Hello, LOs!
A few weeks ago, I wondered whether some trigger-happy LOs were running up unnecessary costs with extra credit reports.
It's natural to think of being more judicious about expenses in this period of margin compression, although some lenders appear to be doing quite well. Running credit reports when loans don't close is one potential expense to trim.
One veteran LO told me that after an audit several years ago, his team was "shocked" by how much those appraisals and credit reports added up.
So they found a solution to make the borrower pay if the loan doesn't close, at least for refinances, by getting them to first sign an "intent to proceed" document. Even so, it's not always possible to wait to run a credit report or order an appraisal before that happens, he said.
"We're between a rock and a hard place because thanks to regulation, the borrower isn't on the hook until they complete an intent to proceed," he said. "But with how long appraisals are taking and the short time frames we're often given on purchases, we have to place the order and roll the dice to maintain service standards."
That's one solution that stays within regulatory bounds.
But just trying to cut down on extra credit reports without a plan for how to do so could result in fair lending trouble. Here's how, according to an analytics manager at a credit score improvement software firm.
"If you ask your LOs to make a subjective judgment as to whether they think a lead is likely to close before pulling credit ... guess who they screen out? The ones who fit their stereotype of who doesn't have enough savings or has difficult credit problems.
"That's where the fair lending problems come from, and lost business too, because LO predictions about who will close aren't as good as the LOs think they are," the person said.
LOs, is there a better way? Tell me what guidance you've been given on when to run a credit score and when to order an appraisal.
Georgia Kromrei
Senior Mortgage Reporter, HousingWire
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