It’s Friday the 13th, and on Friday the 13th, I think of mayhem. And when I think of mayhem, I think of Mayhem! Confused? Before you get your eyestalks all tangled, let me explain.
According to the Merriam-Webster Dictionary, mayhem is a noun meaning “needless or willful damage or violence.” But Mayhem with a capital M is, according to the Villains Wiki (yes, there is such a thing) the antihero and presumably immortal mascot/advertising character who encourages people to buy a certain brand of insurance.
If you watch any TV on any platform, you are sure to have seen Mayhem at his best… or I guess that would be at his worst. Whether he’s laying down the latest hashtag challenge, eating extremely hot French fries while driving or becoming obsessed with the exercise bike movement, Mayhem leaves a lasting impression on all of us.
Although Mayhem himself has yet to venture into a credit union looking for a mortgage (to the best of my knowledge), we all know that mayhem with a small m is a potential threat to your mortgage operations, particularly as it concerns your members. While we – their trusted credit union – do everything in our power to ensure members have a smooth and enjoyable experience through the lifetime of their home loan, those red flags signaling mayhem are inevitable.
Just as I want to avoid inadvertently bringing a tribble onboard my spaceship or failing to rid the mynocks that are chewing on my power cords, credit union mortgage lenders want to avoid red flags during the loan process and steer clear of mayhem as best as possible. As you’re working with your members, always remember that they are not mortgage aficionados. In fact, they probably only go through the process a few times in their lives. That being said, they don’t necessarily know what can cause mayhem, so it’s our job to guide them.
Although this is far from a complete list, following are some of the more common red flags which you need to help your members avoid:
- Credit Issues: There are a variety of items that fall under this category that can lead to low credit scores—too much credit in use, short credit history or no history at all, late or missed payments, bankruptcy, etc. As we all know, “Life happens.” While we can’t fix the past, you can recommend resources your members can use to start working on boosting those scores.
- High Debt-to-Income (DTI) Ratio: Define this for your members and let them know how it is determined and what it means to their mortgage application. Depending on the type of mortgage loan and that state in which you’re located, the actual percentage for DTI can vary, but in general, keeping it under 36% is a good goal.
- Employment Issues: If the member loses their job, gets a new job or has a fluctuating pay scale and bonuses, it could be tough to get a solid income level for the loan application. A consistent two-year history is a must for most mortgages.
- Down Payments and Closing Costs: Generally, a member needs to have some type of down payment, although again, with different types of loans such as government loans, a solution with little or no down payment may be possible. Additionally, unexpected or unanticipated closing costs which cannot be financed can definitely cause mayhem at the closing table. A potential solution for both: a gift from a relative as long as the funds have a clear source.
- Last Minute Purchases: Remind your member that credit is run just prior to finalizing and closing their loan. Prior to closing is not the time to buy furniture and housewares for their new home , finance a new or used car or splurge on a vacation. These purchases will impact credit scores and could change the entire financing of the home.
- Disaster and Hardship: Credit unions ideally value and help the member through the lifetime of the loan, well after closing and financing are finalized. Natural disasters, financial hardships and, as we’ve lived through these past two years, pandemics. All of these can cause mayhem for the member—let them know that you are with them for this entire homeownership journey, and if circumstances concerning making payments changes, you are there to help.
While perfect mayhem-free mortgages aren’t the norm, avoiding the red flags above will open a wide berth in your space lane for your member to follow right up to their home’s threshold. What red flags have you discovered in your mortgage experience and how did you avert mayhem? Please share so that we can all continue to learn from each other.
Before I sign off this week, I have two more things to share:
- There is actually a debate as to whether Mayhem is truly a villain. After all, while he may be causing damage, he does give you helpful advice along the way.
- If you haven’t already, please subscribe to this blog and pass it along to colleagues.
Have a safe and mayhem-free Friday the 13th!