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BUYER MUST BE APPROVED BY XYZ MORTGAGE COMPANY. WHO BENEFITS?

BUYER MUST BE APPROVED BY XYZ MORTGAGE COMPANY. WHO BENEFITS?

What is behind all of the listings that say "buyers must be approved by "XYZ mortgage company".

These third party lender requirements are included in about 1/3 of the bank owned listings.

EXAMPLES FROM A FEW LISTINGS FOR BANK OWNED PROPERTIES FOR SALE:

"pre qual from Wells Fargo (REQUIRED!!)"
"Pre-qual with Countrywide, free credit report and appraisal if Countrywide is used"
"BANK OF AMERICA PREQUAL REQUIRED"

PRE-APPROVAL, PRE-QUALIFIED, BREATHING. We're used to this requirement in the listing remarks and generally don't object. While our buyers are well qualified and our contracts prepared in great detail with pre-approval letters, financial statements, etc., we understand that many contracts received by listing agents are not. Listing agents receive written offers that are incomplete and accompanied by so called "pre-approvals" where the only thing reviewed by the loan officer is the credit report. Quite often the loan officer has not verified the money to close or income to qualify. Once the listing agent receives our offer, they do not require third party lender pre-approval of our buyers.

A NEW TWIST ON AN OLD REQUIREMENT. In consultation with a Maryland broker in my network yesterday, the broker related a situation that was very revealing. While we're aware of this requirement stated in the AGENT REMARKS in many REO/bank owned property listings, this particular situation was very revealin Loan Application g.

ENOUGH IS ENOUGH. We understand the need for the seller to feel comfortable with the buyer's ability to close. However, this situation appeared to involve more than just verifying the borrowers ability to obtain a mortgage loan. After contacting the loan officer named by the listing agent as the person to review the buyer's financial information, the buyer called and related the conversation. There's something fishy in. . .

HOW FAR DOES A QUALIFYING LENDER GO?? The loan officer took the buyer's credit information and shortly, after reviewing the credit report told him that his credit was fine, however, to make sure that he got the contract, he should change his offer to include:

a price of $xxx,xxx
remove the home inspection
etc., etc.

This, mind you, for a very, very well qualified home buyer with excellent credit scores, money to close and making a 106% offer with only a customary split of transfer and recordation taxes which is pre-printed in our contract of sale. The buyer did, however, want a home inspection.

WHAT'S UP, DOC? This loan officer is NOT the bank/seller. It is the loan officer identified by the listing agent to pre-approve the buyer. Seems to me that this lender, and the listing agent/seller, went beyond the normal pre-approval by a third party lender requirement.

The Maryland Association of Realtors Residential Contract of Sale includes a clause that states:

36. NOTICE OF BUYER'S RIGHT TO SELECT SETTLEMENT SERVICE PROVIDERS: Buyer has the right to select Buyer's own title insurance company, title lawyer, settlement company, escrow company, mortgage lender or financial institution as defined in the Financial Institutions Article, Annotated Code of Maryland.

WHAT PART OF "BUYER'S RIGHT" DO THEY NOT UNDERSTAND? The loan officer clearly gave the home buyer the impression that, if his suggestions were followed, that the buyer would be more likely to be accepted by the seller. What the buyer also got from the conversation was that this loan officer was not an objective third party lender.

WHAT'S GOING ON? Inquiring minds want to know.

* Is the listing agent using their property listings to STEER buyers to a loan officer?

* Is the loan officer giving the listing agent some benefit for these referrals?

Fortunately, the home buyer, an attorney, believed that the loan officer was going too far, broke off the conversation and immediately contracted his buyer's agent.

QUESTION: What action, if any, would you take or recommend that the agent take? I'm a pro-active practioner and prefer to take advantage of any opportunity to enhance our buyer's position rather than sitting by an doing nothing. I know what I would do.

I value the experience and opinions of my ActiveRain friends, therefore:

Would you relate the conversation to the listing agent?

Would you notice the agent's broker of this conversation?

Would you do nothing?

WHAT WOULD YOU DO???

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 07/29/2009 09:58 AM

Comments (133)

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133 Comments on BUYER MUST BE APPROVED BY XYZ MORTGAGE COMPANY. WHO BENEFITS?

JUL

I dont like it. But in the end, what could I do? I completely agree that we shouldnt let the REOs or listing agents drive the business that way, but really, what could we do?

Lenn, I have had many of the same concerns about this new 'trend.' It seems like steering to a lender to me; once someone has gone through the approval process once (and it is not easy these days) will they really want to go through it again??!! Doesn't the buyer have the right to make the offer that they want on the terms that they believe are fair?

REMOVE HOME INSPECTION ... maybe they should run that by FHA, ha. Notices are required RIGHT IN THE MORTGAGE PAPERWORK about the importance of a home inspection. What you described above is straight idiocy and fraudulent in my mind.

This practice can have the affect of a buyer not qualify for the loan they have already received a pre approval as another hit on their credit report could reduce their FICA score.

Loreena. I don't like it, but don't really object because our buyers are always well qualified. However, this one appeared to go further than necessary.

Holly. Agreed. This agent steered the buyer to a lender that went beyond qualifying.

Steve. Agreed. But, would you go a step farther and contact the agent/broker/lender????

This crap has been going on here for quite a while and I have gone round and round with AGENTS about it.... I even called California Assocation of Realtors (CAR) who said, "It smells fishy and watch law suits being filed..."

I THINK some agents/brokers are in with some banks and may be getting palms greased.

Lenn.... this whole scenario just frosts me!!! I believe it is mostly REO lender driven, in order to obtain new buyer side loans while taking the seller side loss. The REO agents, in order to keep this line of work, go right along. Now, I really don't have a problem with banks offering loan incentives to a buyer if they use the REO bank. That is just business marketing on their part. But I do take great exception to buyer's being "forced". I am not sure what the solution should. Since we cannot rely on the federal goverment to step into this properly, it may have to happen on a state level. I would like to see CAR (California Assn of Realtors) sponser a bill which would preclude any lender from requiring this in our state.

Cathy. I have not objected to banks offering advantageous benefits to our buyers if they also did the buyer's loan. However, this loan officer is a different lender from the bank owner and the listing agent made the requirement.

