This one time...at Loan Officer Academy...

Ok, this isn't going to be an "American Pie...One time at Band Camp" story where a flute is inserted into some orifice....but who knows.... it could have been because I am not exactly sure what Curly Sue was doing with that Loan Officer from Florida. Now that I have your attention....I previously wrote about the overall experience of “Experienced Loan Officer Academy”. But, I wanted to save a chapter for what I actually learned in training.

Apparently, The Bank of Hell had unleashed a loan product they were very proud of and encouraged us to use whenever possible….and if you followed the steps I was taught, you could almost use it all of the time. More on that a little later.

The new “Super” loan product they taught was a Fannie Mae Stated Income/Stated Asset loan. Why is this so special? Let me explain. The acronym loans that Turdy wrote about previously carried a higher interest rate due to the inherent perceived risk of those products (i.e. NINA, NINANE). Fannie Mae backed loans had the lowest interest rate of all the loan products because they were supposed to be A+ “prime” loans. They carried the lowest risk and therefore had the lowest rate. But this whole system got bastardized by the Bank of Hell. But to be fair, it was with Fannie Mae’s blessing…and no, I am not trying to incite Barney Frank.

How did this work? Well, I was taught in training that if I had a client with a credit score of 680 (decent score) or higher on a purchase or 720 (good) or higher on a cash out refinance transaction it could be eligible for the “Super” loan. If you met these score requirements you didn’t have to verify the borrower’s income with pesky paystubs or W-2’s and you didn’t have to verify that the money they told you about for their down payment and closing costs actually existed….and the “beauty” of this was the rate and terms on the loan were the same as someone who fully documented their loan. Brilliant!! But wait ...there is more…if the value you have listed for the property they were purchasing or refinancing was acceptable to the automated underwriting program….you didn’t have to get an appraisal. You could get use an automated value from the “internets”!! Ok, so no income verified, no assets/down payment verified, and no physical appraisal needed to be completed…..and still the interest rate was no worse than the suckers that fully documented their loan with their “primo” credit.

Of course the Mortgage Devil used the powers of the “Super” loan for evil and not good. He took advantage of his self-employed borrowers by having them convinced he could do a stated income/stated asset loan for them a 1/2 % below the competition because he was “such a good guy”. But what he actually did was inflate the rate of the “Super” loan to make a bunch of overage (extra commission). For example…during the time period in question…a traditional stated income/stated asset loan would have a rate of 8.00% for a 30 year fixed while a Fannie Mae’s A+ loans had a rate of 6.00%. So, the Mortgage Devil would have his client call some mortgage broker who didn’t have the "Super" loan and get quoted 8.00%. He would then sell them a loan at 7.50%....he was a hero!! Wait, what is that you say? I thought the “super” loan was the same rate as Fannie Mae’s A+ rate? Well, you are correct. The Mortgage Devil would take that extra 1.50% as overage and make a ton of money of that one loan. As, I was told by my Munchkin Trainer this loan was supposed to give us a competitive advantage against the competition so we could close loans quicker and hassle our borrower’s less. But the Mortgage Devil found a sleazy way to take advantage of the system so that he could pay for all of his second homes.

When I returned from training to the Bank of Hell...I got the "real" training on how to use/manipulate/bastardize this "Super" loan. What was discovered by the Mortgage Devil or one his Minions is the exact sequence you had to follow to limit the paperwork and manipulate Fannie’s system. Here is the step by step way I was taught and why it needed to be done that way:

1) take loan application over the phone and enter into computer.
2) pull credit...if the score meets the requirement move to step 3.
3) go ahead and get an automated value for the property and enter it into the computer
3) make sure you have stated enough income to keep the debt ratio under 45%.
4) send the loan through Fannie Mae's underwriting system to get "Super" loan approval without having to verify the income, assets, and no physical appraisal..Brilliant!

Because if you just put a value based upon what the Borrower thinks their property is worth and you send it through Fannie Mae's automated underwriting it may get approved with that value. You excitedly call your customer and say..."Congratulations, you are already approved. Since your credit is so great...we don't need any documentation or even an appraisal". But what happens when the automated value is different than what the customer thinks the property is worth? If you enter the automated value and Fannie's automated underwriting doesn't like it...then it would red flag the whole loan for excessive value or cut your value where you may have a loan to value problem. No one wants red flag's on their loans or value issues. If you pull the automated value first as suggested in step 3 above, you can see if their is a potential problem ahead of time. Good deal, right? Actually, the system was set up for check and balances against over-inflated appraisals or potential for values exceeding loan amounts. By reversing the steps you circumvent that process. Brilliant!!..hmmm?

Why do you have to keep the debt ratio under 45%...well, because if it was higher it wasn't eligible for a "Super" loan. I know your next question will be..."well what if the income they told you that they made causes the debt ratio to exceed 45%?"....my answer comes from the Mortgage Devil...in his words...you "just bump up the income to make sure it is under 45%". Duh!! It's so simple...and so fraudulent at the same time. He honestly didn't see where this was a problem. You "just bump up the income!"....that was his war-cry that day. Ok....so, we learned today how to turn a Fannie Mae loan into a Liar's Loan....and still charge a higher interest rate to gain more commission...got it!!