What is the Consumer Financial Protection Bureau (CFPB)?

Established in the wake of the financial meltdown, the CFPB was tasked with standing up for consumers, making sure they’re treated fairly, and restoring trust in the consumer financial marketplace.  This is a huge regulatory agency which oversees the banking and lending entities in our nation.From the CFPB website:

What’s the difference between being prequalified and preapproved for a mortgage?

Updated 5/8/2013

Prequalification is a lender’s estimate of how much you could be eligible to borrow based on information you supply. Prequalification does not mean you will get the loan. Prequalifications are usually free.

Preapproval usually means that the lender is ready to make you a mortgage loan based on the information and documentation you provided at the time you requested a preapproval. The preapproval will say how long it is valid for and may contain some other conditions for you to get the loan. Your lender may not require that you pay any fees except the cost of a credit report at this time.

The Truth

The CFPB’s definition doesn’t really tell the full story — real estate professionals need to review any letter representing a buyer’s ability to obtain a mortgage with great care and scrutiny, no matter what the letter is called.

Today, some banks have made the decision to NOT issue pre-approval letters due to the cumbersome regulatory environment, so they may call their letter a pre-qualification. Lenders licensed as mortgage brokers can’t issue a pre-approval letter because they aren’t licensed to approve loans. Some lenders issue letters based on a simple conversation with the borrower and call them pre-approvals; some lenders have borrowers submit information though a website that churns out pre-approval letters without any lender review; some lenders issue letters only after a thorough investigative process.

What matters is the process used to get the answer — not what the letter is called, but what it says.

When evaluating a pre-qualification or a pre-approval letter on behalf of a seller, this is what you need to look for.

Does the letter contain the following?

  • The purchase price
  • The loan amount
  • An expiration date
  • Names and addresses of all buyers
  • Percent of the down payment
  • Loan type (Conventional, Jumbo, USDA, FHA, VA, etc.)
  • Loan term (Fixed or Adjustable, 30 years or 15 years, etc.)
  • Whether or not the transaction is dependent upon the sale of another property
  • Status of the property being sold (on market, under agreement)
  • Contact information for the loan officer and their NMLS number
  • Lender name and licensing details

Next, you need to ask yourself an important question: “do I know and trust this loan officer/institution?” Do not hesitate to call the loan officer and interview them on their process.

If the letter doesn’t state what documentation has been reviewed as a part of the process, then you should ask if the loan officer has reviewed the following:

  • Two years of federal tax returns
  • Two years of W2’s
  • One month of paystubs
  • Two months of asset statements checking, savings, investments to verify the source of down payment.
  • Credit report
  • Any additional documentation needs that arise out of the client interview

Don’t take a letter from an unknown lender at face value.  A high percentage of purchase transactions fall apart due to financing issues.

It doesn’t matter what the letter is called — it matters that the lender and the buyers worked together to ensure that the transaction will close on time. It matters that the lender is thorough, detailed and transparent about their process.

We are that lender — we’re here to help your buyers through this process and to celebrate your closing success with you! Give me a call anytime you need a second opinion on a letter, no matter what it’s called.

We’re here to help you and your buyers do more, learn more and grow more!

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There Are Many Ways to Evaluate a Mortgage Lender

There are many ways to evaluate a mortgage lender.

I’m a student of the mortgage industry — I read everything I can on the business, whether it’s written for consumers or for industry professionals, and especially if it includes information pertaining to or coming from the CFPB. For those of you who don’t know, the Consumer Financial Protection Bureau is a regulatory authority that was formed four years ago. It oversees consumer financial products and the organizations that provide them. To learn more about the CFPB and their mission, visit www.cfpb.gov.

I’m always surprised and disappointed when guides to finding a suitable lender are published and focus primarily on rates, points and fees. A home purchase is generally the largest financial transaction in which most consumers will ever engage. I appreciate that cost and fees are a large factor when shopping for a mortgage, but there are many other factors to consider when selecting a lender.

“The bitterness of poor quality remains long after the sweetness of low price is forgotten.” — Benjamin Franklin

In addition to costs, what else should real estate professionals and consumers be seeking from a loan officer/lender?

Do they have a signature line in their email that includes their contact information and their mortgage licensing information? This is required by law.
Is their written communication well-produced, utilizing proper language, punctuation? Is it professionally formatted? Does the communication make sense? Is it helpful?
Did the lender offer or prepare any written details pertaining to the loan, like a spreadsheet or preliminary estimate of costs and fees, and a loan product comparison?
Did the lender explain how a rate lock works?
Was your initial call or email returned promptly?
Is the lender available to work with you when you’re available?
When they offer a pre-approval or pre-qualification, do they require that the consumer submit all pertinent financial documents to review before issuing a letter?
Are they fast to respond when needed?
Do they have a team backing them up?
Do they offer to talk with the seller or listing agent about a specific borrower/offer?

This list could go on forever — mortgage financing is complicated, and it requires the services of a confident and experienced professional to guide the consumer and agent through to the closing. Of course, no matter who you call, you’ll always be able to find someone willing to do the job for less, but making a large financial decision based exclusively on price can lead to a stressful and unhappy experience. Be sure to shop for quality service too, so that your real estate closing will be a celebration instead of an aggravation!

We’re here to help you and your buyers do more, learn more and grow more!

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