Pre-Approval Letter Inflation and an Undisclosed Lease
You are a licensed mortgage loan originator at a small brokerage. A realtor, Derek, sends you a purchase client, Maya, who is preapproved for $480,000 based on verified salary of $78,000, a 704 score, and a 43% DTI. The offer Maya wants to make is $545,000, with a $20,000 down payment. Derek asks you to issue a preapproval letter for $560,000, saying the listing agent will not take the offer seriously otherwise. He also asks you to ignore a $420 monthly car lease that Maya disclosed; the lease starts next month and has not appeared on her credit report. Finally, Derek asks you to date the letter two weeks earlier so it looks like it was issued before the offer. He hints that his team sends "a lot of volume" to originators who cooperate.
1. Identify each ethical and regulatory problem in Derek's requests, and state what you should do before any letter is issued.
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Do not issue the $560,000 letter. A preapproval is a representation that the borrower has been evaluated and can reasonably be expected to qualify; inflating it misrepresents Maya's credit capacity to the seller and can constitute fraud or a deceptive practice. Ignoring the $420 lease is also improper: it is a known, disclosed obligation and must be included in the debt-to-income calculation even if it is not yet on the credit report. Backdating the letter is document falsification. The hint about volume creates a referral-compensation risk: if any thing of value is exchanged for referrals, RESPA Section 8 prohibits it. Your action is to decline all three requests, explain the limits to Maya, issue an accurate preapproval at the verified amount, and re-underwrite with the lease included. Document the requests and your refusal in the file, and notify your broker or compliance manager.
2. Maya says the car lease is not a problem because her employer will reimburse her. How should you treat the lease and the reimbursement?
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The lease remains a monthly obligation and must be counted in the DTI. Employer reimbursement does not automatically erase the debt. If the employer pays the lease directly and the arrangement is documented as ongoing, you may be able to exclude the payment from the borrower's debt, but you need a written reimbursement policy, evidence of actual payments, and confirmation that the benefit will continue. If the reimbursement is paid to Maya, it is generally treated as income, and only the documented, stable, non-taxable portion may be added to qualifying income. Do not net the reimbursement against the lease without underwriting support. Recalculate the DTI both ways, disclose the treatment in the file, and obtain a written explanation from Maya and the employer.
3. Derek threatens to stop sending referrals unless you cooperate. What is your response, and what should the file reflect?
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Your response is no. Referral volume does not justify misrepresentation, and accepting the threat would compromise the integrity of the preapproval and the loan file. Tell Derek that you will provide accurate letters based on verified underwriting and that you cannot backdate documents or omit known debts. Document the conversation in a dated file note, including the request to inflate the letter, the request to omit the lease, the backdating request, and the referral-volume comment. Notify your broker or compliance team promptly. If Derek persists, escalate through your company's ethics or legal channel. This protects Maya, the brokerage, and you; it also creates a defensible record if the preapproval is later challenged by the seller, an investor, or a regulator.