Written By: Stacey Sprain
I ran across a blog while I was I was doing some research on a regulatory interpretation this evening and it really got me fired up. It never ceases to amaze me how badly some of the people in our industry answer questions for people who wouldn’t be asking if they truly knew anything about mortgages. I read through some of these answers and wonder if the person providing the answer even took the time to finish reading the question or actually re-read their own answer from the consumer’s viewpoint before hitting the send or submit button.
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The content of this blog started out with the following consumer’s question:
“Why did my mortgage broker order an appraisal before my loan application was approved? Now the loan is denied and they are telling me I must pay for the appraisal. Why is that my responsibility when I can’t get the loan? “
First of all, shame on the consumer for not making sure she understood the loan process before she got herself into it. This is just another example of why homebuyer education is so valuable for first-timers. Second, shame on the broker for not making sure the consumer clearly understood the loan process and what her fee obligations would be whether her loan were approved or declined. And shame on the broker for not providing clear disclosure on whose responsibility the appraisal fees would be regardless of the loan outcome. This particular situation has “Fail” all over it from the get-go.
But wait, that’s not even the part that got me the most fired up. What infuriates me most are the rest of the answers other people gave the consumer in this blog! If I were a consumer, after seeing this ridiculous cluster of inconsistent answers to a simple question, I doubt I’d ever apply for another mortgage ever again! I’d curl up and stick to renting for the rest of my life! I wouldn’t trust anybody in lending! Talk about a crap shoot…
Get a load of the answers this consumer received:
1. You’re not responsible for any costs unless your loan closes. If you are told anything else don’t listen to it. My clients at the bank never pay for an appraisal and I typically pick up the charge for them especially on a purchase, that being said unless your getting what you asked for then nobody else should either.
2. Yes, you will still be responsible for the appraisal fee. Your broker should not have ordered the appraisal until they had a conditions list from the underwriter, however, since you are dealing with a broker instead of a direct lender, most wholesale lenders require an appraisal before they will give underwriting approval with conditions. It’s a catch-22.
3. When you signed the application, you authorized appraisal of the property which you intended to purchase. The mortgage broker is not responsible for insuring that the loan application receives approval (some are denied a day or two before scheduled closing). Meanwhile, delaying an appraisal until the last moment could delay the closing, since underwriting demands an appraisal well in advance. It’s one of the risks you take when you apply for a mortgage.
4. The appraisal is a KEY component in determining a final approval of your loan. Not only is your loan based on your ability to repay, but it is also based on the property standing as collateral for that loan. Now, you could have had a loan approval separate from having an appraisal, It very often happens that your LOAN gets approved but NOT FOR THE HOUSE appraised. In that case, you would STILL pay for that appraisal, and have to pay for yet another appraisal later. In other words, had the Lender determined – yes, we want to lend you $xxx,xxx dollars, but not to buy THAT house because of what the appraisal report said, then you would still have a loan approval, but now you have to go find a house they will give you the loan for. From your note here, I am going to assume that you found a home, put a contract on it and THEN STARTED your loan process. That means, that both your approval for a loan, and determining if the collateral was worth the loan were happening simultaneously and THAT is why you had to have the appraisal done. Very often, having signed an offer to purchase, you needed to meet the closing deadline which is often 30 days from the last signature on the contract. For a lender to determine your ability to repay, and the value of the collateral within a 30 day window, both happen simultaneously.
5. It sounds like an inexperienced broker or he is trying to keep you from shopping his rates. Since you already paid for the appraisal he has a captive audience since most people are not willing to pay for a second one.
6. There are very few lenders that will obtain a Conditional Loan Approval before they get your documentation, get your appraisal, or even get your Preliminary Title Report since they see it as a waste of their time. Some lenders (like me) feel the consumer deserves to get a FULL CONDITIONAL APPROVAL before you are asked to do anything. That way nobody’s time and money—your time and money or my time and money—is wasted. It’s weird more consumers don’t demand approval upfront! (I’m expecting Loan Professionals who don’t do the right thing to give me a thumbs down now!)
7. The last answer given in this blog is just way too long to even copy and include in this writing but let’s just sum it up by saying it didn’t answer the borrower’s actual question.
So out of all of the answers given to this consumer’s question, which was the right answer? In looking at this situation as an outsider, what might the rest of learn from it to use in our own situations?
First, I wouldn’t say any of the answers were perfect. But then again, it’s rare you find any that are. Just a few notes of constructive criticism to offer when dealing with consumer questions and preparing helpful and education answers based on many years of experience:
1. Be sure to read and re-read the actual question being asked. Determine if the consumer is looking for an opinion, advice or factual explanation.
The mistake made by many responders is that they provide an answer that makes them feel good rather than an answer that actually leaves the consumer feeling a sense of satisfaction that their need or request was met.
As example, many of the responses above would leave the average consumer even more confused with even more questions they were originally asked. When you really take a moment to re-read the consumer question, she’s looking for common sense factual explanation. It doesn’t matter to her how Joe Blow down the street does his business or how others feel like business should be conducted. She’s looking for explanation on why the lender she applied with is holding her responsible for payment on an appraisal even though her loan was declined by them. The question should be answered thoroughly but without too much length which could ultimately overwhelm and confuse the consumer.
2. When we’re able, it adds credibility to our answers if we can include links to resources that justify and back up the answer that we’re giving. Example- It might be helpful in a circumstance such as the one above to provide the consumer links to resources such as FTC or FRB booklets and pamphlets that explain the mortgage process or links to appraisal-related guidance for consumers in regards to the lending process.
3. Lastly, when answering consumer questions we should always try to encourage further education. The question she’s asking clearly screams that she went into the mortgage application process not knowing or understanding it and the broker she chose obviously didn’t do a great job holding her hand up to the point of her question. The answer should not only give her resolve for her question but should also offer her opportunities to expand her knowledge and understanding while encouraging her not to give up the dream of homeownership. It’s wise to offer resources such as homebuyer education, resources like the FTC and FRB mortgage and credit related pamphlets and booklets. Resources offered by Fannie Mae, Freddie Mac, FHA, VA , the MI companies, realtor associations, builder associations, state and local agencies should be considered worthy to offer for education as well.
Let me leave everyone with a final thought to ponder because it’s one of my absolute BIGGEST pet peeves and a constant thorn in my side through the years. If it contains the words “loan approval” does it mean the loan is really approved if there are conditions, such as the property appraisal, listed? Does it make sense to give an uneducated consumer something with the words “loan approval” on it if any of the conditions listed could completely kill the deal when they come in? Would a consumer clearly understand what we’ve given them?
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Just something to ponder when we answer consumer questions like this.
About The Author
Stacey Sprain - As an NAMP® staff writer, Ms. Stacey Sprain is currently a NAMP® member in good standing, and is a NAMP® Certified Ambassador Loan Processor (NAMP®-CALP). With over 15+ years of mortgage banking experience, Stacey is also a Quality Control Manager for a major mortgage lending institution. If you would like to become a volunteer writer for us, please email us at: firstname.lastname@example.org.