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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About Amy Tierce

As one of the top rated mortgage professionals in New England, Amy is sought out both locally and nationally to speak at mortgage industry events and training programs including the “Turn on Your Million Dollar Brain” workshops. Amy has also been featured in both radio and print media including the programs “Financially Speaking” and “Money Matters,” and “Mortgage Originator” and “Banker and Tradesman.” Amy regularly shares her industry knowledge via her “Fairway Promise” blog to keep clients and industry related professionals apprised of the latest news, trends, and tips in the mortgage industry.

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