Real estate agents have been somewhat absent in the whole debate over the qualified mortgage lending and ability-to-repay rules, but they are not immune from the consequences.
With the lending guidelines taking effect tomorrow, it’s definitely time for the consumer-side of the real estate business to get knowledgeable enough to help homeowners who may find themselves facing new outcomes when they apply for a mortgage.
This past week, I sat down with a Guardian Mortgage executive in Plano, Texas, and he noted that while absent from the debate, Realtors are definitely impacted by new lending rules.
How, you ask?
After all, Realtors have never handled the loan approval process; and it’s not up to them whether a client gets a mortgage or not. At most, they are a referral service when it comes to the lending side of the equation.
But the reality is they are impacted.
If you don’t want to waste your time or your client’s, it’s crucial for a Realtor to know how the lending process is changing in a particular state. A preferred lender – at least in a state like Texas – may advise Realtors to skip the conditional pre-qualification process (which is quicker and easier) and move directly to a conditional approval before taking a client out to look for houses.
This tidbit of advice comes from Marcus McCue, executive vice president and chief marketing officer for Guardian Mortgage in Plano.
McCue seems very confident in his company’s transition into the QM world, but he sees some changes that could definitely impact Realtors.
Going forward, McCue says it’s best for agents and Realtors to communicate the difference between obtaining a pre-qualification letter and a conditional mortgage approval from a lender before house shopping.
In Texas, a conditional approval has more teeth to it. It suggests that the lender has delved deeper into the qualification – which now incorporates the new guidelines – and is more likely to be able to really offer the loan later on (although there are no assurances). A qualification letter only marks the likelihood of getting a loan and may be more subject to change in today's lending environment.
With the new lending guidelines and QM now a part of the entire equation, a pre-qualification from a lender could prove disappointing since it may not detect the full probability of the borrower actually making it through the entire loan approval process.
The last thing a realtor or agent wants is to conduct a pre-qualification, get the client out looking for houses, and then discover that the initial qualification is ineffective because the full approval process ended up disqualifying the borrower. With new rules in place, this is something to be mindful of.
McCue’s advice – for those in Texas and other states that may have something similiar to Conditional Qualification Letters and Conditional Approval Letters – is to be practical in the beginning and get the stronger ‘approval’ process over with. Tell clients, if you are approved, we can shop with more confidence, and we can quickly move to a sale if we find what you like. Otherwise, it becomes a larger guessing game with more variables in place on the lending side.
While this is definitely the case in Texas, McCue says Realtors in any state with a similar process should take notice and decide early on whether it's better to get approved up front and skip the finicky pre-qualification process altogether.