Five Tips for Choosing the Best Loan Officer
Kevin J. Daum

This article was originally published in a 2007 edition of Log Homes Illustrated magazine.

The Spring weather and low interest rates sure can make thoughts turn to financing especially if it’s time to start the build on your Log home or if your 5 year fixed is about to hit it’s adjustable phase and it’s time to refinance.  Either way finding the right Loan Officer to help you through the financing process has become a bit more difficult these days.

Unless you have been living under a rock you are aware by now that the crisis with Sub-prime lending has had a significant impact on the entire mortgage industry resulting in the closing of many banks and mortgage institutions.   It wasn’t that long ago you couldn’t throw a rock without hitting 10 people trying to sell you loans.  But the reduction in loan originations and mortgage company downsizing has resulted in tens of thousands of people leaving the mortgage business.  Most of these are commission-based originators who can no longer make a living, many of whom only got into the business to make a fast buck.

The good news is that natural selection prevails in a down market and as a Loan Officer the quality and skills required for surviving in today’s economy represents a higher standard of professionalism then of recent years.  That being said picking the right loan officer is still challenging. Here are 5 tips for sorting the professional winners out amongst the Loan Officers that have remained in the industry.

Find someone with product flexibility – All the changes in the market have reduced the number of lenders in the market.  With the government intervening and losses piling up loan programs are changing weekly.  Many lenders have stopped funding certain types of loans such as lot and construction loans or loans with stated income or low credit scores.  Guidelines are constantly changing with programs disappearing without notice.

Mortgage brokers can certainly have an advantage in this area.  Since they represent several lenders they always have access to plenty of loan programs.  Some Loan Officers at direct banks may have some pull to sneak you in on a disappearing program but if you have committed to a bank and they close or restrict guidelines you may find yourself starting from scratch.  In the event guideline changes make your approval slip away, the best Loan Officers today have the agility to move your loan in a day. 

When you interview a potential loan officer ask them how they have been dealing with this situation so far.  Engage them in a lengthy discussion about your qualifications and how many lenders have options that will fit your situation.  Discuss a contingency plan in case the programs you are choosing are modified or disappear entirely.

Look for someone with specialized experience – The good news is that most of the Loan Officers remaining in the mortgage industry today are able to do so because they have experience.  The trick is to find the loan officer that has experience relative to your needs.  Certain types of lending such as construction financing are highly specialized.  Loan Officers who have funded only refinances or purchase loans will have to use your loan process as their own learning experience putting your financing at risk. 

Since there are less lenders today participating in highly specialized products like construction loans or Log Homes it is important to find someone who knows who those lenders are and knows how to get the loan done right the first time.  Often if you are turned down due to poor or ignorant packaging the lender won’t give you a second chance to submit your information.  If that lender was the only product to fit your needs you could find your project at a standstill.

During your Loan Officer interviews spend time asking about their experience working with the particular type of loan that suits your needs.  Find out how long they have had relationships with the appropriate lenders and appraisers for your type of project.  This is critically important for Log Homes.  Lastly, Loan Officers with more than 15 years experience can be beneficial in this market since 1989 to 1994 had similar economic real estate issues as today.

Look for a “Big Picture” approach – Over the last ten years the banking industry worked very hard to commoditize the mortgage origination process.  In order to handle the increase in volume and the reduction in margins from competition, they created efficiencies with technology and personnel resulting in the reduction of education and advice for the consumer.  Getting a mortgage was made to be as simple as buying a can of soup off the shelf at a grocery store. 

To make the efficiency of the lending process work effectively lenders helped the borrowers focus on only a few of the many complexities when choosing a mortgage such as rate and fees.  With consumers ignoring issues such as time in their property, investment strategy, and tax issues, they could make a simple request for the cheapest loan and leave it to the Loan Officer to provide them with a seemingly appropriate loan that benefited the bank far more than the borrower.