Kat. I agree. Seems to me that a listing agent, if the bank/owner isn't reviewing the contract offers should be able to review and evaluate the offers without an assist by another mortgage company.

Scott. My information is that credit reports by mortgae companies are in a category that does not reduce the credit score. That may have changed.

Lenn - I have one listed now that requires a prequal by a specific lender, the lender does not operate in my state and I can't find anyone to send a prospective buyer to! How can that be helpful?

Thank you for voicing one of my biggest concerns now! These LOs are clearly loyal to the banks selling the REOs and dealing with them serves to kill more deals than anything else. Around LA almost all the sleazy REO listing agents require you to double app with their sleazy LOs before they will even accept your offer (that is 15% above asking price!!!). The unintended effect here is removing more qualified buyers from the mortgage pool. If the average buyer is having to write five offers to get one accepted, and each time they write an offer they have to get reapproved with a different LO then their credit is going to take a dive simply because of inquiries. Suddenly that 720 score becomes 680 and behold-loan denial. This is an awful practice.

Right now I have abuyer approved with Wells Fargo buying a Wells Fargo REO and they are requiring him to do all kinds of repair work to the property prior to funding the loan. And he has 40% down!

Some lenders require this on REO simply because there are so many sketchy lenders out there...I know you dont need to use that specific lender in the end but at least it gives the bank a hard look at the potential buyers credit from an inside source. great Article!

Smells fishy all right. I knew this kind of stuff was behind some of this 'steering' behavior. I would tell the LA's broker what is going on. I don't even feel comfortable having the buyer have his credit run thru someone mandatory to writing an offer. There's the word - mandatory. The listing agents are saying they are tired of the fall thru rates, etc. but the prequal does not go into all the things truly necessary to find out all about the buyer like a preapproval would. It's like throwing the loan officer a bone - here see if you can get'em. It's not right and actually mortage steering. Besides the buyer could be penalized by having his credit run how many times? The poor buyer hasn't even gotten a property yet and in a fast REO market could have his credit run 10 times maybe?

I do know that I was 'favored' on a buyer because they used the loan company that also was the REO. In house, favorability so to speak.

So now we have a loan officer playing attorney telling a buyer to give up his right to a home inspection on an REO? Tell him to butt out or you will report him for practicing law without a license.

I think we should also be unfront about what lender is doing this in my area - Wells Fargo.

Lenn, to answer the question you raised about the impact of additional credit reports on credit scores... there is software available that allows for no score reductions but most mortgage credit reporting companies do not use it so there is usually a 4 to 5 point hit for each mortgage report that is run.

Hi Lenn, The loan officer definitely went too far. What would I do?? I would ask my managing broker what to do, and if she were not available, I would email you, of course! :-)

I've often wondered about this, although have not had it happen...yet.

It does seem to me that there is some sort of "steering" going on. Especially if the mandatory lender is not the bank holding the note and/or went beyond qualifying to give advice on the offer itself.

I'm going to park here (if you don't mind) to read more insight on this!

Great topic! Thanks!

I would run away if Seller said they had the right to choose buyers lender. What the heck is that?!? It is none of their biz who you choose! Just my .02!

;)

I don't like it all and I would relate the conversation to the agent and depending on what was said and the outcome the broker(not that they would do anything about it obviously they put the remark in there). The part I really hated was when you said they should change their offer to such and such.... so now they are a real estate agent too and who appointed them the reviewer of the offer and fair market value and what a seller will accept -bank or not? I do not like these clauses in the listing. I can understand the seller wanting verification of a buyers qualifications etc and believe in strong pre=APPROVALs no pre-quals. I also think it gives the bank too much of an edge knowing all the details of the buyers and they end up countering not per the value of the house but more towards what they can afford-if the one they are requiring them to go through is the same one who owns it.... Sounds very fishy and unethical. The whole thing stinks. The REO properties have really pushed the limit without all of "THEIR" requirements which half the time don't follow our contracts.

Lenn, I will need to check into the comment I made on the credit report.

As for contacting the the agent/broker/lender I feel that the agent and broker have little control over the banks requirements. I do think a call to the lander would be in order as the comments were not professional at all.

Betina. I wouldn't go so far as saying that the buyer's choice of lender is none of the seller's business. If the buyer expects the seller to accept their offer, they have to show ability to close. OTOH, I don't believe that the listing agent should steer buyers to a particular lender who then interferes with the offer.

Tammi. Thanks for stopping by and enjoy. This is very interesting to me too.

Mary. Funny. The agent is the brother of one of the brokers (former agent) in my network to whom I refer buyer business. Yes, they do call me.

Bill. Thanks. Interesting. I need to do some research on this.

Lyn. You've got the same take on this trend as do I. Wells Fargo is heavy into pre-approval requirements and so is BofA/Countrywide. BofA gives free credit report and something else, I can't recall, if our buyer uses Countrywide.

Melissa. Agreed, but should that qualifying lender be giving advice about the construct of the offer?

Preferred. NO WAY a buyer should be making repairs to a property before owning it. NO WAY. The risks are astronomical.

BTW; another thing C.A.R. told me was, that the ONLY way an agent can includ those "requests" in the listing is to have a written agreement with the lender/bank....and YOU can ask to see that.

Lisa. Good question. I don't know. That one is very curious, but then no one claims that banks know how to sell real estate.

I loved your post. I get so frustrated with all these listing requirements in such a buyer's market. I am representing a client that is trying to put an offer where the listing agent is requiring a list of items just so they can present the already written faxed offer. She won't present the offer to the bank if she doesn't receive all in one from us:

Copy of buyer's certified bank's check deposit for 5 % of purchase price
Copy of buyer's credit score
Bank's addendum fully signed
As-IS addendum where buyer would be responsible for any code violations if found

I wonder if that is a firm position from the bank or from the listing agent. As the bank is painting the home inside and out, replacing appliances, repairing mold...( so obviously the bank is motivated enough). I just don't get why they would not present a written offer with a copy of the buyer's pre-qualification letter without the above mentioned items. Why would a buyer be required to issue a certified bank check before even knowing if their offer is going to be accepted?

