Ah, for the good old days. I can remember just like it was yesterday, how I could help construct a loan file for a sure-fire approval. I knew all the tricks. The legitimate ones. You know, the obscure underwriting rules hidden deep within the vaults of capitalism that only the seasoned, savvy Loan Officers were privy to. Way, way back in 1989. Heck, I don’t even think we had color television back then. I know we didn’t have cell phones.

About a decade ago, when a residential mortgage loan package was being assembled, a good loan officer would know exactly what to ask for. The first time. And if something came up during the approval process, what to do when problems arose. For instance, knowing ahead of time what to collect at time of the application instead of having an underwriter ask for it later on would yield great rewards. Document the file completely, then submit for approval. I’ll give a For Instance.

For instance, a couple began shopping for their first home and like many first-timers in California, they found their debt ratios were above the suggested limit. But not by much. I noticed on their credit report that the husband had only six more payments left on his car and he’d own it free and clear. His lovely bride also had a car payment, but there were about 18 months left before she too had clear title. Knowing in advance that the husbands’ car payment wouldn’t be counted because there were less than ten months remaining on the note and having the spouse pay down her car loan to less than ten months allowed me to calculate debt ratios without those hefty car payments counting against them. Voila. Loan Officer magic.

Another for instance. Debt ratios were way out of line for this couple. There was no debt to pay off. At the time, there was a loan called a 3-2-1 Compressed Buydown that gave them a fixed rate yet qualified them at a lower rate. By using the lower start rate to qualify, they got into the house.

Last story. A successful businesswoman wanted to buy a new house, way beyond her current means but her business was finally yielding significant rewards. She could afford the higher payments but by averaging her income over the previous couple of years her ratios in terms of loan qualifying were artificially low. In the olden days, the term “compensating factors” played a huge role in loan officer’s lives.

Included in her initial loan was a cover letter explaining her virtues. She had been in the same line of work for over twelve years (underwriters loved that stuff then), her business had steadily increased, she never showed a year to year loss, she was an attorney, she had a steady savings history, she provided an audited profit and loss statement from her accountant and she personally wrote a letter to “whom it may concern” showing a personal income statement and how she felt she could pay her bills on time. These compensating factors were enough to make any underwriter instantly fall in love with her. And it worked.

None of these examples were fabrications or “skirting” the guidelines. It was simply a matter of knowing ahead of time how to present a mortgage loan application to an underwriter for loan approval. And that took experience.

Things are different now. Now it’s “Approve first, Document Later.” Instead of putting a loan application package together, a loan officer may be more likely to simply enter the loan data into a computer program and submit to Fannie Mae or Freddie Mac for an approval. If the approval didn’t come upon first submission, then try something else. Can the borrowers come up with more income? Has the income been calculated correctly? Some borrowers use their “net” income when applying for a loan instead of “gross” for example.

More downpayment? Can they get a gift? More cash reserves? Can they save up some more? Sell some stock? Borrow from a 401(k)? Loans now can be submitted for underwriting several times in one setting. So instead of knowing the “tricks of the trade” to get someone approved, many times it’s simply how the loan needs to be changed before entering it on the computer. I’ve seen loans submitted for approvals multiple times, each time “tweaking” some aspect of the loan. More downpayment, other income, lower rate, different loan program, etc.. Now the trick is to “massage” the loan until it’s accepted, then make certain the loan itself is fully documented to conform to it’s approval. Document the approval, not document, THEN approval. Weird, huh?

Published: February 14, 2003

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, a veteran Mortgage Banker, successful Real Estate Consultant and author of Your Guide to VA Loans, Mortgages 101: Quick Answers to Over 250 Critical Questions About Your Home Loan, Who Says You Can't Buy a Home!, and Mortgage Confidential: What You Need to Know That Your Lender Won't Tell You, is a former columnist and Contributing Editor with San Diego-based Mortgage Originator Magazine. Reed is President of CD Reed Mortgage Bankers, Austin, TX and is a Past President of the Austin Mortgage Bankers Association.