Summary:

The following is a structured sequence of questions that loan agents can use as experts in their field to guide their conversations with borrowers. These questions are not set in stone but provide a framework for your interactions. You can adapt this sequence to your style, making it a tool that empowers you and instills confidence in your ability to obtain the necessary information to assess the viability of the loan request.

Article:

Conversations with borrowers are not just about gathering information; they are about understanding their life circumstances. As a loan agent, you play a crucial and valued role in their journey. Your role is not just about transactions but about understanding and empathizing with their needs. I often pause to allow them to express themselves because I know their distress. Borrowers usually share their life's history and problems while you are trying to gather material facts. Compassionate listening, a skill that can be developed, is a powerful tool. It is a natural, considerate trait that aids in building trust and fostering lasting relationships.

Any sales career endeavor involving products, goods, or services will have a similar best-practices questioning sequence. All salespeople should take the time to write down a sequence of questions as an effective platform for intended results. The intended outcome is to obtain the material facts, represent the customer with good intentions, explain and answer questions, determine the transaction's viability, and close and drive the transaction forward. Or decline the transaction if it does not fit the company's requirements. As a loan agent, you must ensure that all material facts are fully disclosed to lenders for successful transactions.

Educating a client or customer is part of the job of any professional salesperson. The customer should come away with the idea that the salesperson honestly had their best interest in mind. A byproduct of this philosophy is a lasting relationship, spreading goodwill, and referrals. As a loan agent, you can foster these lasting relationships through honest and transparent interactions, which should motivate your commitment to your clients. Remember, every successful transaction could lead to more business through referrals, making your job not just about the current loan but about building a network of satisfied clients.

Stage I:

The questions presented here are a solid foundation for your loan assessment process. They are designed to gather critical information about the loan request and the borrower's circumstances.

• Loan amount for what term?
• First or second lien?
• Type of property: single-family, owner- or non-owner-occupied, commercial, apartments, industrial, occupancy, or other.
• The loan purpose is of utmost importance, mainly if the loan request is for a single-family owner-occupied property. Understanding the use of loan proceeds, whether primarily for business purposes (51% or more of the loan proceeds) or for consumer purposes, is a critical factor in determining the viability of the loan.
• Where is the property located?
• Property value. How did the borrowers determine the
• Value? A borrower's estimate of value is often incorrect or intentionally exaggerated.
• Is cash out requested?
• Current total liens.
• Are the liens current? If not, how much is the arrearage, and what is the reason? Get the complete story in writing. Completeness may make or break your transaction. Some reasons may be rational, while others are just an attempt to conceal.
• Loan-to-value: LTV ratio of total loans divided by appraised property value (APV)
• Description of collateral property.
• Property address
• Exit strategy: What are the borrower's plans to repay this loan? This question is crucial as it helps assess the borrower's financial planning and ability to repay the loan. A clear and viable exit strategy can provide confidence in the borrower's economic stability and commitment to the loan.
• Rental income stream? What gross rents, vacancies, and expenses are required to determine net operating income, often called NOI? The NOI calculation excludes debt service. Will the NOI cover the loan payments and property expenses?
• Most recent payment statement(s)-please obtain.
• When was the property purchased, and for how much?
• Have they made any significant improvements or upgrades? Please provide a list of upgrades and costs.
• Pictures of the outside and inside: In most cases, pictures can be found online on Zillow, Redfin, Realtor.com, and Trulia. Photos of the inside and outside are necessary if the property has undergone significant upgrades that enhance its value.
• If the property is newly or partially reconstructed, inside and out pictures are necessary, as well as a list of improvements, costs, and what improvements remain to be completed.
• Any exceptional circumstances? These could include a history of late payments, significant arrearages in payments, accrued unpaid property taxes, outstanding judgments and liens, state and federal taxes due, probate sales, bad credit, open bankruptcy, pending divorce proceedings, tax liens or judgments, the property has a recorded notice of substandard condition, red tagged for code violations, successor trustee, acting on behalf of a family trust, multiple borrowers, multiple cross-collateralized properties, etc. Understanding and addressing these exceptional circumstances is crucial in assessing the viability of the loan.
• Forward the prospective borrower a loan application and authorization to obtain credit. Request the most recent property loan payment statement and at least three months of bank statements. When possible, use a commercial loan application rather than a 1003 residential form.
• Ask for a handwritten purpose of the loan letter.
• Does the borrower have an online presence? If they are a company, they may have a website. If they are individuals, they may have a presence on LinkedIn. This information can be valuable as it provides additional context about the borrower's financial situation and credibility. For instance, a company's website can provide insights into its economic health, while an individual's LinkedIn profile can give a sense of their professional background and stability. Does the borrower have a promotional summary about themselves? Add these items to the executive summary sent to the lender. Positive promotional material will add credibility to the prospective borrower.

The above information is sufficient for the loan agent to write an executive summary and email it to a prospective lender. Then, could you follow up with a phone call?

