Lender Shopping — A Case Study

Be the Better Broker Voume 3

An excerpt from Chapter 77 of Be the Better Broker Volume 3.

All lenders are not created equal. So don’t give up because one lender declines a file.

An item that will trigger Lender 1 to decline a file will be accepted with no problem at Lender 2. But then, something else entirely may cause Lender 2 to decline the file—something Lender 1 had no problem with. Two declines for totally different reasons. It can get very interesting.

And by interesting, I mean painfully frustrating.

My client #23 had been turned down by a bank, a credit union and another far more experienced Broker who had worked the file for a few weeks. On the good word of my CFP (having people who believe in you is everything in this business), this client called me — a rookie at the time — and placed his trust in me.

Client #23’s file was composed of an owner-occupied property and two rentals. It contained income challenges and credit challenges, and the subject property itself was yet another challenge.

Lender #1 declined due to community size.

Lender #2 declined due to age of the building.

Lender #3 declined due to a conservative rental calculation, which threw the ratios over the limits. (I lost sight of this when submitting as I was focused on the community and building age and did not update the file formula.)

Lender #4 was OK with community, age and ratios, but declined due to its status as a self-managed strata.

With Lender #5 we ticked all the boxes but one: it was turned down because the client’s commission-based income had declined for three years running.

Do you see what’s happening here? This million-dollar glass slipper is not fitting anyone at all. Too short, too long, too narrow, too wide, sigh…

All lenders are not created equal.

And knowing this, we can stay positive and not give up. Five no’s are not an issue, just a challenging start. To be fair five no’s largely reflected that it was only my 23rd file.

Keeping the client on board

A massive amount of this job is managing client expectations. A Broker’s job is not simply to keep the clients off the roller-coaster ride that a mortgage approval can be, but to shield from view the entire roller coaster itself.

Clients are far more prone to quitting if they think you are quitting. By the same token, clients will go much further than you expect if you demonstrate how far you are willing to go yourself.

Confidence is contagious.

Make it clear that you will require a few days, or perhaps a few weeks, to go away and quietly work on the file. Provide a daily email update… brief, perhaps limited to “we are far from the end of the road with several more lenders to speak to.”

Take your collection of no’s and have one fact-finding conversation with the client… and perhaps an answer arises—a co-signer… a car that can be sold off and the payment gone… some money that can be gifted from a family member to reduce some debt… a new tenant at a higher rent… refinance of one of the other properties in the portfolio to lower the overall debt servicing, and so forth.

The hunt continues

Lender #6—OK with all of the previous challenges but declined due to a lack of liquid assets; $50,000 per property, which even after getting an exception to $25,000 per property, was in vain. The client had slightly overstated his assets during the application as his wife was present on the opening call and was unaware of the true state of their liquidity. When asked for supporting statements the truth came out. (Always get the documents as early in the process as possible.)

This last challenge got me looking at the equity in one of the other properties as a possible antidote to meeting the liquid assets challenge. The proceeds from the subject property were clearing up debt. I repackaged the file as a two-for-one, and after calling just about every living BDM in the province, I had an idea of where it might work.

Lender #7 approved both files with one caveat: a $30,000+ CMHC premium paid by the client.

This might sound like a showstopper, but the combined total of the financing was $1.3M, and the new dual approval plan was freeing up far more money than the client first thought was possible, which would allow updates to two suites in one of the rental properties thereby increasing cash flow. And the net monthly cost was dropping due to the superior rate and re-amortization.

Also, the savings of eliminating nearly $200,000.00 of higher-interest debt took the edge off the $30,000.00 premium.

Lucky lender #7.

Lucky client.

Broker creating luck through perseverance.

This lender search included two banks, two monolines and three credit unions. It was a credit union that won the day.

The moral of the story is that it can take some time to find a yes amongst a crop of otherwise similar lenders, and you must never stop asking questions.