Confessions of a Loan Officer

[Threeof5]

Denying a loan application is one of the unfortunate parts of my job. I spoke with a borrower on Friday who upon being informed we weren't able to move forward on her loan, told me I must love giving out denials and ruining peoples' lives. This couldn't be further from the truth.

A loan officer loves to approve a loan for a borrower. It's the reason they work in this line of business. It doesn't mean we aren't human as well. Earlier this week, I had to ultimately deny a loan that had been approved for some time. It was an income issue that until that moment, was unknown would become a disqualfying factor. I was bargaining and pleading with the underwriter but it couldn't be overcome. Did I mention this loan was essentially "clear to close" at this point? Once I had exhausted every other avenue, I was sick to my stomach. These are the hardest calls to make. After the expected yelling and swearing, the borrower calmed down as I explained the issue, and how hard it was for me to make this call. By the end of it, the sadness in their voice was obvious.

Sometimes, borrowers simply can't qualify. Some denials are understood, and the borrowers know it. But I promise you, there's no joy in a denial. 

[Anonymous]

Can you disclose what the income issue was?

[Threeof5]

I'd rather not be specific about it, but I can say it involved a nonemployment type of income they would have to been receiving for at least six months prior to show stability. Unfortunately, this fact wasn't known to me at the time of being a qualifying factor. It's an uncommon issue that came up at a very unfortunate time in the process.

[Anonymous]

I can't imagine having to make that call.  Is this something that you have to deal with a lot? As someone going through the loan process right now I keep telling myself to trust the pre approval knowing that I've been upfront with everything but at the same time I'm preparing myself for something to fall through for whatever reason. We are supposed to close in just over 2 weeks so I'm sure my nerves will be on edge from now until the end of the month.

[Threeof5]

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@Anonymous wrote:

I can't imagine having to make that call.  Is this something that you have to deal with a lot? As someone going through the loan process right now I keep telling myself to trust the pre approval knowing that I've been upfront with everything but at the same time I'm preparing myself for something to fall through for whatever reason. We are supposed to close in just over 2 weeks so I'm sure my nerves will be on edge from now until the end of the month.

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It happens very infrequently, maybe once or twice, not including the situation this week, where the borrowers were essentially clear to close and I had to deny them. One situation from last year, they admitted to a credit card which was not reporting to the bureaus but we saw payments to it coming out of their bank accounts. Adding this new obligation blew their DTI out of the water. Even though they kind of did it to themselves, that also was not a fun call to make. I'm in a unique situation where I originate and act as the processor on my loans so I develop a rapport with the borrowers during the process, thus making a denial call, especially after an initial approval, that much harder.

Generally, if you satisfy the lender conditions and get a "clear to close," there's little reason to be nervous at that point. Regarding my original example, this loan was being underwritten by another lender, whom I've used many times, and they threw a disqualifying factor at me, seemingly out of left field. This is why I pushed back at them so hard as this is something they should have seen earlier in the process, as they already had the documents to have seen this income issue.

[andyaycw]

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@Threeof5 wrote:

I'd rather not be specific about it, but I can say it involved a nonemployment type of income they would have to been receiving for at least six months prior to show stability. Unfortunately, this fact wasn't known to me at the time of being a qualifying factor. It's an uncommon issue that came up at a very unfortunate time in the process.

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Assuming this is a Fannie/Freddie lender, I think I know exactly what type of income you're talking about. Regardless, sounds like the underwriter messed up. If they credited that income, they should have asked for the 6 months evidence prior to issuing a clear to close.

If everything was done correctly, then at the very worst, the loan simply would have been conditionally approved, with one of the requirements being 6 months proof of receipt of the income, at which point if the borrower could not produce it, the loan would be declined. 

[Anonymous]

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@Threeof5 wrote:

It happens very infrequently, maybe once or twice, not including the situation this week, where the borrowers were essentially clear to close and I had to deny them. One situation from last year, they admitted to a credit card which was not reporting to the bureaus but we saw payments to it coming out of their bank accounts. Adding this new obligation blew their DTI out of the water. Even though they kind of did it to themselves, that also was not a fun call to make. I'm in a unique situation where I originate and act as the processor on my loans so I develop a rapport with the borrowers during the process, thus making a denial call, especially after an initial approval, that much harder.

Generally, if you satisfy the lender conditions and get a "clear to close," there's little reason to be nervous at that point. Regarding my original example, this loan was being underwritten by another lender, whom I've used many times, and they threw a disqualifying factor at me, seemingly out of left field. This is why I pushed back at them so hard as this is something they should have seen earlier in the process, as they already had the documents to have seen this income issue.

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We haven't received the clear to close yet. I'm not actually sure if my file has been sent to underwriting yet or not. Hopefully we will have a update by the end of this coming week!