One of the challenges many loan originators face is how to help borrowers with credit issues.
You know that without extra attention, credit-impaired prospects often aren’t able to obtain a mortgage. They may have already been turned down by one or more lenders when they talk to you. Of course, it can take extra time to discuss their situation, review the appropriate actions, and follow-up until they are ready to qualify.
You also know that by helping them overcome their credit obstacles and become a homeowner, you should have a loyal customer who is anxious to refer future prospects.
The key is to be able to encourage prospects with credit issues that they can eventually be able to purchase a home if they’re willing to take the necessary steps. “You can create some of your most loyal followers if you can help an applicant who isn’t currently qualified get on the path they need to be qualified down the road,” said Mark Maimon, Sterling National Bank (Residential Mortgage Division), Brooklyn, N.Y. “That’s because most people in our industry don’t give them the courtesy to explain what the challenges are and how to overcome them.”
“Everybody deserves to get a loan,” said Laura Sosa-Rocha, the Truth and Lending Mortgage Team at Heritage Bank of the South, Atlanta, Ga. “People with credit issues aren’t always treated fairly. I often get the most difficult loans and I enjoy helping these customers.”
Basic Guidelines and Referrals—Some originators have found that providing some basic direction early on can make a big difference. For example, after determining that a customer has specific credit problems, Matt Tierney, Guaranteed Rate, Chicago, suggests a few key actions. “The first step is identifying whether they must wait a set time based on a bankruptcy, foreclosure or short sale,” said Tierney. “I have a flyer that I e-mail to them that shows waiting times required for conventional, FHA and VA for the specific derogatories. If there is no required waiting time based on major derogatories, I then discuss more about how credit scores are calculated and together with the customer determine whether there will be a chance to get the credit scores higher by paying down on revolving debt. For customers who need more assistance, I give them contact info for a credit repair expert I work with.”
Maimon will offer the basic directions for enhancing their credit profile and refer them to a specialist. “I definitely help credit-impaired prospects get on the right path, which typically involves referring them to a qualified credit repair specialist and explaining to them the steps that need to be taken in order to get the financing they are looking for,” said Maimon.
Mike Meena, Augusta Financial, Santa Clarita, Calif., lets clients know early on how he can help. “It is very important for them to understand that I do not do credit repair,” he said. “I will send them to credit repair agencies and let them work that way. I usually give out three numbers and let them decide which company they would like to use. Clients usually choose to try to repair their credit on their own for a little while and when they find that is too difficult, they usually resort to calling someone to do the credit repair.”
Additional Support—Sosa-Rocha first suggests that such prospects contact Credit Assure (www.creditxpert.com), a service that “automatically scans credit files for opportunities to raise credit scores based on accuracy or credit management updates.” The program offers customers specific guidelines and notes the time usually required to raise their credit score. “They’ll have a basic idea of how long the specific actions will take to accomplish,” she said. “I make a point to ask if they will be able to accomplish the task in the specific timeframe, advise them to follow the directions and let me know how they progress.”
In addition, Sosa-Rocha offers to help customers when they need to discuss a potential discrepancy with a creditor or credit bureau. “For example, I’ll join them on a phone call with a creditor/bureau to help resolve the issue and this can make a big difference in changing their credit score. Obviously, the customer appreciates my support.”
Follow up–To ensure that prospects become customers, some type of ongoing contact is essential. “We typically follow-up at least quarterly with every prospect, even if they aren’t qualified at that time,” said Maimon. “This keeps you at the forefront of their minds and shows them that you are invested in getting them to where they need to be.”
“While the borrower is working with a credit repair specialist, we stay in touch to let them know we are interested in helping them with their loan,” added Meena. “We’ll e-mail them notes to ask about their progress and make periodic calls as well. This can make a big difference when they are ready.”
Sosa-Rocha keeps track of her customers’ status and the need to follow up in her Outlook program. “Based on the suggested action step schedule in the original Credit Assure report, I’ll place a reminder to call them at specific times. Then I’ll check with them to see if they have completed the various steps. I will continue doing this until they are ready. I will also keep them in our database until such time as they have become a customer or a referral source.”
An Evolving Process— Many originators have likely modified their approach after working with some credit impaired borrowers. “When I was newer in the business, I spent more time proactively, personally trying to help customers improve their scores,” said Tierney. “I have found that using an outside professional and giving customers access to information where they can either be proactive or not is a better use of time. The potential borrowers who take the initiative to improve their credit with the resources and information provided are those most motivated to buy and result in a closed loan.”
In addition to referring borrowers to credit repair specialists and staying in contact with them, there are a few other potential strategies.
*Hold a seminar for borrowers and invite a credit repair specialist to talk.
*Provide fliers/other material that provide resources to help borrowers address their problem.
*Add tips and resources to your website.
Working with borrowers’ credit issues can be a lengthy process. “You have to place value on the longer-term impact of your time spent with these prospects rather than discarding them for opportunities that will pay off more immediately,” said Maimon.
Another area of concern is how to properly communicate the credit support service. In the last few years, terms such as “restoration” and “repair” have been closely reviewed as unscrupulous firms took advantage by promising borrowers unrealistic results. It’s essential that you are careful how you represent your offer to help and make sure companies you refer are qualified and reputable. “Some credit repair companies can be untrustworthy and I am very careful who I refer and I always refer them out with a disclaimer,” noted Meena.
It’s also important to keep Realtors apprised of the borrower’s status, but you should ask permission first. “If the potential borrower has been referred by a Realtor, I always ask if I can let the Realtor who referred them know the status,” noted Tierney. “Realtors appreciate the effort that is being made to get the potential buyer qualified down the road.”
Originators who take the time to give credit-challenged borrowers some type of direction do so because they feel everyone deserves a homeownership opportunity and also because such help can result in future business. “While you may not see an immediate payoff for your time spent on these prospects, you will likely have a tremendous advocate who is happy to sing your praises to others and that can turn into several transactions to temporarily replace the one that isn’t currently viable,” said Maimon. “There’s no question that these prospects have well-qualified family members, friends and co-workers who can’t wait to tell their story about how you were the only person they spoke to who would give them the time of day.”
“If a client does get their credit repaired, they are generally motivated to purchase the property and they usually become a client for life if you sent them in the right direction,” added Meena.
While it does take more time to prepare these borrowers for a mortgage, the investment is definitely worthwhile.
David Robinson is associate editor of Broker Banker.