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Why do some lenders issue a PQF that is not valid?

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June 22 2011 - Phoenix
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I have had instances where the borrower has prvided faulty documentation, or circumstances have changed between the prequal and the underwriting (i.e. removing a borrower, tax return not filed with IRS, VOE reports huge difference in actual wages,etc.)  Although most lenders will take the time to check off the appropriate boxes on the form noting what we've gone through, there are certainly instances that they get overlooked and information is taken for granted.  Typically these forms have to be updated on a weekly basis at minimum, so there should never be a surprise just prior to closing if anything does flare up. 
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June 23 2011
Where I have a problem with this Form is line 16. Why should a borrower inform anyone of the maximum dollar amount. That could be detrimental in negotiations. The sellers agent should only know the dollar amount that applies to an offer. Also, lines 17 to 20 is information only the borrower needs to know. The Forms format and appearance could also be improved.

Happy funding, Rudi. 
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June 23 2011
The problem with that form is that it offers no useful information as to the borrowers true qualifications. Checking off a bunch of boxes that ask if the loan officer received something is pretty useless if they never reviewed the information or even entered it into an automated underwriting system. Please show me where it asked for AUS results. Don't you think that is probably the most important pre-offer finding an agent would want to see and yet it's nowhere to be found on that form. 
Without AUS findings your little piece of paper is nothing.
So to the point: Why do some lenders issue a PQF that is not valid?
Valid or invalid it's not a pre-approval and does not ask the questions that need to be asked. If the deal blows up, it's not because the loan officer did the PQF fraudulently, it's most likely because the PQF didn't require any hard data. 
Line 21 - Lender has received the following information from the borrower. 
It lists paystubs, w-2s, personal tax returns, corporate tax returns, down payment / reserves, gift documentation, credit liability documentation, other.
By putting a check mark next to these, that is somehow supposed to indicate that these have been reviewed? If so, where does it say that? 
You are treating this PQF as if it means the borrower is pre-approved and based on the information in the form itself, that is impossible. You are expecting a screwdriver to do the work of a hammer then asking why it doesn't work. 
You get so touchy about your state and your form but fail to take direct, on point criticism about the very question asked. Maybe your deals fall through because you refuse to adapt and take advice. It's a pre-qual, it's not a pre-approval. 
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June 23 2011
@ Jose,

You pretty much made BK's point.  If the LO that was given the information doesn't do anything with it...the PQ form is useless!  The quality of a pre-approval has always and will always come down to the loan officer that issues the letter. Not all loan officers are created equal!  Find a great loan officer to work with and you won't have these issues.
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June 23 2011
@BKJH - you definitively do not have experience in the Arizona market. The PQF is the form used here in our local market to indicate the buyer is pre-approved. Some of our forms changed in the beginning of this year when the Arizona Association of REALTORS (AAR) updated the Residential Purchase Contract. The old LSR (Loan Status Report) we used to use for pre-approved buyers was replaced by the PQF.

Now back to David's question:

Some mortgage brokers/loan officers will issue PQF without doing enough analysis. I guess some do that because they are overworked, or they got misleading information from the buyer, or they figure that it is easier to issue PQFs and sort things later than to do the analysis upfront. There are many reasons why someone might issue a PQF that is not valid.

However, I don't think it is a widespread problem. I did encounter my fair share of lenders that did it. But they are the exception, not the rule.

Now you made me curious. Care to elaborate on the reason for your question?

Good luck!

Jose Dias, REALTOR
Realty One Scottsdale
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June 23 2011
I'm not looking to hijack David's post, so I'll bow out now.  The PQF that you located has indeed become an integral part of the standard AAR Purchase Contract, like it or not, good or bad.
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June 23 2011
This form, is not exactly a document that carries much weight. I know AZ uses it but it's still flimsy and not even close to what a pre-approval should have, It does not even require AUS to be run. 

Assuming I have the form correct, please show me where this is of any value in determining a borrowers ability to repay? I would never rely on this alone to submit an offer, and yes, I am a licensed agent. 

I am curious what you are getting back on these forms that is invalid? Any way you slice it, this is a pre-qual that carries little weight. No one can possibly be expected to approve someone with so little information.
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June 23 2011
@ BKJH - You are apparently not knowledgeable about the standard Arizona Association of REALTORS Pre-Qualification Form (PQF).  If you were, you would not have given us a lecture on pre-qual vs pre-approval.  The title of the PQF might be misleading, but it's ANYTHING but a simplistic pre-qual like you've described.  BTW, in what state are you located??
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June 23 2011

Or...
Maybe the agents are the lazy ones and don't take the time to educate themselves to know the difference between a pre-qual and a pre-approval. Maybe if they asked for what they really needed and had a clue what they were, they would get better results.
Just for you, here is this hierarchy of preparedness:
1. Neither pre-qualified nor pre-approved
2. Pre-qualified
3. Pre-approved
The benefits available at each level are best understood when viewed from the seller's perspective. 
1. Neither pre-qualified nor pre-approved
This buyer provides no evidence that they can afford to purchase your property. You may wonder how serious they are since they're not at least pre-qualified.
2. Pre-qualified
This buyer met with a mortgage broker (or lender) and discussed their situation.The buyer informed the broker regarding their income, expenses, assets and liabilities. The broker may or may not have also have seen their credit report. The buyer provided you with a letter from the broker stating an opinion of what the buyer can afford. (a PQF)
2. Pre-approved
This buyer provided a broker or lender written evidence of income, expenses,assets, liabilities and credit. All information was verified by a lender. As a result, much of the paperwork for this buyer's loan has been completed. This buyer will probably be able to close quickly. They provided you with a letter (pre-approval / certificate) from the lender and you're as certain as possible that this buyer can close.

If what you really want is #3, then learn to ask for it and stop calling it a PQF. If you are submitting offers with just a pre-qual, you are the one that is negligent.
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June 23 2011
Lazy?

Inept?

Negligent?

Desperate?

No integrity?

How many possibilities can we list???    ;-)
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June 23 2011
 
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