It’s a busy Saturday at your dealership and the sales desk sends a deal to you for your opinion on which bank will buy it and for what kind of deal structure. You look at the credit app, buyers order, and pull a credit report. And of course, that’s where it gets tricky. Not A paper, not much money down, and just started their latest job about 6 months ago. This won’t be easy and yet you are told you must ‘find a way’ to make it work.
The question is, how do you make this borrower better on paper? Do you just roll with the info you have and hope that sending it to enough lenders will turn up one or two decent approvals with strong buy rate? Or do you consider embellishing a little here and there to help increase the odds of a fast approval?
Show of hands, who’s been there? Most likely many of you.
Where’s the Line?
How far is too far when trying to get a deal done in F&I? Is there an unspoken line you don’t cross when trying to work a complicated deal? F&I is tough enough between selling, compliance, and the constant balancing act with sales to preserve every delivery possible, but knowing what you can and can’t get away with to get the approval can be a bit muddy.
Most F&I professionals would tell you there is a line you don’t cross and that’s downright lying on the credit app. For example, pumping up stated income to meet the debt-to-income requirements of certain lenders is fraud, plain and simple.
But what if you were able to uncover more income that the customer is not reporting as part of their application? Child support or alimony comes to mind. There is nothing wrong with uncovering this extra monthly income through a skilled interview with the customer. Not lying but rather trying to be more complete in income reporting.
Most lenders will say their biggest complaint is borrowers overstating income which will often trigger POI to be provided before approval or with the funding package. F&I staff must be careful not to cross that line either if they suspect the income is inflated as that can come back to bite them if an audit is performed.
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Knowing Your Lenders
So much hinges on the F&I staff knowing their lenders inside and out. Are they sticklers for POI below a certain FICO threshold? Do they buy deep or are they really looking for A – B paper and little else? Are they more flexible on the so-called ‘character’ factors of approval like time on the job or where the borrower owns or rents their home?
Deals and your creativity with getting them approved become easier when you know your lenders well. No one wants to ask their bankers ‘Hey, how much can I get away with to get a deal bought?’ but there is nothing wrong with asking what their own policies are for deals that may need a little help. Let them tell you how much they will allow.
Every bank or captive wants to make every deal they can and if they have some flexibility in certain areas of underwriting that won’t cause compliance issues down the road, chances are they will be happy to share with your staff.
Staying in Compliance
Some general tips to stay out of the crosshairs of your lenders…
- Don’t lie about income. Verify the actual monthly income right away if possible and look for any red flags to the contrary. Finding extra legitimate sources of income of fine (see example above) but making it up? Nope.
- Do a proper credit & income interview. Asking all the right questions help you NOT have to be creative to get the deal bought. Dig for all the sources of income they may not have thought of when filling out the credit app. Ask for clarification on credit anomalies that can be explained and overcome (after all, there’s almost always a story!). Sometimes a high credit balance may have been recently paid but not updated yet, but you only know this if you ask.
- Ask if they can put more money into the deal if the LTV is running too close to what a lender will allow.
- Do allow the customer to rewrite their credit app to help present the information in a better light (if you use hard copy apps). You’re not writing it for them, but you can help them add missing info or corrected income. Many borrowers are so intimidated by the process that they can inadvertently mess it up.
- Don’t be swayed by sales staff or the borrower to be a party to fraud. Chances are there is at least one lender who will help your credit or income challenged buyer without you having to be out of compliance and risk your career. It’s never worth it no matter how much you can make.
And if you are still not sure where to draw the line in your own F&I office, ask your Director or underwriters if you have access to them. They will let you know what that line looks like and help you stay on the right side of it.
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