Lenn - We see similar terms in short sale, REO, and new home contracts. Often, the requirements are even more onerous and require the purchaser to close at Title Company A or to use Lender B, which are pretty clear violations. In most cases, these title companies or lenders are affiliated business arrangements or they have some other undisclosed relationship such as shared marketing, free technology, etc. that motivate the agent or brokerage to require the use of the third party.

The loan officer is certainly overstepping his advice based on his license's. He should be offering advice about mortgages and not home inspections ETC that a Realtor is clearly more qualified to offer council on. Yes I would call him and ask where he came up with a recommended offer price. Has he done a CMA to offer such advice? Our SC contacts automatically give rights of inspections.Geez.

Yes this is becoming a problem and we can do something about it.

I think I'd be inclined to give the listing agent the benefit of the doubt and ask him/her whether he/she was aware of the questions being asked by their lender. The agent's response would influence whether I wanted to let it drop or go any further with it.

The biggest problem I have is that the lenders never follow up to do the pre-approval. You have an offer on the table but the bank won't review it until the pre-qual is done, meanwhile their lender won't follow up to do it.

I'd verify with the loan officer that they actually said those (unbelievable) words...maybe by email. And if so, I'd assure them that they will NOT be going to jail for practicing real estate without a license.

They will be going to PRISON! :)

I think the Listing Agent should broaden the list of mortgage lenders that they(the LA) are comfortable(confident) with taking a buyer's pre-approval from. To hold that only one person in your entire marketplace knows what they're doing is self serviently humorus !

I do not like it either. It is unfortunate that my clients have to disclose their information to another outside lender when they already have been pre-approved.

Lenn...

Ah, the slippery slope ... and it makes you wonder what's in store NEXT for bowerers!

Lenn - We have a few bank owned listings from a specific mortgage company and they require that buyers get preapproved with ABC Lending. I really don't understand why this even matters. To make matters worse, they will offer a 6% seller credit with the caveat that the offer must be full price and financing must be with ABC Lender. How is that even legal???

I can't stand it.

I'm glad I'm not the only one even with my Newbie status who found this fishy. We tell our buyers that they have to have an approval from XYZ bank even though they don't have to use them, but XYZ bank now has all their info, how could they not try to solicit the buyer? I would definitely relate the conversation to the listing agent/broker. This is a prime example of steering.

I hate it when REOs require this. I see it a lot here. I may be a bit paranoid, but I wonder if it hurts the buyer's negotiating power to have the REO seller/potential new lender know how much the buyer can actually qualify for.

lenn- For a loan officer to suggest to the Buyer not to have a home inspection and to offer xxx amount has truly stepped over the line in my book. I would have called him/her directly and asked what were you thinking when you gave that advice? Or were you even thinking? You are talking to my Buyer/client because of whom? Because my Buyer/client wanted to or because YOUR Seller/client asked them too?

MD law does state that a Seller has the right to ask a Buyer to use xyz title company or abc lender for approval. We, as agents, can not but a Seller can. The title company thing happens alot when a seller is doing a 1031 xchange or has some issues and of course builders/developers can do both because they are not a licensee.

BTW- I wonder what the law is, if even there is one, for lenders working for a client whether Buyer or Seller? Do they have the same fudiciary duties we have? Would this lender have breached those duties in this case? Wasn't he there because of the Seller and not because of the Buyer? Or was he there because of the listing agent? Yikes that would open a whole new can of worms.

Pam brings up a good point...does it hurt the buyer that they know how much the buyer qualifies for? Is this giving up their negotiation? Is information from the required lender relayed to the listing agent? If so, how is this legal?

Lenn, There is so much more going on than meets the eye or our physical senses will tell us.

As for what I would do - I would do the best I possibly could do, dealing with what I have to represent my clients' best interest while focusing on getting my client the property they want.

Lenn, we have a listing with and REO who made this requirement on one offer. In this instance the buyer got pre-qualified with them and actually they offered the buyer a better rate for the mortgage. The buyer was not forced to accept their financing, but it was so good he would have used them. The "seller" refused the offer.

In your example somehing smells very rotten. Being an agent I would have my broker contact the listing agents broker to apprise them of the situation. Asking them to waive the inspection to make their offer better makes me think something is very wrong with the property.

I'd also call the legal hotline for your state Association of Realtors to find out what if any action they would recommend. if this is a new scam perhaps it would be worth drawing their attention to it.

Lenn

Not only have I seen this practice here but I also have experienced it with RELO companies. When a buyer presented an offer on this RELO house, they already had their pre qual and were putting 10% down. The representative for the RELO company said the "seller" was countering that this buyer be pre qualified with the RELO companies mortgage department. The buyer wanting the house did so. Then the answer from the RELO company ("seller") was NO. There was no reason given and no counter.

So the deal died.

Needless to say this particular house is still on the market.

This has been one of my pet peeves especially when they require the buyer to pay for the credit report. I had one that tried to charge my client $50 to pull their credit and I told him no way! He ended up waiving that and my buyer was fine, but I wasn't going to have my buyer pay extra for something being required by the selling agent.

Drives me crazy. Why agents want to invite lawsuits or ethics complaints is beyond me. This should be right up there with that square footage is more or less. Dah!

Hi Lenn. Sounds like the loan officer certainly crossed some lines he/she shouldn't have. I'd first call the LA and share. Then, I'd call the loan officer and tell him/her they were messing with the wrong hat! As for contacting a broker...I'd go to mine first for direction...

Thanks for shedding the light on the Pre Approval with XYZ lender issue. It's actually rather cumbersome to move from property to property and have to tell my clients to call different lenders and strip naked financially in front of all of them just to make an offer on a house. With the current multiple-bid situation on fantastic deals, it's happening more frequently.

Is it possible to ask LA for proof that the lender wants a specific company to do the Pre Approval???? If so, would they be required to prove it????

Great Post - always good to get the blood flowing and hear others issues within the market place!

We require buyers to get approved with a lender we use on short sales. This is simply to send the bank two approvals for a buyer and gives the bank a little more comfort that we have a qualified buyer. You can agree with that or disagree with that, but we think it gives our sellers in these situations the best opportunity to close. There is no added cost to the buyer in this situation.

