“What’s the rate? What are the fees?”  These are important questions which almost all borrowers ask at the beginning of a loan process.  What’s interesting are the questions that many borrowers would probably ask after having the experience associated with being far along in the lending process or recently having obtained financing.  I am willing to bet that these questions would be less about pricing and more about service delivery.

 

In today’s difficult lending environment which is fraught with lending risk and government regulation, all lenders are forced to heavily document a loan file. This is because be it a month, a year or a decade after closing, a loan which defaults is reviewed in detail by various parties all of which are trying to pass the problem on to the some other party.  If you are the lender who initially made the loan, many fingers are pointed at you.

 

Being an experienced lender, here are some of the questions I would ask initially.  Who makes the lending decision – an employee of loan officer’s firm or an employee of another entity?  Where physically is the underwriter who will make the lending decision located and can the loan officer meet with the underwriter face to face in order to discuss the loan file?  Where do the processors who will work on the loan file physically sit?  Can my loan officer interact on a face-to-face basis with the processors?  Where do the closing personnel who will prepare the closing package and interact with the closing agent work?  Does the loan officer (or loan officer’s firm) to whom I was referred provide a financial incentive to the person or firm who made the referral or have some sort of affiliation?   If so, what is that affiliation (which they should disclose to you at the time of the referral)?

 

The answers to the above questions are paramount in understanding how the loan process will flow.  It is not realistic to expect that a loan file which is scanned into an electronic processing or underwriting queue will flow as smoothly as a loan file which is handed to a processor and then handed to an underwriter in the same office.  In addition, if your personal finances and/or tax returns involve some level of complication, typically people need to directly communicate in order to understand that file.

 

The last question pertains to whether the firm/loan officer who is being referred earned that referral by doing a great job on other applications or basically is buying that referral. Obviously, a merit based referral is one you can count on because it is tried and tested.  A for-profit referral is based less on the merits of the lending party.  There might be cases where a for-profit referral can be viable or reputable, however, you should understand the reason why someone is referring you to a certain lender. Are you actually paying for that referral indirectly through higher loan costs or lower service delivery levels? 

 

Finally, if I were satisfied with the answers to the questions above, I would certainly ensure that my lender’s costs and fees were competitive but understand that excellent service has a cost.

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