Today originations volumes are lower and both banks and consumers are suffering the repercussions of choosing loans without understanding all of the issues at hand.  As a consumer you can take advantage of the slowdown to get more attention and education from your loan officer so you can pick the right program for your specific financial situation.

When interviewing prospective Loan Officers, give them a chance to guide the conversation.  Judge how smart they are by the questions they ask you rather than the quick answers they provide.  You can ask them to show you how different options can have impact on your taxes and retirement plans.  The best Loan Officers will jump at the chance to explain the benefits and risks of each product as it relates to your entire financial picture.  Listen carefully though to make sure they refer you to your CPA or financial advisor for issues outside of their lending expertise.

Question the details ­– Not all loans are created equal.  The banks created a multitude of products in the last ten years in order to serve the desires of both borrowers and the investment community.  The options on these loans may have differences in the types of indices they are tied to as well as the margins, caps and periods of adjustments.  Construction Loans have an additional variety of variables to sort through including Loan to Cost, required equity, term of build and draw systems to name a few.

Your Loan Officer is there to guide you and help you understand every aspect of the financial product you are choosing.  A good Loan Officer should volunteer to walk you through every detail of each of the various loans you are choosing showing you how it works over the life of the loan.  It is his or her responsibility to make sure you have a complete understanding of the terms and impact of the loan you are choosing.

When interviewing Loan Officers listen for their ability to over explain concepts to you.  It’s better for you to have to tell them you already understand then it is for them to short change you on a necessary explanation since you don’t know what you don’t know.  When finding a construction lender, it’s best to assume you understand little about the process and ask the loan officer to tell you about things you likely don’t know.  Make sure they walk through the entire construction draw system as well as the roll over to permanent financing.  If they appear vague in the description it’s because they probably don’t understand it that well themselves.  This is a significant financial investment for you and you are entitled to fully understand it.

Test the trust factor – Many people who are survivors in the industry are hoping that all the dishonest Loan Officers are among the people leaving the mortgage business.  It’s a noble thought but sadly it won’t likely be a complete purge.  Wherever large sums of money are involved people with questionable ethics will take advantage of unsuspecting consumers.

References are still a good way to reduce your chance of being cheated by unscrupulous people.  Unless the loan officer you are considering has a well-established public reputation, there is no harm in asking for personal references to which you can speak or email.  And then most importantly, call or email them.  Just giving you names or printed testimonials doesn’t make them honest.  Verify to the best of your ability the references are real by asking for some details of the transaction and how they were treated.  References aren’t foolproof  but if you’re not feeling secure after meeting this Loan Officer and talking with three independent people you probably should be considering someone else anyway.

Following these tips will go along way in finding a experienced professional ready to guide you to the right loan product for your family’s finances and your beloved Log Home.  The dynamic changes in today’s market will hopefully settle down in time and consistency will be the order of the day but until that time it’s best to be diligent in choosing the professional to depend on for your Log Home.  Ultimately picking a Loan Officer may turn out to be easier than picking the next president but considering your mortgage may be with you for decades instead of 4 to 8 years it deserves at least as much consideration on your part.

About the Author...
Kevin Daum is the Founder and CEO of Stratford Financial Services, a Real Estate finance and education company, founded in 1989. Stratford specializes in Purchase loans, Refinance loans and Custom Home Construction finance and has successfully financed thousands of clients. He is the author of "Building Your Own Home for Dummies" (Wiley), as well as "What the Banks Won’t Tell You." Mr. Daum was an Underwriter for Plaza Savings and Loan and Key Bank of New York. He is an INC 500 CEO and has been listed as one the 40 Most Influential People Under 40 in the San Francisco Bay Area. He is the Global Chair for the Edison Innovation Program with the Young Entrepreneurs' Organization (YEO) and is a founding Board member of the Bay Area Chapter of YEO.

Mr. Daum is a frequent contributor to numerous business publications on the subjects of Real Estate and Small Business leadership and speaks regularly on both subjects. He can be contacted at kevin@stratfordfinancial.com.