Bank Loan Officer Says We are Turning Down Too Many

About a quarter of my referral partner business comes from banks, credit unions and other loan officers. These are referrals for folks that they can’t do a mortgage for, but are excellent borrowers.

I recently went to lunch with a loan officer, who shared how frustrated he is with mortgage lending today. In the bank that he works for, 100% of his business is handed to him, comes in through many sources. He tells me that nearly 80% of the folks he talks too never get to a preapproval or mortgage application. The shocking number was from applications that are done, over 40% are denied. So why take the application? The math just doesn’t work. The biggest issue, debt ratios, they are capped at 43%.

The QM rules will supposedly go into effect in January of 2014, just a matter of months. Then everyone doing mortgages will have to deny loans for anyone with a debt ratio above 43%. In 2011 and 2012, one out of four clients that I did a mortgage for would have been denied.

I don’t believe my numbers are far different than many institutions. Can you imagine the effect of housing, if all of a sudden, 25% of prospective buyers can no longer qualify to purchase a home?