Turn Every Mortgage Applicant into a Customer— and Avoid Expensive Denial Letters

By the time a new home buyer completes the mortgage loan application, most of the money in the lender’s cost-to-close has already been spent. That’s because marketing and sales make up the lion’s share of closing costs. If the loan doesn’t close—which is happening much more often in a downturn—no one gets paid. Worse yet, high fall-out adds to an already high cost to close.

When a fall out happens, the upfront marketing expenses are gone, and if this happens often enough, the LO, especially the good ones, will be gone too.

This means that sending a denial letter comes at a very high cost . But what if it didn’t have to be that way?

Traditional solutions to avoid the costly denial letter

Lenders with experience competing during a downturn  know that once the borrower comes in through the door, it’s very important that they build a relationship that will be strong enough to get them to the closing table.

Traditionally, they do this in several ways:

1. Get Creative on Qualifying Borrowers

Mortgage product guidelines have tightened sharply, but lenders have some flexibility within agency and investor bounds to creatively pre-qualify applicants. This may mean flexing debt-to-income tolerances to the upper limit or tapping home equity to adjust loan-to-value ratios. However, the lender cannot afford to compromise responsible lending in this process.

2. Expand the Product Mix

Many lenders are missing opportunities by solely offering conventional and government loans. Expanding into niche products like jumbo, non-QM, renovation, and bridge loans opens doors, especially for high-net-worth applicants. This isn’t a new idea, by the way.  Some of us remember the ‘creative’ products that were all the rage in the early 2000s—until they weren’t.

 3. Match Applicants to Alternatives

If applicants truly don’t qualify for your core mortgage offerings, have alternatives ready. This may include connecting them to real estate agents to purchase a lower-priced property or lenders specializing in the products they need.

Sure, some of these solutions may work. But it adds to the industry’s preternaturally high production cost. There’s a nearer-in solution for those who can think outside of the box.

4. Take control of the credit conversation

Consumers have a lot of bad information about their credit scores and come to the table with a lot of questions, and they know they need to understand their credit. More than half of them will start trying to find information about it before they start shopping for a home.

That means the loan officer can’t have this conversation early enough.

That’s good news because having this conversation early is the way to find out which applicants need to move into the pipeline and which ones can save the lender time and money by waiting to apply for a mortgage. Taking an application from a borrower who will not qualify due to credit will just result in lost time, lost marketing expenses, and a denial letter.

Why the credit conversation should happen early

Instead, loan officers should start with the consumer’s credit and find out which of the following situations apply:

1. Borrowers who don’t have a credit history or understand how their financial decisions impact their credit score could benefit from credit counseling. This group is usually not ready to begin searching for—or buying—a home. Likely, they’re testing the waters and curious about the process.
2. Borrowers who have credit histories and understand their scores but have errors or problems in their credit files that must be resolved before they can apply for a loan. These borrowers may be good prospects once this is done, but it can often take six months or more for these problems to be resolved.
3. Borrowers who have credit scores so low that they could not qualify for a loan even if they raised their credit scores by two 20-point credit buckets. Repeated bad financial decisions have put them out of the race for homeownership.
4. Borrowers who have very high credit scores, a relationship with your firm, and are in a hurry to get the process started, should go directly into the pipeline. While it is possible that you could help some of them increase their score and get a slightly better deal on a mortgage, this is often not as important to these borrowers. So, push them through.
5. Borrowers who don’t qualify, but could if their credit score was raised by 1 or 2 20-point credit buckets and who have the potential to make this happen.

Consumers that fall into the first three categories are unlikely to qualify for a loan. Taking an application from them is a waste of resources. You could, and should, however, direct them to the help they need. The fourth category is that golden group that everyone is competing for. If you can win that business, great.

But the real opportunity is in the last category — what to do with borrowers who don’t qualify.

We can show you data that proves that 71% of all mortgage loan applicants could improve their credit by at least one 20-point bucket in about 30 days. If you can help them do that, you won’t have to send them a denial letter and you’ll win business that other lenders can’t even see.

Find out more by scheduling a meeting with CreditXpert’s Product Specialist today to find out how simple it is to help these consumers qualify for a loan and give you their business — or click to watch a quick on-demand demo.