Why your bank doesn’t care.

Big Banks

They just don’t care.

I sometimes run into people who want to talk with “their bank” because they think their relationship might make it easier to get approved for a mortgage, or that it will require less documentation. Your bank doesn’t care. While they may value you as a customer, when it comes time to approve you for a mortgage, it doesn’t matter if you’ve been a customer for 15 years – you’ll be looked at the same way as a guy who just walked in off the street.

I know first hand.

I used to work for one of the largest banks there is. So naturally, a lot of my lending business came from existing clients of the bank. The first question out of their mouth, almost every time, was “I’ve been a customer for “X” years – what are you going to do for me?”

And every time, my response would be the same – “The same thing I would do for you if you had just opened your account today.” The mortgage process takes a few weeks (longer at a big bank), and it requires me to take a pretty intimate look at a client’s finances, history, and sometimes we even end up wading into their personal life when things like divorce decrees come into the picture. I always strive to form lasting relationships with clients, but at the very least, we’re going to “be in a relationship” for the 3-4 weeks it takes for me to close their loan. So it was always important for me to bluntly address this issue at the very beginning. If I allowed a client to have any inclination that they would be able to talk the bank out of something special, they would inevitably circle back around to that every few days.

But I’ve been a customer for 10 years. I have over $100,000 deposited here – why doesn’t that matter?

When it comes to approval and documentation, the reason banks can’t make exceptions and special processes for their own customers, is because they have no intention of keeping the loan. So many people out there believe that lending still works the way it did 50 years ago – you go borrower $100K from the bank, and you make payments to them for “X” number of years, until you’ve repaid all their money back. However, mortgages are a simply a commodity now – things to be bought and sold. So the bank that originates your loan is like the drilling company that pumps oil out of the ground – they have zero intention of keeping it themselves – they just want to sell it.

Your bank doesn’t set its own underwriting rules.

Since practically all mortgages are sold as commodities now, there are uniform underwriting guidelines that all lenders follow (both bank and non-bank). These guidelines are developed by Fannie Mae, Freddie Mac, and HUD, depending on what loan product a borrower goes with. So these are the guidelines your bank has to follow when underwriting your loan. If they don’t underwrite to these guidelines, they risk having a non-sellable loan (which they’re not in the business of anymore), or having to buy the loan back if the borrower defaults (they’re certainly not in that business). So while, your 15 year relationship might mean something to the person sitting in front of you (maybe, maybe not), it doesn’t mean anything to Fannie Mae. Sorry.

What if I told you the bank might make it harder on you?

There is one way the bank can have input on the underwriting guidelines set by the agencies – they can make them more restrictive. This is referred to as having “overlays.” At my organization, we partner with end investors who will buy our loans, as long as they’re underwritten to the agency guides. Since that’s what our investors care about, that’s what we care about – 99.9% of the time overlays never come into play for me when approving a borrower. The large banks are notorious for having overlays though. They can come in the form of more restrictive debt-to-income ratios, loan-to-value ratios, or the requirement to review income over longer periods of time than agency requirements. Sometimes, a bank will choose to completely not participate in an available program or product. When working at a large bank, I would often come across deals that I knew could be done – it’s just that I couldn’t do them. Every month, there would be a handful of potential borrowers that I would have to refer to other lenders in my network, who I knew weren’t handicapped by overlays. I looked at it as my professional responsibility to the borrower to do so, but I can assure you, not all loan officers do. Some will just tell you “sorry,” in hopes that in 6 -12 months your situation will have seasoned, and they can call you back to get a loan.

But they have all my information already – It will be easier!

By Federal law, all of the information on your loan application must come directly from you. Plus, it is scrutinized so heavily, that even if some information is available, the loan officer will have to verify everything with you anyway. And if they don’t – that’s when you really run – that means they don’t know what they’re doing and are taking a sloppy application – a shortcut that will cause you both problems very quickly. Even if you are refinancing, this is still the case. Because remember – they’ve already sold your loan. Even if you’re making payments to them, that simply means they’ve retained “servicing rights.” In a refinance, they’ll literally be paying off the old loan in your behalf, creating a new one, and then selling it. The only break in the process that you ever get by going through “your” bank, is sometimes they’ll print copies of you bank statements for you. That’s even becoming more rare.

It’s not really even your bank.

Even the little things like printing statements are becoming more rare as the big banks get bigger because when you’re applying for a home loan, it’s not even really your bank that you’re applying with usually. It’s usually an affiliate of the bank. All the big banks are a whole bunch of companies operating under one marketing umbrella. The biggest banks will be comprised of a commercial bank, an investment bank (usually is made of its own internal affiliates also), an insurance company, a merchant services company, and a mortgage company. Now, this doesn’t usually have any material impact in itself, but its a good illustration for something few bank customers realize.

So what do I do?

Just realize that your bank isn’t going to “have your back” like they allude to in their warm and fuzzy commercials. Realize that the most important part of choosing the right lender to work with, is partnering with someone that knows how to get deals done, can close on time, and isn’t handcuffed by unnecessary underwriting restrictions.

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