Continuing my series with of borrowing knowledge from lenders comes this from Ken Malinowski with Movement Mortgage. Takeaway: before you go see a lender, get a qualified recommendation from someone – preferably a trusted Realtor.
After 16 years as a mortgage loan officer, I guess I shouldn’t be surprised anymore. There are constant industry changes, new regulations and a constant flow of information that affects the process of financing or refinancing a home. Yes, it can be more challenging to obtain a loan today. In my opinion, someone, somewhere, did something bad.
In response the industry now has a policy, procedure, form, or documentation requirement to ensure that it never happens again. I accept that. I also do my best to educate every client on the process and set clear expectations. I wish everyone in my industry did. Loan officers historically have a variety of ways to market and sell our services. Direct mail, word of mouth, email, event sponsorship, etc. I remind realtors and clients often to think of me simply to offer a second opinion to their clients. That used to mean that I would put my rates, fees and loan programs up against a competitor and the client could look at them both and pick the one that best served their needs. Many times, it was a cost savings that tipped the scale in one direction. Other times, it was a completely different loan program that just made more sense for their family. Today though, the second opinion takes on a whole new meaning. I guess I can call it the straw, the tipping point, etc., but today I’m upset and frustrated and quite frankly, a little angry.
Last week I met with two different families who both came to me after speaking with another lender some time ago. They sat down with a loan officer and received advice on what they needed to do to prepare to buy a home. They trusted this professional and the advice he/she gave and followed it to the letter. They both expected their credit scores to rise as a result of their efforts. They were hopeful that the increased credit scores would enable them to obtain a loan with more favorable terms. Fast forward ahead a couple of months. Their realtor encouraged them to contact me. They were shocked to see that the actions they had taken actually had the opposite of the intended result. Their credit scores were now lower than several months ago. Basically they were told to pay off old collections prior to formally applying for a mortgage. By paying off these 3,4 and 5 year debts, the date of last activity on their credit report now showed current instead of being several years old. As a result, the credit scoring models actually lowered their score. I know what you’re thinking, “paying of debt should be a good thing!”. At the end of the day, paying of a debt IS a good thing. But in some cases such as charge offs and collections, it can actually have the opposite effect on your score.
Basically they were given inaccurate information. The advice they were given was wrong. Both families could still obtain a loan, but the loan program was different, the terms weren’t as favorable as they hoped. I felt terrible for them. I’m certain that the lenders they spoke with had the best of intentions and were trying to help. I’m certain they also fully believed the advice they were giving was accurate. They just happened to be wrong and it backfired. Look we are all human, and as human beings we will be prone to mistakes. I’m far from perfect and I’ve had my share of apologies to make in the last 16 years. I just get really upset when I hear of instances like this.
When Jim and I talked about this at the coffee shop, he asked me what I thought the client could have done differently to protect themselves. That brings me back to the beginning. I believe that the term “second opinion” no longer just applies to interest rates, closing costs or loan terms. It also need to apply to the knowledge and advice you’re given by today’s mortgage professionals. The industry is rapidly changing, clients need to protect themselves Ask lots of questions at your appointment. Get a second opinion. Talk to another lender. Ask your real estate agent who they trust. Search the internet for the advice you’re given and read the articles that pop up. Often you will be able to discern for yourselves if the advice you’re given is correct. I did a quick google search for “does paying off old collections hurt my credit score” and the very first article dispelled that myth in just a few sentences.