Stage II: To move the loan process forward, the loan agent must gather additional documentation and information to satisfy the lender's requirements and ensure a smooth loan process. This responsibility underscores the crucial role of the loan agent in the entire loan process, from initial assessment to final approval. Your role is not just about the initial assessment but also about ensuring the whole process is smooth and successful. Your commitment to this process makes you a valuable part of the team.

• Private money and institutional lenders have different borrower requirements, including tax returns, recent pay stubs, W-2s, and 1099s.
• Profit, loss, and financial statements are necessary if the borrower is an operating entity. Two data sets, one for personal use and one for business use, may be required separately.
• In addition to a borrower's signed letter of interest, loan application, and credit authorization, the agent will need other data, such as a property owner's family trust document, an operating statement for a limited liability company (LLC), insurance broker contact information, and association management company contact information.
• If the loan request is for a junior loan, information about the senior loans will be required. Documents for review may include a copy of the promissory note, loan agreements, and a recent payment statement from the senior lien holder or loan servicer. It is prudent to review the recorded documents related to the senior lien associated with the deed of trust.
• Does the first lien have a written provision in the deed of trust referred to as an "alienation clause" or a "due on further encumbrance clause" that would require the lender to obtain written approval to place a junior lien on the property? If the loan agent is working on a second lien loan, they should review the deed of trust and the loan agreement to see if there is a prohibition of placing a junior lien without obtaining the first lien lender's approval.

This fact is important because, in many cases, the original borrower may have been parents, possible deceased members, siblings, co-trustees of a family trust, ex-spouses, or other miscellaneous parties. Some earlier property purchases were taken "subject to" a lien that prior owners obtained in the past. Completing a property sale "subject to" means that the purchaser/borrower purposefully failed to notify the first lien holder of the transfer. Was the sale transfer kept a secret, deliberately, to get a lower interest rate? Therefore, the loan documents still show the obligor as the prior owner on the note and deed of trust.

• Does the person requesting the loan have the sole authority to borrow and encumber the property with a new lien? Are there other parties of interest who may object to the recording of a lien on the property? An estranged ex-husband, ex-wife, business partner, or trust beneficiary would be an example.

Are there multiple borrower parties that a lender must include in the application, processing, underwriting, and closing process? A lender's frustration will occur when the discovery that the borrower has intentionally excluded an undisclosed hostile party. I assure you that an unknown borrower party will not fool a good loan processor or the title company. When the title insurer underwrites its coverage, it will ensure that the correct parties have signed the documents. Verifying the proper parties is part of their insurance underwriter and approval process.

• Additional documentation may be required to drive the process forward as a loan processor sets up their file. The loan agent should maintain a respectful and enthusiastic relationship with the processor.

Sifting through the maze of questions and answers to develop a well-written executive summary to send to the lender

Loan agents ask prospective borrowers questions to determine the transaction's viability. They are responsible for obtaining specific information from the borrower or the borrower's agent.

Some agents are responsible for asking appropriate questions but then calling a lender with fragmented and incomplete information to discuss the potential loan transaction. The lender will respond that they need more information. The agent will answer, "What do you need?"

There are dozens of questions that may be asked at the front end, but getting to the basics of whether the potential loan transaction is viable is the beginning. Sifting through the maze of complexities includes:

• Property types, income generating, and occupancies,
• Agent's competency, property ownership variables,
• Borrower creditworthiness,
• Borrower's propensity to withhold material facts,
• Some borrowers will withhold information, unaware that they will get caught while processing the loan. A critical thinking questioning sequence will avoid most of this.

The material facts of the transaction should be summarized and submitted to a lender via email as an organized written executive summary, followed by a phone call discussion. Normally, a request for more information is anticipated. Could you emphasize the positives first and the negatives later? However, please don't bury the negatives so the lender finds them later.

Lenders have long memories of being professional and honest. They supply only fragmented data and summarily leave out adverse material facts. After a couple of repeated offenses, the assumption will be that the loan agent withheld the negatives intentionally. Reputations, both negative and positive, accrue quickly. Experience, understanding, and the propensity to fully disclose and protect the lender's interest will ensure lasting relationships.

After reviewing the material facts, the lender may express an interest or decline the proposed transaction. Or the lender may ask for more information. If you receive a positive response, that is great, and if you receive a rejection, it is a rejection of your request, not a rejection of you. You can move on to the next lender. Lenders have different risk assessment standards and pricing structures. For example, some lenders require an independent third-party appraisal, and some do not. Some lenders care about FICO scores, and some do not. Some lenders need assurances about the ability to pay, while others are less concerned. Some lenders should be more skilled in processing and underwriting and, therefore, take on riskier deals unknowingly.

The loan agent looks forward to a term sheet or a letter of interest. The written term sheet will state the lender's terms and conditions to make the loan subject to an appraisal and underwriting of the material facts submitted by the borrower.