Now I will say that I have a buyer who was pre-qualified on a REO property and ended up switching to the lender since they offered better pricing and a better incentive.

There is a way around the "Seller prefers or chooses X title company" - first off, it is against the law and VAR has started to enforce the statute. But to get around it, just write the contract up with their settlement company, and then send over a notice that you are switching title company's. It does not hurt to reference said law in the notice, but there is nothing they can do. Your buyer has the right to chose where they settle, and this little trick makes sure that they are not discriminated against when the contract is submitted.

Jimmy Mulhern

Wow - I never thought about the fact that the seller would then know that the buyer could actually pay more! I think buyer's agents should take a stand on this, and send official notice to listing agents with this requirement, that they've advised their client to not engage. If enough buyer agents would do it, it would make the sellers and their agents think twice. This should also be an issue addressed by our illustrious REALTOR organizations.

Hi Lenn,

This issue has come up with me and the clients I serve several times. Personally, I believe it's Steering. So, what I've had to do is insert a clause into each offer that basically says the Buyer reserves the right to choose their pre-qual, pre-approval lender of choice. Something to that effect.

Don't think it helps all the time because some buyers will do whatever they want...if they want the home bad enough. But, Yeah...if the Seller can keep as much of the money as they can in-house, they will do it!

All the best,

-Keith

You know Lenn, these are exactly the questions that run through mymind when I see this crap. The RESPA fines are stiff but the players are familiar...

What would I do? I would keep a record of what happened here. While I would give the listing agent the benefit of the doubt, he/she most likely knows what is going on. That is why many of these REO listings have the verbage in the MLS and the lender signs in the yard. "Preferred financing available thru Wells Fargo" or whatever bank holds the mortgage.

Karina. That list needs to be countered. They are trying to dictate the terms of an offer. That's going too far. The information in the listing is the offer. Your buyers have countered with their written response.

Copy of buyer's certified bank's check deposit for 5 % of purchase price

The buyer may be using a type of loan that doesn't have a down payment requirement and may be asking for closing in which case, their cash needs may be less than 5%. I would just counter that with 1-2% or what is customary in the area. I rarely go below $1000 though because less is just walking away money.

Copy of buyer's credit score

I don't think so because most agents are not capable of reading credit reports.

Bank's addendum fully signed

We do that unless there is something in it that is counter to our buyer's needs and then we counter it.

As-IS addendum where buyer would be responsible for any code violations if found.

That's the craziest one of all. NO WAY!

questions, questions.. interesting topic, and i'm seeing more and more of this. it could be a lot of things...Is the loan officer getting paid by the realtor? Could be. Or are they simply making a mutually beneficial arrangement? My best guess is the realtor agrees to require all buyers on their listings to call XYZ loan officer IN EXCHANGE FOR the loan officer's professional opinion as to which contract has the BEST ODDS of closing on time and without appraisal, credit or underwriting issues. Once he has evaluated the perspective buyer's qualifications (which like you said, he's very well qualified, good credit, making a good offer) he's dishing out "friendly advice" that's no doubt fed to him by the listing agent in hopes that the most qualified buyer will submit the best offer. I doubt a buyer with a 621 FICO who barely qualifies would have been given the same advice in this situation, but hey, the lender made another contract and maybe he'll end up closing both loans.

that arrangement would end up being a great deal for both the realtor and loan officer in theory. The listing agent has a better chance of closing the sale and the loan officer gets exposure to clients he would not have otherwise had an opportunity to speak with. After all, it's quite easy for a lender to say "send me your GFE from the other lender and i'll beat it". Hate to say it, but it's often times a poker game, and the last one to see the everyone else's cards usually wins the game. Being positioned as the required lender automatically puts you in that last place position.

now, DO I THINK IT'S RIGHT? If i did, i would have been doing this a long time ago because there's no doubt i would have closed more deals. Like I said, sounds like it would be a win/win for both, but ETHICAL? I'm not so sure i could pinpoint exactly where it would be a violation of the code of ethics, but it's against my code of ethics. I would be upset if i were a buyer submitting an offer and got dumped because another buyer was coached indirectly via the listing agent's loan officer because they had a higher credit score and/or more money down.

But the part about the home inspection is a little troubling. How are the contracts written in Maryland? Does the buyer FORFEIT their right to a home inspection if they waive that? Or just the option to terminate and/or ask for repairs? Or did you mean he's simply asking the seller to PAY for the inspection?

I have seen this repeatedly on REO properties in my market area...in fact we had a dicussion about this very topic in our office meeting today. Something doesn't seem right, but no one with any pull seems to want to rock the boat. Will this be the next bunch we see being hauled off in shackles for fraud??? Kinda makes you wonder!

Ryan. I have no problem with new home builders offering incentives to use their lender or title company. That is usually a good deal for my buyers. However, with resales/reo/short sales, it's complely different.

Laura. Agreed. Advising a buyer to forego an inspection is giving real estate advice.

Brian. That's what I advised the broker to do.

Michael. Goodness. They better get on with it before a cash buyer comes along.

Phil. There is no doubt that it happened. What my question is is should be broker contact the listing agent about the loan officer going beyond the pre-qual.

Michael. If my suspicions are correct, the loan officer is buying these referrals from the listing agent.

Sharon. Indeed. Sadly, these things wouldn't get off the ground if pre-quals were always worth the paper they're typed on.

Richard. Who knows, but I know it's getting harder and harder.

Christianne. Not a problem getting the buyer pre-approved with the banks selection of lender. However, it was the loan officer advising the buyer how to structure the contract that sent up our red flag.

Erin. You're smarter than the average bear. I agree completely.

Pam. I don't care about the buyer's info going to the seller. We include a financial statement with our offers anyway. Just because a buyer can pay more doesn't mean they're going to. In fact, I like to show that a buyer is very strong financially. It has gotten me some contracts when the competition offered more.

Lenn,

How would the loan officer even know what terms to suggest to the buyer unless he was coached by the listing agent in the first place? Unless the loan officer knows the seller personally or there's some other caviot that we're not aware of, it seems unlikely. You could always mention it, but my guess is he already knows and will likely deny that fact. Of course, you mentioning it might make them rethink their strategy.

