Declined the Day Before Closing

"I told her to call you first but she didn't.  She just went to her bank and now they're declining her and we're supposed to close TODAY!  Can you meet with her?"

Realtor calls like that always make my stomach hurt.  I want to help but, if the other bank declined their client, odds are good that they had a valid reason.  Admittedly, it's normally a reason that they should have spotted early on and not the day before closing but still - it's typically valid.

I'm always willing to try though and, at a minimum, help educate the home buyer on what went wrong and how to potentially fix it for the future, so I said yes and invited them to come to my office later that day.

"They said the PMI company wouldn't do it" she shared when we met.  "They said their bank would approve me, but the private mortgage insurance company declined me because of my previous foreclosure."

I reviewed her credit report and saw that, yes, she did have a foreclosure in November of 2007 which was less than 7 years ago.  She needed a conventional mortgage because of the condition of the house and 7 years is the magical number typically for conventional loans.

However, the mortgage in question was actually included in her bankruptcy from January of 2006, which was over 7 years ago.  This past July, Fannie Mae came out with a new ruling saying that - in situations like that - the borrower is held to the bankruptcy's waiting period and not the foreclosure's waiting period.  She had met the bankruptcy's waiting period so I felt the other lender might be able to educate the PMI company on this and still get her closed quickly.

"No.  Absolutely not.  I don't want anything to do with that bank.  Can you just make it happen fast with Ruoff please?"

Of course I could.  We started her loan immediately.  I had it to my underwriting area within hours and we were cleared to close within 2 weeks.

So how did I work around the problem?  Did I convince the PMI company that they should honor Fannie Mae's new ruling?

Nope.  I didn't have to.  I just used another PMI company.

Let me explain.  There is not just one provider of private mortgage insurance out there.  There are many of them with four primary providers.  While they all provide similar coverages at similar prices, they are not all the same.  One often gives lower rates when there are two borrowers on a loan.  One works great with down payment assistance programs.  And one?  It just trusts the lender to make the approval decision.

That's the PMI company I went with.  They don't have their own rules (often called 'overlays') that they apply to the approval.  This particular PMI company (Radian) says "If you have an approve/eligible response from Fannie Mae, we're in.  No further questions asked."

I sent them the approve/eligible response with the PMI order and, as promised, there were no further questions asked and the coverage was given (at a very attractive price, I might add).

And why didn't her original lender just do that?  Sadly, not all lenders will shop the PMI.  Many have one PMI provider they use and that's it.  If that one provider can't accommodate the unique nuances of the borrower, they will decline the borrower.

Thankfully, Ruoff doesn't work that way.  We not only work hard to make sure we're offering buyers a wide range of mortgage options, we make sure to have multiple PMI options as well.  Why?  Because it's the right thing to do.  

I'm starting to think that should be our tagline at Ruoff Home Mortgage :).  Doing it right, because it's the right thing to do.

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Salvation from the Rapid Rescore

A Realtor I regularly work with called me last Thursday.  "Well, I doubt you can help this girl, but I thought it was worth a try having her talk to you," he said.

Hmmm....well that didn't sound promising.

I'm always happy to help people get moving down the right path though, so I got her name and number and gave her a call.

"OK.  Here's the problem" she shared as soon as we got on the line. "I was pre-approved with my bank and everything was great.  I made an offer on a PERFECT house and they accepted it but then I called my bank and they re-pulled my credit and said my score had dropped from 660 to 628 so now they can't give me a mortgage.  Can you??"

Going below 640

Good question.  This is the point in a conversation with a potential home buyer where my super awesome detective skills come into play.  I often can provide a mortgage to  someone with a 600-640 credit score, but they have to meet some 'ifs' so I have to ask some detailed questions.

Currently, a buyer can purchase a home in this credit score range if the down payment is their own money and not a gift, if they have a clean rental history, if they have a couple of months' worth of savings and if they have a clean credit report in the last 12 months (plus a few other smaller things).  I dug into this girl's story and...shoot...she didn't meet all the 'ifs' so we couldn't go below the 640 score for her.

Identifying the Culprit

That's not where I give up though.  I pulled a copy of her credit report myself to see why her score had dropped.  The other bank had told her it was because of a collection she had, but that collection was over a year old.  It wouldn't have made a change in her score in the last 60 days.

