◊ April 25, 2017
I was listening to the radio recently and there was an infomercial from a national direct lender talking about mortgages. They were talking about a scam where brokers allegedly make tons of money from giving loan pre-approvals to people who do not qualify for a loan.
The effect of giving a pre-approval letter to a client that doesn’t qualify for the loan is a serious issue and has a domino affect. For example, Tom is selling his blue house to George. Tom is also buying a yellow house from Martha and is relying on the proceeds from selling his blue house. A broker gives George a loan pre-approval letter stating that he is qualified to buy Tom’s blue house when in fact, George’s finances cannot support the loan. Tom is now relying on the fact that George is qualified to buy his blue house which is set to close in 40 days. Tom believes everything is going to plan so he makes arrangements to close on Martha’s yellow house in 45 days. George’s loan falls apart just before closing on the blue house. Tom can’t close on the yellow house because he doesn’t have the proceeds from the blue house. A disastrous chain reaction.
The infomercial stated to avoid this scam, trust Mr. Direct Lender to fully vet the loan before giving a loan pre-approval. The infomercial had one thing right: Loan pre-approvals should be fully vetted. The rest of the 1/2 hour throwing brokers under the bus was so wrong and I’ll tell you why!