“Action may not always bring happiness, but there is no happiness without action.” – Benjamin Disraeli
Further to the chapter 71, dig, dig and dig some more.
As you dig into clients’ histories and where they bank, you want to be sure to make it clear that as an independent Mort- gage Broker, you have access to multiple lenders including (when applicable) their own financial institution. And if a client banks with a lender that you have access to, you want to highlight to the client that you yourself also have a strong relationship with that specific lender and that you can work together with that lender on the client’s behalf. In other words, you can act as an independent agent for clients with their own lenders.
If they tell you they bank with a competing lender that we do not have access to, you’d better know the competing lender’s policies. You’ve got to be able to articulate why the client may prefer to be dealing with lenders that you represent rather than their own. This often involves a clear understanding and ability to articulate the nature and benefits of prepayment privileges, prepayment penalties along with the key statistics around them, and an ability to convey the deeper meaning of a collateral charge (see Chapter 35) going beyond “it’s bad” or “they are bad.”
A topic of interest to most clients is that of prepayment privi- leges. Ninety-nine percent of people want robust prepayment privileges. They envision making lump-sum payments on their mortgages every few months.
Statistically, only about 6% of clients will ever use prepayment privileges. But this is beside the point. 100% want the ability. We all want options. The clients’ perception is what matters to them. Deliver accordingly. Do not argue with the client. Avoid throwing stats, facts or logic on this point. It will end badly. People want what they want. And why fight optimism? Optimism is a wonderful thing.
Brokers advise; clients instruct.
One competing lender in particular has fairly restrictive prepayment privileges (a lender we don’t have access to). They allow prepayments of just 10%, on only one day of the year. After that day passes, clients must wait another year to make another lump-sum payment. Most people don’t like the idea of being boxed into something that restrictive. This is a great data point with which one can pry a client away from this lender. It is just one of their Achilles heels. Another restriction of this same lender is the lack of a purchase plus improvements program, which can be another great strategy for clients buying a fixer-upper.
Know your competing lenders, and never be afraid to address the relationship that your client might have with such a lender. Be respectful, as there are tactful ways to open the client’s mind to the opportunities of being diversified, banking with one institution and having their mortgage with another.
It is vital to stress that you are not suggesting they “move banks”, there is no closing or opening of bank accounts. All that is required is a copy of a void cheque from their existing account, and the mortgage payments will flow from there. You are not proposing to end or change their banking relationship, instead the word of the day is “diversification.”
“We have access to several lenders that will allow up to 20% of the original mortgage balance to be paid down each year. You can make minimum payments of $100 every day of the year until you hit the cumulative total of 20% of the original balance. And then it starts all over again the following year.”
“We also have lenders with robust match-a-payment-miss-a-payment plans that allow some very creative strategies.”
Clients want flexibility. It is the same mindset that causes our Apple TV or Netflix wish-lists to appear loaded with docu- mentaries, deep soulful movies, and critically acclaimed art films—all languishing on that list for years on end. One day, you will get to them because you really do “want” to watch them. You “plan” to watch them. Me, too. I have great taste and high aspirations, or at least I plan to one day.
When it comes to credit reports, many applicants say, “I don’t want this to affect my credit rating.” In my experience, the majority of people who are actually concerned about their credit score are the ones with little to be concerned about. They almost always have impeccable credit.
Because of this, I always make a point of complimenting someone who expresses concern. I highlight that few people pay attention to their score.
“Kudos to you for this being on your radar at all. The reality is that a credit inquiry from a mortgage lender for mortgage debt will not have the slightest negative impact on an individual with a strong credit score. Perhaps a one or two-point drop on a scale of 900 points. Multiple credit card inquiries, debt consolidation company inquiries, these are viewed differently for sure. Your concern about your credit is a strong sign that your credit is in good shape.”
Complimentary language and an acknowledgment of their concern go a long way.
The opposite also applies: people who don’t express the slightest concern about a credit check are often the ones with problematic reports.
In the event that the credit report has outstanding collections, late or missed payments, a consumer proposal or a bankruptcy, you need to dig into this deeply personal area gently and with diplomacy and understanding.
If you are on a conference call, or sitting in an office with more than just that individual person there, then your best plan is to gloss over, or flat-out skip, anything negative you see on the credit report during that meeting and instead call the client directly the following day when you can speak to them alone.
Unless clients speak first about the issues you are staring at on the monitor, you are best not to bring up credit blemishes in front of a third party, even when that third party is a spouse— in fact, especially when that third party is a spouse.
Otherwise you risk watching a relationship detonate before your eyes, and you are the one that lit the fuse. Sure the dynamite was always there with the fuse trailing around behind the applicant, but do you really want to be the person that lit it?
There are sometimes deep secrets kept between partners when it comes to money.
On a personal note, if you really want to confirm compatibil- ity with someone, sit down and log in to the credit reporting site and pull up each other’s credit history. There is evidence that a person’s credit history (ability to commit to a financial relationship) closely aligns with their ability to commit to a personal relationship. In other words, your Beacon scores compatibility speaks to your emotional compatibility.
Are you asking your partner about their credit? Are you afraid to? Take a look at the title of this chapter one more time. The truth will set you free, in more ways than one perhaps.
