Jan. 27: Pre-qual versus pre-approvals; price of oil & housing

Rob Chrisman

Rob Chrisman began his career in mortgage banking – primarily capital markets – 31 years ago in 1985 with First California Mortgage, assisting in Secondary Marketing until 1988, when he joined Tuttle & Co., a leading mortgage pipeline risk management firm. He was an account manager and partner at Tuttle & Co. until 1996, when he moved to Scotland with his family for 9 months. See more

Pre-approvals versus pre-quals

 

Real estate agents sometimes write to me asking about whether or not a pre-approval means anything, and if it is better than a pre-qualification letter from the lender. It appears there is still an ongoing misconception regarding what a pre-approval letter denotes as well as when it should be provided. Additionally, confusion still surrounds “Pre-Qualification” meaning and use.

 

It must be noted that different lenders have varying requirements and standards used to comply with pre-approval / prequalification requests. It is good business practice to rely upon a Lender of which you are comfortable and understand its process.

 

In general, a pre-approval is a written statement from a lender stating its preliminary determination that a borrower would qualify for a particular loan amount, at what rate, and what the terms look like under that lender’s guidelines based on income and credit information.

 

This is creating the first potential issue under the new TRID guidelines. Proof of income and assets is one of the six requirements along with the property address to trigger the required Loan Estimate disclosure. Upon borrower acceptance the Loan Estimate, only then can a lender require supporting documentation of income and assets.  Issuing a Loan Estimate prematurely will bind the lender to the Loan Estimate, even if the eventual property address results a change such as transfer taxes for which the Lender will be on the hook. Looking for the gray area? Well, this doesn’t mean that a lender cannot ask an underwriter to review a borrowers’ volunteered information if they have direct access to underwriting. With this in mind, some lenders issue Pre-Approvals with little or no information in an attempt to appease the situation.

 

On the other hand, some Lenders will only provide a “pre-qualification” prior to the borrowers being under contract and having submitted a loan application. A “Pre-Qual” is a broad overview, based only on the overall financial picture, including debt, income and assets as provided by the buyer. After evaluating this information, a lender can give you an idea of the mortgage amount for which the borrower may qualify. For instance, in the world of pre-qualification, Glendenning Mortgage Corp. has developed 3 Levels of Pre-Qualification which is based on borrower-supplied, Written Supporting Documentation as well as a Tri-Merged Credit Report.  Level 1 – Verbal Information and No Credit Report , Level 2 – Verbal Information and Tri-Merged Credit Report and Level 3 (highly reliable) – Voluntarily Supplied Written Documentation and Tri-Merged Credit Report. With its level 3, loan officers can review any gray areas in the documentation directly with its underwriters.

 

So what happens with a TBD property?  Again, this is dependent solely upon the Lenders interpretation of the TRID rules. For example, Glendenning Mortgage Corp. does not consider TBD loan applications as a prudent way of doing business under TRID guidelines. Do not take loan applications until the borrower identifies a property address.  The NJ Department of Banking informed Glendenning directly that using the term “Approval” is tantamount to issuing a “Commitment” which comes with legal liability.  As a result, Glendenning only issue its aforementioned Pre-Qualification options.

 

Is the price of oil impacting the housing market?

 

Pro Teck Valuation Services’ Home Value Forecast examined the impact domestic oil prices are having on the nation’s housing market, particularly in areas like Texas where a shrinking oil industry is impacting home values.

 

“Many of us are enjoying the benefits of oil at its lowest price in over 12 years, in the $30 a barrel range as of this release,” said Tom O’Grady, CEO of Pro Teck Valuation Services. “The impact on the U.S. oil industry, however, has been alarming.”

 

At the end of December 2014 there were 1,882 active oil rigs in the United States. One year later there are 714. In Texas, in 2015, the rig count dropped by more than 62%.

Six of the bottom 10 real estate markets are located in Texas: namely Abilene, El Paso, Houston, Killeen, McAllen, and Midland.

 

Perhaps hit the hardest by the economic downturn, Midland’s real estate market is showing many concerning signs. Since last year, active homes on the market rose from 399 to 885 and MRI has gone from 3.4, to 7.65 this speed of the shift is troubling. Sold and active days on market have both increased dramatically. Foreclosures have increased by more than 40% since this time last year. 25% of men in Midland work in mining, quarrying and oil and gas extraction, not exactly the diversified industry base needed to lessen the impact of the oil downturn.

Houston has also dropped in ranking although not as severely. Active Days on Market and MRI have both increased, 46% and 24% respectively since this time last year.

 

As has been the trend, CBSAs in Washington, Oregon, Idaho and California continue to lead HVF’s Top Ten. New this month are two Utah CBSAs. Bottom CBSAs this month include Texas, New Jersey and North Carolina. The complete post and additional data is available.

 

 

REDNECK FARM KID in the Marine Corps

 

Dear Ma and Pa,

 

I am well. Hope you are. Tell Brother Walt and Brother Elmer the Marine Corps beats working for old man Minch by a mile. Tell them to join up quick before all of the places are filled.

 

I was restless at first because you get to stay in bed till nearly 6 a.m. But I am getting so I like to sleep late. Tell Walt and Elmer all you do before breakfast is smooth your cot, and shine some things. No hogs to slop, feed to pitch, mash to mix, wood to split, fire to lay. Practically nothing.

 

Men got to shave but it is not so bad, there’s warm water. Breakfast is strong on trimmings like fruit juice, cereal, eggs, bacon, etc., but kind of weak on chops, taters, ham, steak, fried eggplant, pie and other regular food, but tell Walt and Elmer you can always sit by the two city boys that live on coffee. Their food, plus yours, holds you until noon when you get fed again. It’s no wonder these city boys can’t walk much.

 

We go on ‘route marches,’ which the platoon sergeant says are long walks to harden us. If he thinks so, it’s not my place to tell him different.  A ‘route march’ is about as far as to our mailbox at home. Then the city guys get sore feet and we all ride back in trucks.

 

The sergeant is like a school teacher. He nags a lot. The Captain is like the school board.   Majors and colonels just ride around and frown. They don’t bother you none.

 

This next will kill Walt and Elmer with laughing. I keep getting medals for shooting. I don’t know why. The bulls-eye is near as big as a chipmunk head and don’t move, and it ain’t shooting at you like the Higgett boys at home. All you got to do is lie there all comfortable and hit it. You don’t even load your own cartridges. They come in boxes.

 

Then we have what they call hand-to-hand combat training. You get to wrestle with them city boys. I have to be real careful though, they break real easy. It ain’t like fighting with that ole bull at home. I’m about the best they got in this except for that Tug Jordan from over in Silver Lake. I only beat him once…  He joined up the same time as me, but I’m only 5’6′ and 130 pounds and he’s 6’8′ and near 300 pounds dry.

 

Be sure to tell Walt and Elmer to hurry and join before other fellers get onto this setup and come stampeding in.

 

Your loving daughter, Alice

Rob

 

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