The current state of lending has it such that the threat of automation, the rising cost of compliance, and the competitive nature of pricing and undercutting. This results in a better-informed client. It has left the industry wondering. Most mortgage companies cannot take the risk of their borrowers defaulting on their mortgage loans. This is why most lenders have implemented lender overlays. Lender overlays are additional lending guidelines that are imposed by individual lenders that are above and beyond the minimum agency guidelines by HUD, VA, USDA, Fannie Mae, and Freddie Mac. Lenders with lender overlay believe agency lending guidelines are too lenient and risky that they need to have higher lending standards. Lender overlays are set by individual lenders. Therefore, not every lender has the same lender overlays. Mortgage companies can have lender overlays on just about anything. Typical lender overlays include overlays on credit scores, debt to income ratio, gift funds, reserves, collections/charged-off accounts, and other risk factors. Gustan Cho Associates has no lender overlays on government and conventional loans. Just because a borrower does not qualify with one lender on an FHA loan does not mean they cannot qualify at another lender with no lender overlays. Over 75% of the borrowers at Gustan Cho Associates are folks who could not qualify at other lenders due to their lender overlays. It is very important for borrowers with prior bad credit and lower credit scores to fully understand the minimum agency mortgage guidelines when shopping for a mortgage. A no at lender A may mean a yes at lender B. Understanding the minimum agency mortgage guidelines is similar to understanding your rights. Most lenders who tell borrowers they do not qualify for a mortgage will not tell them that they do not qualify just due to that lender overlays. However, borrowers who don’t take NO for an answer will start researching the minimum agency guidelines after the fact and find out they meet the agency guidelines and start shopping for a mortgage at mortgage companies with no lender overlays.

Technology is designed to make us more efficient as business people. When we send emails rather than call, scan in docs rather than fax, and market by social media rather than mail, we allow ourselves to make more contacts. This technique has become efficient, more accountable, and hence more effective to our prospective clients. What we also do in the process is to make us less relevant. Lenders will put a great emphasis on the automated findings of the automated underwriting system (AUS). The automated underwriting system has gotten extremely sophisticated over the years. Borrowers with a refer/eligible per automated underwriting system can have their files downgraded to a manual underwrite on FHA and VA loans. FHA and VA loans are the only two mortgage loan programs that allow for manual underwriting. Borrowers normally need a two-year on-time payment on all of their monthly payments to qualify for a manual underwrite on FHA and VA loans.

The importance of mortgage regulations and compliance.

Competition. Since most products being offered are conforming, the pricing, rather than the aggressive nature of the niche becomes the rule of the day. Mortgage companies have to be within 1/2 point of the competition, or they will lose that business. The exception is with big financial institutions whose clients would rather pay higher and deal with them. This is because their credibility is more secure, hence pricing can go up. What we found was when products and markets shrink, pricing goes up because the market share of the bigger banks goes up too. Since they own the market, they don’t have to prices competitive as if there were more players out there fishing for business. Customers must always resent this change, for their cost of doing business is at stake. Unlike consumer products, you will not get the big-box discount when it comes to paying interest, or the closing cost associated with it. There is a cap on how high of a mortgage rate you can charge on borrowers with lower credit scores. There is a cap on mortgage rates on FHA, VA, USDA, and conventional loans. For example, you cannot charge a 10% rate on a borrower with a 500 credit score on FHA and VA loans. After the 2008 real estate and credit meltdown and the creation of the DODD-FRANK Act, new mortgage regulations have been implemented to protect all consumers. This holds especially true for consumers with poor credit and lower credit scores. Predatory lending is no longer allowed.