topic Re: Loan denied by underwriter because we mortgage shopped! in Mortgage Loans

Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 15:08:26 GMT

Ok, so we moved forward with a conventional loan, and then just found out today that the underwriter is denying because they have a conventional underwriting overlay guideline that states "Borrowers with 4 or more mortgage inquiries in the past 90 days are ineligible in FL or AZ". We are in FL. This seems like the craziest reason ever to deny a loan, or am I missing something? We had 4 mortgage inquiries over a 2 day period when we were shopping for the best loan/rate for our situation. Isn't that what all the consumer experts tell you to do, be a smart consumer and shop for the best and fairest loan for your situation, and do it all within a short period of time so it only counts as one inquiry against you in your FICO score computation? And we have had no other credit inquiries in over a year besides these 4 mortgage credit inquires over a 2 day period. I am utterly confused.

We are working through a mortgage broker and he had me draft up a sappy letter that he is submitting to the underwriter and he indicates he will call the underwriter a couple hours after sending it to beg for mercy. Hopefully the underwriter will grant an exception for us. Since it is an overlay guideline and not a Fannie/Freddie requirement, hopefully there is some wiggle room. Because if after all our hard work to get our credit in shape, pay off revolving debt, save for downpayment, etc., if we can't get the loan because we were doing our due diligence and being smart consumers in shopping for a good loan product just like everyone, including the government, tells you to do, I just might pull what's left of my hair out.

Has anyone ever heard of such a thing? Any advice?

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 15:17:24 GMT

OMG that's horrible, good luck to you. I thought that all inquiries within a short timeframe were supposed to be considered 1 inquiry. I am curious to see what the mortgage professionals will have to say about this.

Re: Loan denied by underwriter because we mortgage shopped!

Lel — Tue, 13 Jul 2010 16:08:06 GMT

That's the first time that I've ever heard of someone getting denied for too many mortgage inquiries. Like you mentioned, it's generally advised to shop around for the best rates and terms when trying to make one of biggest financial transactions in your life.

It doesn't sound like this is an issue with FICO scoring. You're right, all mortgage inquiries that occur within a certain time frame (14-45 days, depending on the FICO score model) are scored as a single inquiry. However, the inquiries still appear on your credit report, so anyone who pulls your reports will see them.

Does your loan officer work with other lenders that can offer similar terms? Not all lenders and their underwriters have the same criteria. Still, you might be successful in your appeal.

It seems probable that these guidelines were set because of the weak state of the housing markets in Florida and Arizona. The 90 window specified in the UW's guidelines makes me wonder if they're concerned that multiple inquiries = multiple rejections, which would suggest to the UW that there's either a problem with the borrower or a problem with the property. You can obviously make the case that these 4 mortgage inquiries didn't result in denials.

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 16:15:26 GMT

Oh wow. That's awful. Yes, you did precisely what a smart consumer should do from a credit perspective. From a FICO perspective, everyone in this forum is right on. As a lender, we rarely hear consumers saying there was a drastic difference in my score v. The other guy's, regardless of who was first or second. When it is different, it is due to different info--not inquiries.

What you are seeing actually sort of makes sense if you think about how brokers actually work. They have no money, underwriters, or control.

So a lender or mortgage bank sees this every day. Example: We sell direct to Freddie Mac plus Banks A-Z. If Bank A has an odd guideline (yours would qualify) we just deliver your loan to bank B-Z or Freddie directly. It's part of a grand corporate initiative to help prevent hair loss.

Mortgage brokers are like football teams that only run Hail Mary's on offense. Your whole loan is committed to Bank A immediately, thus shutting off Freddie (who brokers can't sell to) and Banks B-Z. The whole premise of "shopping lenders" is also cut off--you have your rate, your fees, and your approval all in one basket--Bank A.

For whatever it is worth, your story is exception worthy. If Bank A has a problem with it and that's the only issue, you'll either get an exception or you'll easily find someone that would be interested in the loan--frankly, with the way the market has moved, you'll probably save money if you get an answer soon enough.

Good luck,

Chris

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 16:55:08 GMT

Thanks all for the notes of encouragement and for helping reassure me that I'm not crazy, that this is indeed a very odd reason to deny a loan. And you guys are right on about FICO scores, the issue wasn't that my FICO score changed because it hasn't, the issue is simply that I have 4 credit inquires related to a mortgage loan within the past 90 days.

