Wednesday, March 03, 2010

pre-qualification versus pre-approval

The new mortgage disclosure rule is upending the first step in the process of lending to homebuyers.
Before shopping for a property, a prospective buyer typically gets a preapproval letter from a lender indicating how big a loan the person qualifies for. Real estate agents often ask for these letters so they can make sure the customer can afford the property before showing it.  Read more here. 

LOL  Sometimes I feel ancient.  I guess that's what happens when you've been in business longer than most of the other people in it.  Real estate agents used to be able to do simple pre-qualification formulas.  Loan originators helped.  No one expected a pre-approval letter.  As long as a real estate agent takes the time to ask the right questions, then they won't be wasting their time showing property to unqualified buyers.

Frankly, I have always viewed the "pre-approval" letters as a marketing tool.  If the borrower gets one from a lender, they are most likely to go back to that lender for the loan.  Pre-approval letters are the first step of the steering process.  It's a pretty solid way to eliminate competition.

I think HUD is correct in their course of relieving borrowers of heavy pre-application document tasks.  If you make each conversation with a lender too burdensome, then borrowers won't shop around.

The whole POINT of this new RESPA rule is to ENCOURAGE shopping.

So far, I think things are moving forward rather smoothly under the new rules.  I do hope HUD stays the course.  Good job, HUD.

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