Asking the basic questions is easy, so do so.
Do not trust the ID to give you an accurate birthdate or address. These are straightforward questions—name, dob, home address—and there’s just no excuse for leaving any blank. First, you don’t want to annoy your underwriter with missing or inaccurate information. Second, you are missing opportunities for key bits of relevant information that may seem wholly irrelevant to the client and thus not offered, per the previous chapter.
Q. Is this your current address on your ID?
A. Oh, actually, no, we just moved into my parents’ old home.
Q. Oh, why is that?
A. I inherited the home recently.
Q. Are you currently on title as the owner?
A. Oh, yes. Does that affect my first-time buyer status?
Indeed it does. Glad I asked.
Asking clients about separation or divorce is harder. Lend- ers are typically going to want a formal written separation agreement that clearly spells out whether the applicant(s) are obligated to pay spousal support or child support. Using round numbers, if an applicant is paying $1,200 a month in spousal support, they would in turn qualify for $200,000 to $300,000 less mortgage money than otherwise.
You can see how this is a material question to be clear on prior to your Realtor referral source showing them 50 homes and writing an offer on one. Um, yeah—make that your ex– referral source.
Get clarity on marital status and, if separated, the status of the separation agreement. If it is still incomplete, ask how amica- ble things are, as there are lenders that will fund a mortgage in certain cases with just a statutory declaration confirming that no support payments will be made.
More on credit
Be crystal clear with clients on the value and importance of checking their credit thoroughly up front. If challenges do arise, we want them to arise early on. We don’t want to be chasing down a credit issue in the final days leading to completion. It’s not uncommon for clients to have unpaid parking tickets and not realize they are hurting their credit score quite significantly.
I learned a hard lesson about checking credit early on. The applicant was a lawyer with a six-figure income and a 30-year track record with the same firm. He had a down payment of more than $1M on a $2M purchase. A stable applicant with more than enough documented income to qualify—this file was a slam dunk! (Never say those words, ever.)
But he didn’t want me to check his credit.
Foolishly, I didn’t push him hard on it. I was a rookie, and I gave him the power in the relationship. He was older, more established and more successful than I, and before I knew it, I had slid into a subservient mindset telling myself I was lucky to have him as a client and that I should let him drive the bus. Bad idea!
You are the Broker; you are the one with the power in this relationship. Do not give up your power, and do not under- estimate it. Do not make the mistake I did. Hang on to your authority, and always insist on an upfront credit check.
This client wrote his offer, got busy for a few weeks and did not mention it to me. Why would he? He knew he was awesome, and his financing would be a cinch. He would get around to it eventually.
With just a few weeks until the completion date, he let me know he had an accepted offer. The period for conditions was over; the deal was firm. And so we at last pulled up his credit report in order to submit the file for approval.
The credit score was below 600, hovering at 587 as I recall. Game over with 95% of lenders.
Few lenders will look at an applicant with a score that low regardless of what the applicant does for a living. If credit starts with a four or a five, the file is in trouble. And that means you’re in trouble.
In this instance, the son was the culprit.
This applicants wonderful son had been running down to the mailbox every morning, rain or shine, and had been pulling the unpaid parking ticket notices (that he had gotten while driving Dad’s car) from the mail and tossing them. He amassed not one, not two or three, but 13 unpaid parking tickets.
I’m not sure why the man hadn’t received any phone calls from the city before they sent the unpaid tickets to collections; perhaps the son was taking his messages, too. In any event, this annihilated the client’s credit score without his knowing.
We found a solution; we always do. But it was a stressful week—stress that need never have occurred.
The solution was a balance-sheet lender, a bank with whom the client had an old savings account on file with a balance of a few hundred dollars. That old account and small balance were enough for the underwriter to call it a “client relation- ship” and justify making the credit exception due also in part to the detailed explanation provided in the submission notes.
Big banks can be a Broker’s best friend. Do not vilify them, ever.
A number of parties involved in the mortgage approval pro- cess will tell you one way or another that your emergency is not their emergency.
You may be concerned about rapidly approaching condition dates or completion dates. But other than your client, yourself and the Realtor involved, not a whole lot of other parties are particularly concerned about this transaction completing on time. You are the one who has to stay in charge and in touch with the file.
Be sure you are working with complete information up front at all times. Maintain control of the relationship and of the file. In the end when things break down, it will almost always be a Chapter 55 scenario (everything is your fault).
chapter tip: Do not give up the power in the client ∕ Broker relationship. If a client starts trying to tell you how the process is going to go, you must push back for their own good. Cite the fact that you are a licenced individual, and part of protecting that licence is that certain steps occur in a certain order, and more than just protecting your licence, you are protecting your client’s best interests. Push back. Stand your ground.
chapter tip: Most mortgage software is time sensitive to keystrokes. You may have a stack of fields filled in while speaking with the client, and then digress onto a tan- gent and forget to hit save. Learn to hit save regularly. Nothing is worse than re-asking the same questions ten minutes later.
chapter tip: When working up a pre-approval, be certain you are entering both a relevant property tax figure into the file and the appropriate heat allowance (and if applica- ble, strata [Condo, HA] fees). If not, you could be sending the client (and the Realtor) out on a wild goose chase with their budget as much as $150,000 beyond reality.