Is this MLO crazy?

Question

I was at a local REIA a couple nights ago and one of the people that attends regularly is a MLO here in town . Dodd Frank got brought up by him, even though he called it Frank Dodd, :/  and he said that when trying to get approved for another property you will have to be able to afford both on your income. I mentioned that rental income is able to be figured as long as you can show you have  2 years rental income on tax returns, correct.  He said no you have to qualify for all mortgages yourself... Did something just change or is this guy off his rocker like I feel he is??

Bill Gulley · Answer

The MLO was right and probably didn't understand or was fully aware. That's not an issue anywhere in Dodd-Frank. By saying you must qualify for both loans, he might have well had said you have to qualify with all loans you have including the new loan applied for. What he didn't say was that what is customary and accepted is counting 70/75% of the rental income on the subject property if you have experience in rentals. If there is no experience, prudent underwriting would exclude rental income or it could be significantly reduced considering an applicants abilities. These are areas of compensating factors. Sounds like that MLO is a black and white type, either doesn't want to go into the gray areas, or can't go there.

An example, if a math teacher applies for a loan and has no rental experience, rents may not be counted. If an attorney applies for the same deal, rents might be as the legal background is superior in most cases than 2 years rental experience. My last rental loan was acquired with rents (didn't need to be but they did) and I hadn't had any rental activity for a few years, certainly not the last two, the deal was considered on my overall background, it's an assessment of management abilities, it's not a hard and fast requirement.

As to Frank Dodd, well, you may not want to follow that guy too closely. You might try to be tactful and educate him too. I know two ladies here that have the RMLO license and they are so green if it's not all in a well defined box steps 1-42, they can't make a decision. Everyone has to start out sometime. :)

Aaron Junck · Answer

@Jesse Gonzalez Thanks and thats what I was wondering if this was something that just popped up with Dodd Frank or possibly just his bank's policy.

Bill Gulley Always glad to hear what you have to say and that all makes perfect sense. Maybe once I get to know him a little more I can give him a little bit of info from the CFPB website pertaining to Dodd Frank, lol.

Aaron Junck · Answer

Bill Gulley

Have either of you heard this recently with new regulations?

Bill Gulley · Answer

RMLOs, many are hired by banks, they usually work up from processing or consumer activities. What most know is the company way. Starting out they generally won't have lending authority granted. I've known bank loan officers that have been in the bank for 20+ years and never know secondary market guidelines, to function in a bank they really don't need to, they look to written lending policies and usually a final review for approval. I hired loan officers and still had to train them.

So far, I've not found a LO in a bank that would be allowed to do a seller financed deal, haven't searched that hard but I doubt they will as it's a liability without any funding or upside for the bank other than fee income and there issues with providing outside services of bank operations. Find a broker, I think you'd have a better chance of obtaining services. :)

Jesse Gonzalez · Answer

Please remember that when speaking with individual LO's you're going to get a wide range of what is "acceptable" because their individual lending source may have certain restrictions known as investor specific overlays that will trump or add more layers of requirements above and beyond what may be a fannie mae/freddie mac requirement.  It is impossible to know exactly what the MLO was referring to during your meeting, but I can tell you that you will still be able to use rental income to offset your debt to income ratios.  Certain restrictions apply based on fannie and freddie guides, similar to what @Alan Russell  mentioned, but you'll still be able to use it.  I've heard so many things from different loan officers about what the new Qualified Mortgage rules allow and don't allow that it would make your head spin.  Most of it is just straight wrong and misinformed.  Hope that helps.

Aaron Junck · Answer

Thanks @Alan Russell and that makes sense.

Alan Russell · Answer

What my mortgage broker just told me is that I either need to be able to show 2 years of Rental income or I need to be below the 70% LTV number in order to offset mortage payments with rental income.

Hope this helps but in the interest of full disclosure....I haven't tried this yet so I dont know for sure if this mortgage broker knows what he is talking about.

Is this MLO crazy?

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