Lenn: What our industry does not need to do right now is give our customers and future customers one more reason to distrust and dislike us even more. My wife (who does my marketing and other L.O.'s marketing) always reminds me ... you are starting in a "hole" with your marketing now. You're credibility as a profession has been severely damaged in the public's eye. You are no longer a "blank slate" as an individual, but represent an industry that carries a very negative image ... all very depressing to hear after over 32 years in this business. The actions you are relating will only dig the hole of distrust deeper for all of us, whether there is guilt to be found or not. If it smells "fishy" to you ... it will most likely to others as well.

We must somehow find, and implement, more stringent ethics within our industry and give the proverbial boot up the butt to the offenders practicing business this way. I, along with you, question .... how? If the recent fiasco within the real estate industry hasn't shaken the bad apples from the tree ... or re-stored common sense ... what will?

I'm seeing this with a number of agents all the time. Always the same agents. It appears to me that the owner/bank requires the buyer to qualify with them so they can not only sell them the REO but also the loan. FISHY! FISHY! FISHY!

Martha. My information is that they do NOT have fiduciary to the buyer. There's no representation agreement as with an attorney or real estate broker.

Tammi. I don't care if the listing agent/seller knows how much my buyer is qualified to buy. They don't have to buy to the limit of their ability. I want my buyer to look strong.

Kathleen. Good enough.

Bonnie. On several occassions, our buyers have gone with the seller/agent referred lender. However, this loan officer didn't make any offer with rate/term/conditions, etc. Just advising how to structure the contract.

Jayne. If there is any justice, the bank will realize half the net their could have. If . . .

Jimmy. You can bet your boots that I quote license law when I notice an agent or broker of anything.

Joetta. I don't care about the seller knowing what my buyer is qualified for. I have found that it benefits my buyers to be strong financially.

Todd. Paying for a second credit report is NOT going to happen.

Joe. Good point.

Natalie. Good points all. I advised that the broker contact the agent and let them know that what the loan officer was doing crossed the line. I don't know what they decided to do. We're having a meeting tomorrow and I'll get up to date.

Keith. The buyer makes the final decision and our buyer did just that. He ended the conversation and called his agent.

Paul. Indeed, the RESPA fines are still. However, there are few prosecutions and only for large rings or huge monies involved.

Great comments from everyone. Havng had listings on short sales and bank owned properties the funniest thing about this who pre-qual is that with BOA it takes 6 months for them to get back to the buyer so why the prequal? In most cases the buyer has had enough of the waiting game.

Carol. I have no problem with the bank/owner/seller making a good offer of rate/terms/condition to our buyers.

This loan officer was with another lender.

John. The Maryland contract containes a paragraph whereby the buyer says they will do a home inspection or that they waive it. If they want to do one, the home inspection addendum is included with dates, etc. Our buyer wants a home inspection and the lender advised him to waive it.

That is one thing that I would never, never, never do. Do I always believe that a home inspection is necessary. No. Would I advise a buyer to waive it?? Absolutely NOT.

John J. I like the way you think.

Jeani. I like that idea.

John J. I believe that they were working together.

Gene. Indeed. We need to be squeeky clean because the wheels have been exposed to some serious greazy folks.

Andrea. If that isn't the situation, it surely appears to be.

Diane. This is a foreclosure. With short sales, we've never had this problem.

Lenn - Like so many others have commented, this particular practice is absolutely rampant here in SoCA. In the case where the bank/seller is requiring the prospective buyer to pre-approve with one of their in-house LO's, that reasoning is obvious, they simply want to pilfer other lenders qualified buyers.

In the case where a listing agent is requiring a pre-approval from a lender other than the bank/seller, around here, it's typically the REO LA's own in-house lender where they (the LA) can control the mortgage transaction.

When my clients have come up against this situation, where the preferred lender is the LA's in-house lender, some of my clients have actually been told that if they go with them (the preferred lender), they will make sure that their offer is given preference. SERIOUSLY? That scenario is so wrong on so many levels.

When I spoke to a local HUD rep about whether or not this was any kind of violation, I was told that as long as the seller and/or LA isn't demanding the prospective buyer to use the preferred lender, than it's not. I don't know about anyone else but insinuating that going with the preferred lender will get your offer accepted sounds pretty demanding to me.

Lenn. I blogged about the same issue several months ago

03/07/2009 Anyone heard of bank declining buyer sales offer not approved by that particular lender.

I fell for an REO having to close with their attorney. Their office was in D.C. 4 hours away from our location.

What would I do? I would have my boker contact his boker after having a personal conversation with the real estate agent. I would strongly advise my client to continue looking for another house.

I've always said this was steering, and it is no matter how they package it.

Lenn. Without a doubt I would mention it to the listing agent. I'm sure this is not something they condone or are aware of. It sounds like a MB just overstepping their boundaries while trying to be helpful.

Donne. It's a real dilemma. However, on an individual basis, we have to do what's best for our buyers.

Lynn. I don't know. I haven't had that exprience.

Tere. Sometimes that makes no sense. We've had out of state settlements. I might put my foot down about doing in downtown DC with the parking and traffic there. Geez. They can come to my house and close.

Lenn, I have not seen this here, except....with relocation companies.

They want to make sure the buyer is qualified, and of course they are. I think they have been burned so want to check it out.

I think this is over the top and yes I would bring it up in a board meeting.

Lenn - we just ran into this a while back where the real estate professional tried to get a 6% seller credit from the seller (aka bank) after the best and highest had been accepted. The lender even lied to the buyers agent and to us (listings agents) saying that the Seller (aka bank asset manager) had told her to make the request...

Interesting times indeed.

Lenn

You certainly opened up Pandora's Box on this one. We see alot of this in California. Personally, I don't think there is alot we can do on this issue unless it is addressed by the Regulators or state govenments...............hmmmmmmmmmmm many of the politicians get their palms greased by the banks and likes so not sure what will happen on this.

I agree that it can be frustrating; as a lender/broker, I find it quite hard to stomach the buyer which I have gotten approved to be forced into yet another qualification process.