Thankfully, I spotted the culprit right away.  "Hey, what's the story on your Capital One credit card balance?  This report is showing you have a balance of $506 but your limit is only $500.  Is your balance really that high?"  "Oh. No!"  She replied.  "It was but I paid it off entirely last week.  I don't owe anything on that."

Eureka!  We had found the answer.  Having a higher balance on your credit cards can make your credit score lower.  Being OVER the limit though - that's a real score killer.  Her score had dropped over 30 points just because she was $6 over her limit.

"Does that mean I have to wait a whole month for the credit report to cycle before my score shows the new balance?" she wailed.  "We can't do that!  The home will be gone by then!"

I completely felt her anxiety.  Luckily, I had a plan.

Getting the Score Up FAST

"Typically, that is the route that a lender will take" I told her.  "Given this situation though, and the time sensitivity of getting you pre-approved again, let's go with route B.  I'll order a rapid rescore."

A rapid rescore is a tool that lenders have for situations just like this.  Rather than waiting for a credit report to cycle and let a score go up on its own, the lender can provide the credit reporting agency with proof of the item that has changed since the last report and ask for it to be rescored right away.  In this case, I just needed a printout from Capital One's website showing that she had made the payment and her balance was now at $0.

She got the paperwork to me Thursday night and I ordered the rapid rescore on Friday morning.  It typically takes about a week for these to come back but, thankfully, it only took three business days in her case.  The new credit report came back this morning.  And her score?  A shiny, workable 661.

When a Rapid Rescore Can Work for You

For this buyer, the rapid rescore was the solution.  She's getting me the rest of her paperwork today and we're going to get her in her new home in the next 30 days (yea!).

The rapid rescore isn't the right route for everyone though.  For starters, it's expensive.  If there is time to let the score go up on its own, we're going to go that route.  A rapid rescore should only be used when there isn't time due to the specific situation we're dealing with.

A rapid rescore can also only help with certain types of credit problems.  If there is an error on the credit report that is hurting you, it's a fit for that.  Common errors are things like a derogatory debt listed under your name that isn't really yours or something showing as an active collection or charge-off that has actually been paid off.

A rapid rescore can also work when the lower score is being caused by higher balances that have now been paid down, as in this situation.

To know what credit steps you should take for YOUR home purchase, you need a seasoned, knowledgeable lender to review your credit report and help you work out a plan.  If you are considering a home purchase in Indiana or Michigan, I'd be happy to assist with that.  I can be reached at lori.hiscock@ruoff.com.  Hopefully your story can have a happy ending too!

Lori Hiscock is a Sr. Loan Officer at Ruoff Home Mortgage‘s South Bend office.  One of Michiana’s top mortgage loan officers, Lori started her lending career in 1995 after obtaining her bachelor’s degree in Finance from Western Michigan University.  You can connect with Lori Hiscock or apply online here. NMLS#404320.

Ruoff Mortgage Company, Inc. is an Indiana corporation licensed by the Indiana Department of Financial Institutions (DFI) and operates with the following licenses:

Indiana-DFI First Lien Mortgage Lending License #10994;
IL Residential Mortgage Licensee #MB.6760734;
Michigan 1st Mortgage Broker/Lender License #FL0017496.

Mastering the Mortgage Letter of Explanation

In my 12+ years as a mortgage lender, I've found that there are some steps to the mortgage approval process that make a home buyer anxious and some steps that just make them annoyed. 

Price Negotiations?  Inspections?  Appraisals?  Anxious, definitely anxious.  Lender disclosures?  Documenting of deposits?  Letters of explanation?  Annoyed.  DEFINITELY annoyed.

One of my top focuses as a mortgage lender is to reduce the anxiousness as much as possible for my buyers and, as best I can, not annoy.  How do I do that?  By only asking for things that I truly need and by making it easy for my home buyers to give those items to me.

To help with that, I've recently written a little e-book.  Yes, these blogs were just not enough writing for me!  My new e-book, 'Letters Lenders Love' walks home buyers through the process of quickly writing a letter of explanation on any topic needed as part of their mortgage approval.  It also provides 30+ examples of ready-to-go letters that just need tweaked for a buyer's specific situation and then submitted. 

If you need a letter of explanation and would like a copy of the book, contact me or go to Letters Lenders Love.  It should help take some of the 'annoying' out of home buying and get you back to the fun of this exciting step in your life!