Pre-approval Letters devalue like the dollar!

By
Mortgage and Lending with Capitol Mortgage Corporation

As the value of the dollar continues to crumble so too does the value of the pre-approval letter. For a long time we wrote, as Brokers, a pre-qualification letter and we gave that to the consumer. This letter was the letter that they would show to their Real Estate agent and it would accompany the offer. Then the boom came and Real Estate agents were swamped and so were we so the need for a PRE-APPROVAL letter became the dominant force.

Let me pause for a moment and explain the difference. A pre-qualification letter can be given to any walking soul that states they have a job, decent credit, and some money in the bank. It is generally issued based on a conversation versus documentation. Pre-approval letter's are issued after the loan officer has taken a full application and reviewed the credit report, income documentation and assets. A pre-approval letter is a further form that may even involve an automated approval prior to writing them. (This is what I do in the current market).

So, what I was saying was Pre-approval letters used to mean something when the offer was written. The dollar used to be a force among all currencies also. The dollar has been smacked and the value is much less. In fact that is the conundrum a weak dollar while inflation is an issue. I once called it a double edge sword. I can now say that I feel the same as the pre-approval letter. With the emergence of REO's in the market place it is very common that the bank request a pre-approval letter from their institution. My approval letter has lost all credibility. What I have been having to do is send my approval letter and my findings (automated approval) and most institutions have used this to write a letter for me.

However, I am not always so lucky. As we fight for the deals that are on the table I have had banks want all the information that I used to get the automated approval in their attempt to borrow my borrower. To put this in perspective getting automated findings is like getting a listing appointment, meeting with the consumer, filling out all the paperwork and when you get back to the office handing to another agent for them to do. It is not all the work but it is the hardest work of the process. If everyone could get clients easily everyone would be in Real Estate. It has been my fortune that my clients want to work with me so this is less of a problem.

Pre-approval letters are now virtually meaningless if the property is bank owned. The Broker has lost credibility. Everyone is afraid that the deal will fall through. Honestly, I understand the fear of a deal falling through. Deals have not all fallen through because of Broker misrepresentation. Washington Mutual shut down their wholesale division. If I had my client approved through Washington Mutual and we were in contract moving forward and the bank closes shop unexpectedly whose fault is it? It could happen no matter who writes the pre-approval letter.

In conclusion, just like the dollar has lost value in the market place so has the pre-approval letter. It is the result of a mess of things that are out of our control. I have learned to deal with it but it still bothers me. I am in the business still because I am good at my job. I have a good reputation when it comes to my clients and the people that I work with. I certainly have my faults but overall I am here and closing deals. I am eager to get back to a point where my word has some substance. The same world that my dollar actually affords me a good meal and more than a 1/4 gallon of gas.

 

 

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Rainer
28,930
Jimmie Graham
Keller Williams Realty - Ypsilanti, MI
LoL! i like your post a lot.  You bring some good insight on the pre qual and the pre approval.  I hope things continue to get better for you!
Apr 10, 2008 10:00 AM #1
Rainmaker
737,767
Chuck Carstensen
RE/MAX Results - Elk River, MN
Minnesota Real Estate Expert
I remember the pre approvals I got being really worthless.  Now they are for the most part better qualified and normally go through.
Apr 10, 2008 10:08 AM #2
Rainmaker
700,923
June Piper-Brandon
Century 21 New Millenium - Baltimore, MD
Piecing Dreams One Home at a Time
Great post!!  Preapproval letters used to mean something but like other great things they have been devalued by the integrity of the industry.
Apr 10, 2008 10:08 AM #3
Rainmaker
42,665
Ryan Bretzel
Keller Williams Premier - Stillwater, MN
This is very true.  With the ever changing lending industry pre-approvals only last so long.  What does that mean...Buyers don't sit around so long otherwise you might be financially un-approved.
Apr 10, 2008 10:16 AM #4
Rainer
12,121
Jacob Webster
Sagamore Home Mortgage, LLC. - Zionsville, IN
Indiananulls Senior Mortgage Consultant
Great post.  Everything in this industry anymore has to be valued at a higher level than ever before.  More and more realtors are asking for true pre-approvals (Fannie Mae/Freddie Mac/FHA) than ever before.  Thanks for the great post.
Apr 10, 2008 10:35 AM #5
Anonymous
Matt

Thank you all for the comments. This business is fun and funny at the same time. Never the same twice. Keep learning and keep earning.

 

Apr 10, 2008 11:11 AM #6
Rainmaker
298,541
Heather the Realtor Orlando, Lake Mary
LemonTree Realty - Orlando, FL
First Time Home Buyers, Bank Owned Homes
It started with the prequal and it equated to toliet paper, now the pre approval have bascially declined to paper towel. Little stronger then toliet paper but grittier.
Apr 10, 2008 08:30 PM #7
Rainer
6,598
George Doumaney
Oceanside Mortgage Group Inc - Providence, RI

Matt, Right on target...  Why can the pre's be a strong as the Euro!  

