WASHINGTON — A new national research study says that too many homebuyers are kidding themselves — and sellers — about a crucial step in the mortgage process: Growing numbers of buyers are walking around with "preapproval" financing letters that aren't worth the paper they're printed on.

As a result, any contract they sign to buy and close on a house is highly vulnerable to a costly postponement or a blowup. More than half of the participants in a nationally representative statistical sample of real-estate agents identified unreliable or bogus preapproval letters as a key cause of breakdowns in transactions.

The agents said 39 percent of preapprovals issued by Internet-based lenders are faulty or invalid. Nearly 30 percent of mortgage broker-issued preapprovals are in the same category, along with one out of every five preapprovals from national lenders.

The study — conducted by market-research firm Campbell Communications of Washington, D.C. — obtained opinions on the mortgage process from 1,717 active real-estate agents and brokers across the country. Inside Mortgage Finance, a lending-industry trade publication, sponsored the research.

Breakdowns or postponements in sales transactions because of faulty preapproval documents are a much bigger issue this year than in earlier surveys of agents, said Tom Popik of Geosegment Systems, which designed the study. That's because larger numbers of buyers in today's marketplace either have dings on their credit files or are using low-documentation and no-documentation loans when they buy homes.

Low- and no-doc loans allow borrowers to simply state their incomes and assets, with little or no verification by the lender.

A faulty preapproval letter may say something to the effect that "We have preapproved Mr. and Mrs. Flanagan for a 30-year fixed-rate mortgage at 5.5 percent in an amount not to exceed $500,000." That allows the Flanagans to look at — and bid on — homes without anybody seeing proof of their actual qualifications.

But what happens when the lender simply relies on Mr. and Mrs. Flanagan's statements about their income, assets and credit, and issues a preapproval without verifying the information?

"That's where you can get into deep trouble," says John Marcell Jr., a real-estate broker who is the incoming president of the California Association of Mortgage Brokers. He runs Compass Realty and Better Mortgage Brokers, both based in Upland, Calif.

Marcell's loan brokerage does not issue preapprovals for buyers whose credit files, assets and income have not been verified, and his realty firm won't accept preapproval letters if the information has not been confirmed by the lender or broker issuing the letter.

"In those cases [functioning as Realtor] we go to the [mortgage] broker and say, 'Look, we've got to see the credit reports. We've got to see the W-2s. We've got to see the bank statements.' "

Compass Realty also warns the seller on homes it lists whenever preapprovals look dubious.

"We caution [the client] that if you accept the offer on the basis of this preapproval" — even if it's the highest offer — "you could run into troubles later on."

What sort of troubles? Mainly an inability of the buyer to pass the lender's underwriting tests for the amount needed to fund and close the loan. Then the deal often goes off the tracks, and the seller has to put the house back on the market — a huge waste of time for everybody involved.

Sharon Wilson, executive vice president of Combank Mortgage in Homestead, Fla., says preapproval letters can be valuable, but they have to meet basic standards.

Any valid preapproval letter must be explicit about its limitations and conditions, Wilson said.

It should disclose, for example, that the amount offered is subject to a full appraisal, formal underwriting and receipt of an acceptable contract. It should state that the interest rate quoted is not locked and could change.

No preapproval letters are worth looking at, Wilson said, if the lending institution has not thoroughly checked credit files, income and cash on hand.

"As a Realtor, I wouldn't even talk to anybody unless they are truly prequalified" and all their financial records have been viewed and verified in advance, Wilson said.

Marcell had another piece of advice for any buyer who gets a valid, verified preapproval and then starts shopping for a house: "Once you get it [the letter], put your life on hold. Don't change jobs, don't buy anything that could affect your credit, don't change a thing."

Otherwise, your credit score and financial profile could change enough to render useless a once-valid preapproval letter.

Kenneth R. Harney: kenharney@earthlink.net