Pre-Approvals After August 1, 2015
How to handle pre-approvals after TRID comes into effect.
A lot of lenders find they need to offer pre-approvals to be competitive in this environment (and, of course, this is attractive to realtors and, therefore, important for companies with a purchase-oriented focus).
BUT - there's been an ongoing debate since 2010 over how to offer pre- approvals. Some argue you can't require verifying docs before the early disclosures go out. Others disagree. Some say you can require verifying docs if you don't have an "application" (for these purposes). Others take the opposite position.
It seems as though this argument is continuing into 2015. We don't think it should. In our view, the issues confusing this process have been settled by the new rules set to take place in August.
Process for Delivering Pre-Approvals
As we see it, TRID requires a 3-step process for sending out pre-approvals.
First - deliver the Loan Estimate (this must come before a pre-approval is provided or verifying docs are required). The Rule says that the lender "shall not require a consumer to submit documents verifying information related to the consumer's application before providing the Loan Estimate." (1026.199e) (2)(iii)).
Now, some are arguing there is no "application" under TRID because there is no property address. But we just can't agree with that interpretation. The official commentary clarifies that the lender "is not permitted to require, before providing the [Loan Estimate], that the consumer submit documentation to verify the information collected from the consumer." I think that settles the issue.
Second - you must gather verifying documentation. You can't issue a true "pre-approval" without verifying the information the borrower submitted. If you did, there would be too many conditions and this would equate to merely a "pre-qualification" - not a real pre-approval. (and over-selling a pre-qualification as a pre-approval is misleading and a UDAAP violation anyway.)
Third - provide the pre-approval. Now, other than property-related conditions (e.g., this is going to be a single family residence), you're going to be bound to the offer of terms in the Loan Estimate. And with more fees included in 0% tolerance under TRID, it will be that much more important to get it right.
I guess what we're trying to say is that you cannot -
Give a pre-approval before disclosing the Loan Estimate
Require verifying docs before disclosing the Loan Estimate
Give a pre-approval without verifying documentation
Note: Use Town/County Where No Address
When providing the Loan Estimate, lenders will likely be smart to limit the area to a specific town, in a specific county. This will allow for the estimation of applicable taxes, etc. that can vary by geography. Remember --> when you deliver a Loan Estimate without a property address (which you're forced to do to deliver a pre-approval) subsequently adding an address cannot be a changed circumstance ... this is the risk a lender takes.
**And don't forget this doesn't affect HMDA ... even if you don't have a true pre- approval program under HMDA (requiring you to report pre-approvals), you might do pre-approvals occasionally that must meet these requirements**
What are your thoughts? Will you offer pre-approvals post-August 2015? Or will you stick to pre-qualifications? (Obviously, this is going to depend heavily on your conversion ratio--if you're only converting 50% of pre-approvals to loans, it's probably not making financial sense to keep having your underwriters do all the work on these pre-approvals!)
In other news:
If you're in the area tomorrow (Thursday), stop by the Fireside Grille where Spillane and crew are hosting the SNECG's annual educational seminar. We'll be talking TRID, Fair Lending, HMDA, and all kinds of other great topics! Contact Keri Gomes for tickets at KGomes@baycoastbank.com.
Did you hear the one about the $5 million fine where compliance and other employees were taking mandatory testing for loan officers? No joke!
Do you ever struggle to keep track of everything you have going on? You might benefit from some type of mind-mapping software, here's a free software that I use called XMind. It's the same idea as where people write everything down on a bulletin board in their office, but it doesn't require a bulletin board. I find it incredibly helpful.
Trying to motivate your staff? I guess you could take a page out of Alec Baldwin's book and implement a "coffee is for closers" policy (see the youtube video here, or look up the uncensored version yourself). Of course, there's always SNL's alternative "cocoa is for cobblers" ... But you're probably better off paying attention to key motivators. According to "FYI. A Guide for Development and Coaching" (c) 2009, the top motivators are: Job Challenge (first), Accomplishing Something Worthwhile (second), Learning New Things (third), Personal Development (fourth), and Autonomy (fifth). Surprisingly, here are some less important motivators (still high, but not as high as you'd think!): Pay (17th), Friendliness (14th), and Praise (15th).
"Trust is the lubrication that makes it possible for organizations to work."
- Warren C. Bennis
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**These are our opinions. We're not authorized, or willing, to express those of others.**