Apr 10, 2008 08:31 PM #8
Rainer
73,665
Sabrina Kelley
ERA The Herman Group - Woodland Park, CO
Pikes Peak Region Realtor, Teller, Park and El Paso County Colorado

I never really had stopped to consider that indeed there is a distinct and valuable difference. 

Apr 10, 2008 08:32 PM #9
Rainer
22,289
Cape Coral Florida Golf Course and Waterfront Homes
Gulf Coast Realty Network, Inc. - Cape Coral, FL

Good for you!  Wish more mortgage brokers would face up to the issue.

Best of Luck to You!

Jim Gibson, Florida Realtor
http://www.JimGibson.BIZ

Apr 10, 2008 08:36 PM #10
Rainmaker
807,360
Anthony Stokes-Pereira
Better Homes and Gardens Rand Realty - Nanuet, NY
Realtor

Hi Mat;

Great Post!!! I do wish brokers would be honest about it.

Apr 10, 2008 08:40 PM #11
Rainer
13,478
Matthew Heavener
ERA Heavener Realty Co. - Jacksonville, FL
I think it is also important to examine who the pre-approval is from.  In my experience, a lender's preapporval holds more water than an online preapproval from a "mortgage trunk" site.
Apr 10, 2008 08:44 PM #12
Rainmaker
1,106,321
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services
It is difficult to tell the real pre-approval from the fakes -- so, I really like it when the buyers choose from a list of lenders I trust.
Apr 10, 2008 10:22 PM #13
Rainmaker
50,701
Frank Marta
Nuhome Group, LLC - Houston Tx|Mortgage Broker| 713-373-0345 - Houston, TX
Texas Home Loan Specialist
This is true many of the "take it easy Loan Officers" are being wiped out with the new market now a days.  Those of use that pride ourself on good approvals. Always trying to stay ahead of the curb will have to just hang in there and let the industry adopt and over come all of the turmoil that we find ourself in now...  Just think about the upside; there will be less competition!!!!  The process of elimination always has worked for me...........
Apr 10, 2008 11:29 PM #14
Ambassador
819,144
Russ Ravary
Keller Williams Commerce - Commerce, MI
Metro Detroit homes - Michigan Real estate & Mortg
Frank, above is a little wrong.  Some of the good loan officers have had to get out of the business because they were used to making 6 figures and can't do it consisently in this market.  The easy refi is gone.  Some of the slimey ones are hanging on becuase they have no where to go.  So I think it is both good and bad lo's leaving the mortgage industry.
Apr 11, 2008 05:01 AM #15
Anonymous
Anonymous
In reality, a pre-approval letter never held any weight although it made everyone feel a bit more secure in the transaction.  I see you are working in California and hope things start to stablize for you soon.  It's been tough. 
Apr 11, 2008 07:17 AM #16
Rainer
100,660
Cheri Smith
Prudential Gary Greene, Cypress TX - Cypress, TX
Realtor Prudential Gary Greene

Good info.

Things are so slow for me these days I could paint a  house in between phone calls!!

Apr 11, 2008 12:13 PM #17
Rainer
20,452
Jennifer Monastero
New Milford, CT
The Matchmaker

One of my last deals as a broker- I got a call from the real estate agent asking me where I pre-approved my clients through. At the time, I had an approval through DU and LP, so I could have taken the deal anywhere. I was having a hard time deciding between Wells and First Magnus.

The agent was EXTREMELY concerned, and I assured her I was going with Wells Fargo. I spent a good 15 minutes reassuring her that everything would be fine, they were a strong lender, nothing bad was going t ohappen to them. Good thing I said 'Wells'. First Magnus closed up the very next day.

Talk about having a heart attack over it! I was this close to having a really ticked off agent.

Enjoyed your post, brought back wonderful memories! :)

Apr 11, 2008 01:05 PM #18
Rainer
7,096
MARK GUNDLACH
Realty One Group - Laguna Niguel, CA
Yes, I couldn't agree more. We have to constantly be checking the list to see if this "lender" that is on the preapproval letter is still in business by the time the offer is accepted.
Apr 11, 2008 02:18 PM #19
Rainer
122,017
Christy Powers
Keller Williams Coastal Area Partners - Pooler, GA
Pooler, Savannah Real Estate Agent
Great post. It's really sad that someone has to do the work them hand it off for someone else to do. It's definitely a crazy time we live in.
Apr 11, 2008 08:24 PM #20
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Rainer
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Matt Freeman

Broker- California Mortgages
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