For many years, mortgage originators have pitched to consumers that the ideal situation is for them to come see their loan officer to get prequalified before going home shopping.
One of the ironies of the post-crisis real estate business is that goal is coming to fruition. Tighter lending requirements are forcing consumers to see their originator first (or if not first, at least before they are allowed to go house hunting) and then go to the real estate broker with that prequalification in hand.
A panel organized by National Mortgage News of loan originators at the Florida Association of Mortgage Professional's annual convention in Orlando last month discussed this among other topics.
Panel members are FAMP president Jon Turla, a sales manager for Home Lending Source in Melbourne; immediate past president Valerie Saunders of RE Financial Services Inc., Clearwater Beach, Fla.; and government affairs chairman Andy Seepersad, assistant vice president for the Florida Region of Franklin American Mortgage Co. in Tampa. The moderator is NMN's national housing correspondent Lew Sichelman.
SICHELMAN: What kind of pull through rates are you seeing in your shops?
TURLA: Are you asking about purchases or refinances? On the refinances the issue is not necessarily the borrowers but the home values also. That makes the pull through on that a little bit less. On the purchases, especially in my particular area, we interview and qualify the customer fairly well. We would guide them before they make application. We find out if they are able to get a loan or if it is not the right time and what we need to do to help them. So in that way, when they do a find a home, they are not just going through the steps and hoping that it sticks to the wall and they've got the mortgage. I think you are finding there are more professionals in the industry that are left that tend to qualify the people so they can get the loan.
SAUNDERS: In my office, we do the same thing. We have a lot of prequalifications but we don't we take a lot of applications where we would deny somebody initially or have to issue a denial lender because of something that happens shortly after application. Looking to see not only does the borrower fit, do we fit their needs but do they fit what we can offer.
SICHELMAN: But typically, you don't get to the buyer first, do you? I'm a buyer, I typically will find a house first than a mortgage.
TURLA: Many Realtors realize that there are a lot of marginal borrowers out there, and they don't want to spend their time taking people around for days, for weeks or for how ever long it takes and then find out these people cannot buy a home. So most of the Realtors go out and they ask the borrower to please get prequalified or pre-approved. So we don't necessarily get them first, I would say we do tend to get them before a Realtor would actually go out and show them properties.
SAUNDERS: Since we are in an REO market, the lenders who own those properties require the borrowers to be prequalified, typically by the REO lender, prior to entering into a contract. I think that has helped Realtors realize the importance of a prequalification, and now it almost something that is a common occurrence. As opposed to previously, where it was property first, prequalification second.
SEEPERSAD: I would add that valuations are still one of the biggest challenges that we see overall. This is because a good percentage of Florida purchases, specifically, are short sales or REO properties. So, all of sudden, time frame becomes a factor. You talk about pull through, you have borrowers who look to get qualified, they're ready to go but now, its six months in some cases before the bank who owns the property will approve the customer for the purchase at the particular price they put an offer in. Many borrowers realize they can't wait six months for that particular property. Or, they're short sales and things go in the opposite direction—they give you too little time in order to get something done.
SICHELMAN: How are the qualified residential mortgage/qualified mortgage definitions affecting your business and your dealings with lenders? Are they already tightening up on you?
SEEPERSAD: At this stage, QRM really isn't a factor. A lot of what is being discussed with QRM is just proposals. So there is a lot of banter back and forth. It is a very public discussion because it affects so much of our industry, not only mortgage brokers but the banks as well, especially when it comes to retention. So there is going to be a lot that is going to continue on with QRM before there is something final. From a legislative standpoint, there are going to be a lot of people that are going to have their input into how this looks. I personally don't believe it is going to look the way it has been proposed by the time it is finished. So at this stage, I don't think there are any lenders that are pushing that back down to the mortgage broker yet because there just isn't any way to know.
SICHELMAN: How are you guys dealing with the loan officer compensation rule that went into effect on April 1? Is it working for you? Is it as bad as they said it was going to be?
TURLA: What has happened is that many of us have had to—and this term gets used a lot lately—reinvent ourselves in the way we have to do business, pay compensation towards loan officers. So we've had to adapt to this rule. Has it forced any companies out of business per se or anything like that? No, but I think who it has hurt has been loan officers and borrowers. The ability to help the borrower out to give them relief or pay for some of their items on there has gone away.
SAUNDERS: I agree. Loan originator compensation has been a fairly simple transition because it was either do what you were supposed to do or don't originate loans. But the two biggest items are, as Jon has mentioned, the inability to assist the borrower with giving them a credit towards their closing costs, plus the issue with if its borrower-paid compensation, having to pay originators on a wage or salaried basis. That has been the hardest thing to fit these round pegs into square holes, because it provides limited flexibility and limited solutions for the companies as well as the originators.
SEEPERSAD: We are really hoping this is something we can present to the CFPB. The challenge was when loan originator compensation came out, it was implemented by the Federal Reserve Board, who really didn't have much of a vested interest any longer because they knew this was going to be transitioning over to the CFPB. Our hope is that we will be able to make an amendment as time goes on to be able to work some of the challenges. Because even according to Barney Frank's office this was an unintended consequence, he never intended for the consumer not to be assisted to cover their closing costs.
SAUNDERS: It also shows a lack of understanding of what the industry actually does.
SICHELMAN: They needed a bad guy to hang a hat on and you guys were it.
TURLA: Unfortunately, I believe you are right. It has definitely hurt the consumer in what we're able to do for them. A lot of the legislation which has come down in the last two or three years has made the loan more expensive for the borrower rather than helping them.
