Full Disclosure Lending: Do You Get Dollars or Donuts?

Success in Real Estate is proportional to your reputation as the expert in your community. An integral part of your expertise flows from the team of affiliates you “partner” with on your transactions. A key partner is your mortgage originator. What should you look for and, more importantly, expect from him or her? The answer may depend on which side of the transaction you represent. Let’s take a look at the general services you should expect and then the specific services that your originator should provide to listing and selling agents:
GENERAL SERVICES
These are the basic skills and services that your originator should provide in an ongoing manner:

• News and information on new programs and how these new programs can assist you in building your business
• Economic updates that summarize the movement of interest rates and the economy. If your originator is handing you rate sheets but cannot tell you what the economy is doing on a macro scale and explain in one or two sentences what is driving those interest rates, find someone new immediately. You can look rates up anywhere; your originator should provide context and meaning to economic numbers so that you can present an informed opinion to your buyer or seller.
• Marketing assistance. RESPA laws limit the financial contribution and good health limits the “donut” contribution, but all of your affiliates should share marketing ideas with you and your loan originator is no different.

LISTING AGENT

What’s that, you don’t think the L/A has much interaction with the mortgage originator? Think again; a listing agent has a vested interest in the originator. Here is the minimum you should expect from the Loan Officer qualifying the buyer on your client’s home:

• Approval Letter – the approval letter should be just that: an approval. There are 3 basic types of loans: A-paper, alt-A and sub-prime. A-paper should be run through DO or DU. Alt-A and sub-prime lenders almost universally have online Underwriting programs and sub-prime lenders will often review the actual documentation and issue an approval prior to the property being found. You should receive a copy of the appropriate approval with the purchase offer or soon thereafter: have your originator review it. (Just remember, when it comes to online approval engines: “garbage in, garbage out”.)
• Good Faith Estimate – many lenders will not release the particulars of the loan to the seller, but they should be willing to release the GFE. Run it through the “smell test”: if it looks too good (or too bad), odds are the buyer will come to the same conclusion and your closing will, at the very least, be delayed.  Your originator should be able to provide you with valuable insight after reviewing the buyers’ GFE.
• Loan Parameters – get the particulars on the buyer (credit score, stated vs. full doc, assets) and run them by your loan originator. Make sure the proposed transaction sounds reasonable.

SELLING AGENT – you have the greatest stake in the expertise and service of your originator. When you send your client to someone, you want it to lead to referrals, not finger pointing.

• Approval Letter – no different here than for the L/A. Your originator should provide you with one before you ever begin to show properties to your clients. A pre-qual letter and to a lesser extent a pre-approval letter are worth little more than the paper they are written on.
• Good Faith Estimate – here your expectations should differ a little from the L/A; you should expect more. Your originator should provide a GFE that not only passes the smell test, but that they GUARANTEE. The lender should know their own fees to within a couple of hundred dollars and they should guarantee that they will pay the difference if they are wrong. For that matter they should be able to guarantee third party fees to within a 5% margin. If they cannot, you are working with someone that does not do their homework and this will come back to bite you eventually.
• Rate Lock – you should ask for and see a copy of the rate lock guaranteeing the rate they are promising. If they do not have the rate locked there may be a legitimate reason, but you AND your buyer should be able to articulate that reason. That is to say, the reason should be client driven and not because the originator is gambling on the market (with your client’s home and your income).
• Full Disclosure – your originator should disclose exactly how much they are making on the front end and the back end. The back end is commonly called rebate or YSP. This is defined when the rate is locked (another good reason to see that rate lock) and is in direct relation to the rate your client is being charged. If you want referrals from your client, start with assisting them in knowing the truth about the cost of their loan.

Finally, and in my opinion most importantly, is attitude. Your originator should view you as a client too. They should be willing to work at least as hard as you do to get the deal done while maintaining an almost brutal honesty. It goes without saying that you should not have to wait for return phone calls but this is still the #1 complaint I hear when holding training classes for agents. In a very real sense, the loan originator has your commission in their hands… do they understand that?

This list is by no means exhaustive. Receiving donuts, magnets and other gifts might be nice, but the information and expertise your originator provides is the measure of their true value.

Filed under: LENDERS, REALTORS , listing agents, loan officers, selling agents