Although I respect Bill Ladewig, I believe his comment above about scores is inaccurate. According to my credit agencies and all classes I have attended...ALL mortgage inquiries within a 30 day period count as only ONE inquiry. Last time I checked this was still the case............advise me fellow AR members if I am wrong.

Back to the point of your post, we could banter back and forth all day on this topic. It is also frustrating for me to get a buyer approved subject to property, only to have an agent demand that the in-house lender for the Realtor Brokerage do the loan.

Good topic.

I've seen this and thought that the lousy rats want to get my clients loan too. I mean, if they have to be pre-qualified, then maybe that's the lead in for their lender / morgage rep to nab them for their loan. Talk about the fox watching the hen house!

As an REO agent I have to put what they require into my listing. If they require preapproval by their bank, it doesn't mean the buyer has to get the loan there but they have to get a preapproval letter from it anyhow. It may not make sense and some poor lender has to work overtime getting a letter out to someone who has already decided on using their own bank.

Since we don't have a lot of foreclosures have not seen it associated with those listings.. and have not encountered on other listings.

This is happening in our area alot with Bank of America being listed in the remarks.

We deal with this in CA all day long. You may want to suggest to clients that they get approved with one of the "Big Lenders" BofA, Wells, Citi or Chase. Sometimes they will be satisfied with that, another option is to get your loan officer to call the other loan officer so everything is done smoothly and quickly. A 24hr delay could cost you a deal!!

Lenn- You know here in Florida it is not the norm for the buyer to give anything but a flimsy pre Q letter and their credit has not even been pulled and no VOE etc done on the buyer. We used to have so many deals fall apart with denial letters even at the closing tables. It was not until I talked with you about how things are done in Maryland that I thought, heck, why not do that here! So what if no one does it or balks at it.
Now we have on all our listings that the buyers have to be preq'd with Jeff Belonger. They don't have to use him, but I want to know the deal is real before I start working on a long short sale! We also started having hard money deposits that are non refundable if the buyer walks before the expiration of the contract.

I don't mean to get off subject here...but to help answer the credit inquiry question that everyone keeps bringing up, check out this link to Fair Isaac's Website - scroll down towards the bottom where it says "What To Know About Rate Shopping"

All mortgage inquiries made within either a 14 or 45 day period, depending on which scoring model the lender uses, only count as one inquiry. I'm pretty sure almost every mortgage lender is using the newer version of FICO that allows the 45 days. You can literally have a million credit inquiries from mortgage companies within this timeframe and it only dings your score once. And furthermore, it doesn't affect the score AT ALL for the first 30 days. So the bureau has stopped penalizing buyers for rate shopping.

Great post.

That is 100% B.S.!!!

The seller has ABSOLUTELY NO BUSINESS REQUIRING THE BUYER TO BECOME PRE-APPROVED WITH THEIR PREFERRED LENDER.

That's part of the offer acceptance procedure. If the buyer wants to get a pre-approval from their brother-in-law who is a mortgage broker, then that's there business.

But they need to realize that if it's not from a reputable lender, then the seller may not accept their offer.

And THAT'S AS FAR AS IT SHOULD GO. If the seller doesn't want to accept an offer because the pre-approval is not from a reputable lender, that is their right. Perhaps the buyer will re-think where they choose to get their pre-approval from.

But the seller should not have the right, under any circumstances, to dictate where the buyer gets their loan from.

I've even had one listing that my buyer wrote an offer on where they did get double apped by the sellers lender. After that, the seller's lender FLAT OUT SAID THAT THE BUYER NEEDS TO GET THE LOAN THROUGH HER IN ORDER TO GET THE PROPERTY!!!

When we called her on that, she denied saying that.

WHEN THE HELL IS THIS LENDING INDUSTRY GOING TO CLEAN UP IT'S ACT?!!!

I don't know... I'm split. If what they are doing is against the law, I might just go straight to the authorities. If they are tipped off, then they might not get busted... Do they NEED to get busted?

Yes to your first two questions. I think until people are held accountable, these games will proliferate.

We're seeing more and more of this here, and not just on the REO listings. I had a request today for a short sale listing to be pre-approved through their lender.

I usually have my clients desk top underwritten and may discuss it with their lender directly as they will sometimes simply review what I have for my clients.

I list REOs and some, not all, have this requirement. I'd say around 60 percent of mine do. And the loan officer I'm told to contact is NEVER the same, even if it's with the same bank. I've not heard of a client being anything but qualified. And yes I'd make the listing agent aware of it as I am sure they are NOT. If I were in the listing agents shoes and this happened, I would do two things. Call the loan officer personally and report the behavior to the asset manager.

JUL

Lenn, this is one of my biggest pet peeves when working a bank owned property. Most of the buyers I work with come with a lender they know and trust. The don't like having to provide all of their personal info to another lender for a pre approval they have no intention of using.

Missy. Good idea. I'll suggest that to all the brokers in my network.

Christianne. I'm not sure I follow but it seems that after the "highest and best" it's a tad late to be asking for anything.

Thor. I agree about the credit scoring for inquiries. Your information is the same as mine. As for the matter of the post, of course no lender appreciates it when a buyer has to be approved by a third party. I wouldn't have a problem with that if the third party was "arms length". In the case of our example, the lender was not acting in an "arms length capacity".

Carla. Agreed. Consumers don't like being jerked around like that either.

Barbara. As I've stated, having the seller require a third party approval is fine, considering the pathetic condition of most pre-approvals. The problem in this case is the third party lender interfering with the terms and conditions of the buyers offer.

Judy. I don't know where you are, but you're fortunate to have few foreclosures.

Roland. You gotta love the irony when BofA directs buyers to get pre-qualified by Countrywide, one of the primary perps in the mortgage mess. They clearly believe that we have a short memory.

James H. Our buyers are always approved by a major mortgage company. That said, your suggestion for the loan officer to contact the third party lender is a good one.

Katerina. The large number of worthless credit letters is not the norm here. Also, many, many listing agents here require a financial statement with an offer. As I said, I wouldn't even look at an offer without a financial statement. If the listing agent can do their job with the information provided with the contract offer, there is no reason for the buyer to be sent to a third party lender for pre-qual.