Lel, your comment about perhaps the bank believes "multiple inquiries = multiple rejections" and thus indicates a problem makes some sense, maybe that is what they are going after, but I am hoping that the fact that 3 of the inquiries were on one day and the fourth was on the very next day will illustrate that this is not the case with our application, we were simply shopping.

I guess for now my wife and I will keep our fingers crossed that the underwriter shows some compassion (and logic!) and grants us an exception, otherwise we'll just start all over!

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 17:13:30 GMT

Adding to Lel's point, the other concern is "multiple inquiries = multiple closings." What scares us is that you have four inquiries to set up four simultaneous "owner occupied" loans.

Underwriters are nicer and more logical than their reputation would lead you to believe.

Good luck,

Chris

Re: Loan denied by underwriter because we mortgage shopped!

DallasLoanGuy — Tue, 13 Jul 2010 17:26:26 GMT

That is a new one on me

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 17:28:15 GMT

Hmmm... I can see the logic in that concern too. But there has to be a balance... mortgage consumers are told to shop. Maybe consumers need to be told to shop but don't shop too much or it will look like you are trying to commit mortgage fraud? ;-) If I had just gotten three GFEs instead of four we wouldn't be in this predicament.

I am holding out hope that the underwriter reviewing my file and reading my sappy letter explaining that my wife and I were just trying to do our due diligence and be smart, savvy consumers is indeed nice and logical!!! :-) Thanks for your well wishes, I'll post an update as soon as I have one.

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 18:51:01 GMT

No luck... underwriter took our letter/request for exception to management and they denied. Good grief. Feel like I've been punched in the gut... penalized for doing what I was supposed to do.

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 19:24:27 GMT

That stinks. You did do the right thing, it's just not easy to shop these days. It's really hard to guess which lenders are the tiny ones from a GFE.

You did prompt me to double-check my lenders--I can't even figure out who that broker was trying to use. I can't see any such "hard" guideline...it's just something underwriters are supposed to check.

Direct lenders will need +/- 21 days to go from hello to closed...do you have that much time?

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Tue, 13 Jul 2010 20:30:42 GMT

It was Flagstar. Doc #6144 according to the info the underwriter gave my broker.

Re: Loan denied by underwriter because we mortgage shopped!

favor4me2 — Thu, 15 Jul 2010 04:20:31 GMT

Sorry to hear about your situation. Unfortunately now you will have to shop for a different lender, which will result in another inquiry. My suggestion would be to find a lender out of the state that doesn't have those guidlines. I got one better for you after months of looking for a house going through the Neigborhood Stabilization Program (NSP) in the state of Nevada, and following all of the guidlines like finding a house in the approved zip codes, we get to UW and finally get ready to close, only to find out that the bank has dropped the zip code and no longer lends to that area. Imagine my dissapointment 3 inq later with the same bank in 3 months. WTH!

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Fri, 16 Jul 2010 17:04:29 GMT

Did they give you the denial in writing? Are lenders required by law to notify you of the reason for denial in writing?

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Fri, 16 Jul 2010 17:19:40 GMT

Yes, they gave me the denial in writing, it is a form. But actually since I last posted things have changed a little bit. Through my pleading and the broker i am working with's pleading, Flagstar has asked for letters from the other lenders who generated the other inquiries on our credit confirming that we do not have active applications with them. I have gathered those and just submitted them this morning. So maybe, just maybe they are having a change of heart. Fingers crossed!!

Re: Loan denied by underwriter because we mortgage shopped!

ShanetheMortgageMan — Sat, 17 Jul 2010 18:17:54 GMT

This is a Flagstar Bank underwriting guideline, and I'm not sure why the just make it specific to Florida & Arizona (although it appears it may be due to the declining values in those states). Any other lender should be OK with this. You have to explain what the inquiries were from, but others lenders wouldn't deny (unless they are underwriting using Flagstar's guidelines).

Re: Loan denied by underwriter because we mortgage shopped!

Anonymous — Wed, 21 Jul 2010 17:16:57 GMT

Thanks Shane and to others who have commented. Turns out we've struck some good luck... after submitting letters from the other lenders who generated the credit inquiries (with each letter explaining that we did submit a mortgage application with them but did not proceed and do not have an active application with them), Flagstar has had a changed of heart! I received word yesterday that they have granted an exception to this requirement and have now removed our application from the "Denied" category and it is now proceeding through underwriting again. Whew!

Re: Loan denied by underwriter because we mortgage shopped!

ShanetheMortgageMan — Wed, 21 Jul 2010 18:26:16 GMT

Congrats, glad Flagstar made an exception, it's a silly guideline IMO.