues with respect to financing but a lender should be able to provide simple info such as whether or not a formal application has been submitted, if the funds for down payment have been confirmed, etc. Occasionally you get lucky – heck, more than occasionally, and you get a lender so eager to get a deal done that they’ll give WAY more info than they should. Ardell frequently slams agents on this venue but I’ll tell you the folks I have the biggest problem with in this industry are the lenders. The majority of them don’t go through ANY licensing requirement (only 1 in 30 within an office are required to have one) so you mostly get only sales people and not very good ones at that.
The lenders I work with have strong fundamentals when it comes to financing and finance in general. All of them are focused more on the client than on their own origination or commission fees. It’s an important question to ask and one that we tell our clients to put out there.
Pre-approval letters can be junk or they can be a gold mine – you just have to know the way to tell the difference.
Excellent question, Jillayne. Loan Originators must protect their clients’ private information as it is confidential. A LO should NEVER discuss that a buyer has “way more money” to put down than shown on the preapproval letter.
I’m recommending that Listing Agents call the lenders providing preapproval letters in order to get a “feel” for the lender and to “confirm” the letter. Has the preapproval been underwritten? Do you have supporting documents for the conditions (income, employment, down payment, etc.)? A simple phone call to the lender may help the Listing Agent either feel more confident with a lender unknown to them or raise enough (probably warranted) doubts to question if they should proceed.
Reba, often times I find that buyers have all ready disclosed their financial information to their Realtor before ever meeting with me. In fact, the Realtors I work with usually give me a detailed scoop on the buyer before I ever meet them!
Thanks for the friendly welcome!
Hi Rhonda, I was speaking from the listing agent side and not the buyer’s side and from that angle, I agree with you. We often have the same situation happen in my team. We tell our clients that they don’t need to reveal certain info to us and some have gone so far as to send us their tax returns – WAY more than we need!!!! That has happened mostly with our investment clients and I must say that in those client relationships we get very close to our clients and what their long term life goals are so that for some people we become even closer than family.
My suggestion to all buyers is that you have a very frank discussion with both your agent and your loan officer about what kind of information can and cannot be discussed about you during the offer period and during the transaction.
Reba says: “Occasionally you get lucky – heck, more than occasionally, and you get a lender so eager to get a deal done that they’ll give WAY more info than they should. Ardell frequently slams agents on this venue…”
Yes, I slam that. The seller’s agent contacting the buyer’s LENDER to elicit “way more info than they should know”…? How is that a happy event for the buyer? How is that even fair to the buyer?
Rhonda, I’m confused. In your first paragraph you say it is a good idea for the seller’s agent to call the buyer’s lender. In the last paragraph you say it is a good idea for the buyer’s agent to call the buyer’s lender. Both? Do you converse as freely with the agent for the seller as you would with the agent for the buyer? Do you need the buyer’s permission to do so? Does the agent make it clear when they call whether they are representing the buyer or the seller in the transaction?
I would think if the buyer didn’t get a house in a multiple bid situation because of something the lender conveyed to the seller’s agent, they could be held liable UNLESS they had the buyer’s permission to discuss their affairs with the agent for the seller.
Great advice, Rhonda. Id the buyer has authorized a discussion with any and all parties, it makes sense to share pertinent financing facts. I think the real estate agent is just verbally “eyeballing” us to see if we have the ability to perform.
Hi Ardell, that will teach me to respond to a blog later in the evening! I meant to say, it is a good idea for the seller’s agent to call the buyer’s lender. I do not converse freely with the seller’s agent. Dual agency, I would still protect my client’s privacy. If I were asked information that I did not feel I could disclose to an agent, I inform the agent that I need the buyers consent.
Brian, you got it….The point of calling the lender to review the preapproval letter is mainly to take the pulse of the lender you may be unfamiliar with.
I have only a limited understanding — at best — of state and federal financial information privacy laws. Moreover, I don’t have the time needed for the legal research that would form the basis of an informed blog comment. So today, I’m shooting from the hip. POW!
As a general rule, private information (such as financial information or healthcare information) should be kept confidential absent explicit authority to release it from the consumer. State and/or federal law prohibits a broker or lender from sharing financial information with a listing agent unless the buyer has specifically approved such disclosure (note disclaimer above). Moreover, it seems that anyone who considers themself a “professional” should respect the right of ALL consumers to keep private information private, regardless of the personal gain to be had by obtaining such information. I think its a little shady — at best — for an agent to seek out the buyer’s financial information, particularly under the guise of “eyeballing” the lender. If you want to learn more about the lender, then ask questions about the lender. But don’t use subterfuge to obtain information that you legally and ethically should not obtain.
Moreover, the burden should not be placed on the consumer to have a “frank discusssion” with the lender/broker about sharing information. The consumer should be able to assume that private information will be kept private. If the buyer wants the lender to share that information, then the buyer should so instruct the lender. Absent that conversation, everyone should assume that the information will not be shared.
If anyone does chime in about relevant state or federal law, a citation to authority would be appreciated.
The lending compliance procedures within the Fair Credit Report Act directs lenders to not disburse credit information to those who are not a party to the mortgage loan transaction. Doing so turns a lender into a credit reporting agency.
Links open PDFs
Section 607
http://www.ftc.gov/os/statutes/031224fcra.pdf
It is also in the Graham Leach Bliley Act.
http://www.sechistorical.org/collection/papers/1940/1940_SEC_Invst_Advisors_Act/V.pdf
Businesses can’t release financial info of their clients to third parties.
Thanks for the chime, Jillayne!
I do not endorse, nor do I practice sharing a client’s private information with anyone.
I do encourage selling agents to call the lender on preapproval letters. I think there is nothing wrong with “eyeballing” a lender before you enter into a purchase and sale agreement where they will be handling the financing. “Eyeballing” does not include, in my opinion, divulging any confidential information.
[...] Fair question: “didn’t you as the listing agent check with the lender?” Absolutely. In the most recent case, I sent the lender a local “Loan Status Update” form and the last update showed the file was in underwriting. It was there that things fell apart. [...]
[...] Should agents require a Good Faith Estimate with the Preapproval Letter when Sellers are paying closing costs or provide a line-item range of allowable costs for the seller to pay? At least then, this issue is addressed before all parties reach the closing table. Your thoughts? [...]
My daughter just got approved for home loan. At last minute, the night before she is to give earnest money on home with the preapproval letter agent says to her there could be problem because of taxes. Is this legal. He said he had to run it by the underwriter. A quick response would really be appreciated.
Ricky, if the real estate taxes came in significantly higher than the LO estimated, it could be a problem. I use 1.25% of the sales price for our area…but if someone buys in parts of Auburn or NE Tacoma, for example, it might be closer to 1.3% of the sales price. If your daughter was preapproved with her debt to income ratios to the limit, then taxes or home owners insurance could disqualify her.
It’s better to have the LO check this out now before she’s too deep into the transaction.
[...] Preapproval letters are really only as good as the Loan Originator who is providing them. If a LO has not done the elbow grease required to truly have a preapproved borrower, then the preapproval letter is only worth the paper it’s written on. A strong preapproval letter can be the difference between having your offer accepted on your next home when competing with other buyers. [...]