John J. Your wrote: mortgage inquiries made within either a 14 or 45 day period, depending on which scoring model the lender uses, only count as one inquiry.

Thanks. That's been my information and that's what I advise buyers.

Ralph. Indeed. However, in the case about which I wrote this post, I believe that the listing agent is steering our buyer to a preferred lender.

Lane. The long arm of the law works far too slowly to be of any use in these instant matters. Our buyers want that house NOW, not 4 years from now.

Chris. Indeed. Which is one reason I do everything in writing. If a listing agent wants third party approval, fine. However, if the third party lender begins to tell my buyer how to structure his offer by eliminating the home inspection, then the listing agent needs to be called on it and I don't mean "called" as in telephone.

Christine. Good advice. I also believe that if the buyer's agent has done a thorough and well documented offer, the requests for third party approval will be fewer.

Tammy. That sounds like a plan.

Leslie. Sadly, if the buyers were using a lender who wrote a sufficient pre-approval, fewer third party approvals would be required.

This sounds to much like steering to not say something. I would bring it up to the listing agent and depending on his response take further action. His response will help you determine if he knows what is going on.

Darin. I agree. The listing agent should be made aware of the lender's discussion with the buyer.

Lenn - The last I checked "steering " was illegal. From my understandingthe bank itself while providing a written addendum is the only one permitted to say XYZ Mortgage Company has to be involved. As Realtor(s) we cannot. The first thing I would do is :

Ask the agent for the written contract where the bank stipulates XYZ to be the lender involved.
Then I would go to my Broker of record where my Broker at that point should go to the Agent's Broker
I would also contact the MLS where they can request the written contract, addendum and/or disclaimer from the bank outlining XYZ ( for example in TN if one cannot be produced the listing Agent would be asked to remove the criteria and get a fine )
And of course anything else my Broker would require/suggest to do

As far as omitting the Home Inspection. Seriously ! All buyers have the right to a home inspection and have the right to exercise that right. Purchasing a home " As Is " is not a smart move ! Especially when the banks are so frank as to providing disclaimers that pretty much everything is of unknown origin within that home. So will the next bubble be : foreclosures on the rise because homebuyers were doped into purchasing a home increasing their chances of offer and acceptance by omitting the Home Inspection and the repairs exceed their budget and now they cannot pay for their mortgage ?

One thing comes to mind here : If I only had a brain !

I would call the department of banking and file a report. It seems the lender is stepping well across the line.

Lenn: I'm not surprised. The banks are calling all the shots right now. It doesn't mean a person can't use their own lender. It may just involve a few more hoops to jump through!

This is a different scenario from what you describe but disturbing nonetheless. A local REO listing agent was told by an asset manager that she would no longer be eligible for their listings unless 2 of her 4 then-current listings had buyers who would use the selling bank for their new mortgage. In other words, if you don't steer clients to us, you won't get any more listings.

I can tell you that another problem sort of related to this issues is the rise of the "one-stop -shop"

As a mortgage professional, there is nothing more frustrating than having my pre-approved buyers being forced to speak to another "captive" or in-house LO that is embedded with the Real Estate office representing the sellers. I've encountered instances where our buyer's offer has been rejected by the selling agent & not even presented to the sellers, until the buyer is interviewed by their LO. This, to me represents outright steering, & abusive business practices.

My experience with most RE companies ( there is one in particular beginning with W )that pratcice this skullduggery probably have good intentions, but they take it too far. I've seen agents that have been intimidated by management to the point where they can't take your call inside their own office for fear of retribution. Many agents secretly let us know that the in house people have become fat & lazy, or they are just plain incompetent, but they feel "trapped" I think as an agent you should be able to work with & refer clients to whomever you feel represents the best chance of a smooth transaction, & on time closing.

What say ye??

I work with a lot of REO properties and I do see more and more requiring this. The only way I make any comments like that is if it is actually in my listing agreement. I would definitely want to know if a lender made any comments like that. It is definitely oversteppping bounds and I would report it to my REO company. Whether that would do any good or not, I don't know. I know personally I get no benefit from a buyer getting prequalified through a required lender. I was under the impression this was done because of so many prequal letters not really being "prequalified." If I had an REO company that told me I would not receive any more listings unless more buyers used their bank, I'd move on from that company. While I may have to let the selling agent know they have to be prequalified by a certain lender, per the listing agreement, I also tell them their buyers are free to use whoever they want. I personally haven't had any agents report any conduct of this type to me, but I hope that if it happens, they will.

Jeff. The affiliated business arrangement is one of the "dirty little secrets" of the real estate industry. It creates steering for profit and generally stiffles competition. Buyers are steered to company affiliated or owned service providers for profit and not for quality service.

Julia. The listing agent isn't the entity that is usually working with home buyers who select their own lender. If that lender wants buyers of their REO properties to use them for financing, not a problem. Just offer the buyers incentives to do so. That works for new home builders.

Paul. That about sizes it up.

Milissa. Thanks for your thoughtful comment. The agent representing the buyer did, indeed, go to his broker who consulted with me. We have that arrangement. I recommended contacting the listing agent and making them aware of what the loan officer was doing. At that point the next step would depend on what then transpired.

Jason. Lenders in my area are fairly unaccountable. The only entities in my area that are really accountable are real estate licensees, title companies, home inspectors and appraisers. There is no working "complaint" mechanism for lenders. Sad but true.

Lenn,

This is a problem that has been growing out of control in my region as well. In Minnesota, we have similar policy set that allows buyers and sellers their choice of representation in title and lenders however, with the glut of bank owned listings currently on the market, this new "buyer must be pre-approved with sellers lender" is very common. The unfortunate thing is that the sellers agent is not in violation as they are not requiring the buyer use these lenders rather, only get pre-approved by them. There are clearly one benefits of this tactic in way of sorting the true qualified buyers from those who are just out wasting time of all of involved. The sad and often clearer reason is that the listing agent has built a self-serving partnership with the lender who undoubtedly has provided some type of repayment in the form of discounts, referrals, or any other perks the listing agent may want.

