January 18, 2020
Hard Questions Mortgage Brokers Should Ask Clients with Credit Challenges
Brokers
In the process of interviewing a client, you’ve discovered some challenges with their application. You recognize that something about the application either doesn’t add up or requires further questions and investigation. But what does that look like?
It’s not uncommon for mortgage brokers to struggle with asking the hard questions. Even experienced agents have told me that they feel uncomfortable asking hard questions and delving deep into their clients’ background and personal history. They recognize the need to get more detail but also feel their questions are intrusive or confrontational. They don’t want to offend their client or put them on the spot by asking tough questions that could make them defensive. The reality is that this is the exact information you need to get the best possible deal for your borrower.
As a mortgage professional you should explain that your job requires that you understand the root cause of their challenges, you are completely non-judgmental about their circumstances, and that their information will be held in confidence. Explain that this is how you will ultimately get them the best mortgage suited for their situation and future goals.
What are some typical ‘hard questions’ that you may have to ask your borrower?
Here are questions that can help you position your client to the correct lender the first time:
- What caused your bankruptcy/consumer proposal?
Bankruptcy is a very difficult decision for those who have had to experience it and it’s usually the end result of a very difficult period in someone’s life. The circumstances leading to this outcome are important to know because it allows the underwriter to make a determination as to whether those same problems are likely to re-occur.
- Why did you change jobs so often?
Rapid and frequent job changes could be a sign of your borrower taking advantage of better opportunities, or a sign that he/she cannot hold a job. Understanding the reasons for the job changes and knowing how long the periods of unemployment were between them is a key part of the underwriter’s review
- What are the negatives related to your property?
Most people feel that their home is their castle and they tend to over-value the property and under-estimate the negatives associated with it. Many lenders put significant weight on the quality of the property when determining if they want to lend on it. Talk to your borrower about what challenges the property might present so that they can be addressed early on in the process. Some examples might be related to it’s condition, location, visual appeal, upkeep, unique features (indoor swimming pool) previous insurance claims, etc.
- Do you have any payments owing to your property taxes or income taxes?
Most lenders require property taxes and income taxes to be paid up to date prior to funding a new mortgage, so discovering this late in the process can potentially bring the deal to a hard stop. Even if the borrower’s credit is immaculate, ask this question early in the process and then ask for proof. Bring the deal to a hard stop.
- What is the status of your legal separation/divorce?
You need to understand your borrower’s legal marital status because a borrower who is recently separated or divorced may be required to provide additional documentation, such as a separation agreement or independent legal advice from their ex-spouse. It’s important to know up front what you are dealing with and the level of co-operation that a separated applicant is expecting from their ex. Non-co-operative ex-partners sometimes have the power to derail a mortgage application.
- Why are you behind on your credit card/loan/cell phone payments?
Arrears on one single trade line that appear on an otherwise strong credit bureau report always seem out of place to an underwriter. It’s important to have the explanation as to why that account is behind. Was it forgetfulness? Is there a dispute with the credit provider? Is this a shared or co-signed account? Or perhaps this is an early indication of larger financial problem that is just beginning to surface. As a rule, it’s best to ask for an explanation for all trade lines that are currently R2 or worse, or past trade lines that are R3 or worse . Don’t ignore past arrears. Just because everything is current today does not eliminate the need to explain what happened in the past. Underwriters want to know if this is reoccurring or simply a true blip.
Once you’ve asked the tough questions, ensure that you document the explanation and then don’t be afraid to ask for verification from the borrower. You should anticipate that the underwriter will ask for this, so be up front in disclosing it, explaining it and verifying it.
About Magenta Capital Corporation
Established in 1994, Magenta Capital Corporation (MCC) is one of Canada’s oldest and largest Mortgage Investment Corporation (MIC) managers. MCC sources, underwrites and manages a portfolio of primarily residential first mortgages, secured by properties located in Eastern and Southwestern Ontario, two of the strongest, most recession resistant real estate markets in the country. MCC has a long track record of generating superior returns for the shareholders of Magenta Group MICs. MCC exercises oversight responsibility for the Magenta Group MICs in its capacity as General Partner of three limited partnerships, each of which is wholly owned by one of the MICs.
For more information, call us at 888-267-1744 or visit Magentacapital.ca.
