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.