It is especially frustrating when agents (like myself) go through the proper steps of getting their buyers pre-approved prior to hitting the road. Often, my buyers agree that they will not even go look at those homes if this is a requirement because they do not want to go through the repetitive pre-qual/ pre-approval process often only to get outbid on a foreclosure property. Remember that our buyers always have that choice of boycotting these listings.

Let's face it, the bank owned game is nothing of the ordinary type of sale. In these transactions it is even more imperative that we look out for our buyers and their rights. In the case you mentioned there is no doubt that the role of fiduciary duties had been crossed by the "approved lender" and as such, this should have been turned into the local board for their addressing of the issue. The broker of that agent should absolutely be informed as well. My feeling is that it will be unlikely that a simple conversation with the listing agent will bring any resolve due to their incestuous relationship with that lender.

Bottom line is that we all as agents, need to keep on top of this type of activity to protect the damage that can easily be done by any unscrupulous agents.

Good luck to all in the fight!

Chris Robertson

Keller Williams Premier Realty, Vadnais Heights MN. 55127

http://www.BestHomeForU.com

Good Information. This is a real fit for The Manufactured Housing market.

Hi Lenn - I had a client who had to get double app'd. It took 7 days to get the letter. Guess what? the property was gone.

Patrick

great post, as always Lenn, thank you for sharing!

Lenn, you are always very insightful. I think this whole thing stinks of a RESPA violation.

I learned early in my lending career that giving anything other than financial advice was a mistake. A good realtor called me out on this a long time ago and I've stuck to it. We're still friends, and after punishing me for a while for opening my big mouth, has been a consistent referral partner ever since.

RESPA prevents any direct exchange of value for referrals between realtors and lenders, so it is unlikely that anything officially will change hands as a result of a required lender arrangement.

The good news for ethical, competent mortgage professionals is that realtors are still, in most cases, independent contractors who choose this profession because they don't like to be told what to do and whom to work with. If their in-house lender doesn't perform, good agents can and will use outside lenders who deliver for their clients.

This lending rep overstepped and I would actually have a little chat with him directly and point out that his state licensing board may want to know about the advice he's providing that is contrary to state law and also not in the customer's best interest. That little wake-up call should take care of it.

Now Lenn, I can tell that you are rather shy and retiring by nature, and may have difficulty getting up the nerve to do such a thing, but if you manage to pull yourself together and do it, you will not regret it. ;-)

--Kabir Mahadeva

If your state board has a legal hotline, I'd give them a call to see if this smacks of steering.

As far as the lender's recommendation for how to write the offer, is it in writing? If so, you could take it a step further if a violation, and file a formal grievance. A strong reprimand or fine would certainly help curb this unpleasant practice.

Lenn, this sounds like something that I would not only bring to the attention of the listing agent, his/her broker, and my broker, but also to the Department of Consumer Protection, which is the government agency that governs the licensing of all of the above parties and get appropriate counsel from that agency.

I do not like it either, but use it to your advantage. If the Seller's bank screws things up then any and all delays are on the seller. It is a great way to argue your way out of those pesky penalties. And you know no loan is ever completed on time these days.

Lenn, Hi again from PA!

Fishy? You betcha!!! Steering? Most assuredly!!! Unethical? Absolutely!!! Surely some laws or regulations have been broken here!

I believe Melissa outlined what I believe should be the course of action to take.

However, our Fiduciary Responsibility is always to do what is in our clients best interests, so I would, at the same time I'm doing those things, have the discussion with them as to how important it is for them, under these circumstances, to purchase this particular property, explaining the situation and my opinions/beliefs about it to them. Unless they are just DYING to get that property, I would advise them that it is most assuredly in their best interest to pass on this one and keep looking. After they make a decision to move on, then I would follow up with letters to the State/Federal Banking/Lending Regulators, the State Real Estate Commission (just for good measure), and maybe even the State Attorney General's Office, as well as our Representatives at both the State and Federal levels. And don't forget NAR, your State Association, and your Local Association.

Some, or even many, may think this would be overkill, but maybe, just maybe, if enough of us would make complaints to these entities EVERY TIME we encounter such idiocy, eventually something would be done about some of these insane situations. It would most certainly take a lot of time, but it could happen. Change for better situations in the future is well worth the investment in time and inconvenience in the present, in my opinion.

Lenn - This has been an interesting discussion you have going on here. As much as I and my clients and their Realtors absolutely abhor this practice, there is really nothing that is being done about it, at least not here in CA.

I have talked to so many governing agencies about this (except the DCP - going to try that one today) and they have all said that unless the bank/seller and/or REO LA is absolutely demanding that a buyer use a preferred lender, it is not illegal. Personally, I feel that all this means is that they (the government agency) are not going to do anything about the unethical practices that are going on. I don't even see our MLS board doing anything about this kind of practice.

As Melissa mentioned above, if the preferred lender is a different lender/mortgage company than the bank/seller, then there needs to be a contract from the bank/seller authorizing this preferred lender to pre-approve prospective buyers. Finding that out would mean that first, we would need to get a hold of that REO LA to find out if there is such an agreement. I don't know about anyone else's market but REO LA's around here are some of the most unresponsive people I have ever had the unfortunate experience of having to work with.

Secondly, even if you do get the REO LA on the phone, if they don't have an agreement from the bank authorizing their in-house lender pre-approve prospective buyers, the chances of getting them to admit that are slim to none. Anyway, sorry for the long comment, I'm just ranting but the point I'm trying to make is that until these people are reported and the governing agencies actually start enforcing legal and ethical practices, this type of practice will only get worse.

Not only is the frustrating for us, the buyer's agent, my buyer's have become quite confused about this detail. Imagine being a first time home buyer with a pre-approval in hand and excited about writing that first offer when you are asked to go back to square one and get another pre-approval from a different lender that you have no prior relation with nor do you want to deal with this person because you are comfortable with your lender that already pre-approved you. Put yourself in the buyer's shoes....not only does it put us (the agent) in an odd spot because they trusted you when you said their original pre-approval was acceptable but it can make them defensive and apprehensive during the entire rest of the buying process!

BRAVO PAULA!!! I second that motion! It's up to us (Realtors & lenders) to step up and clean up our own playground (by reporting violations) and then maybe others (governing agencies) will jump in and help (by putting a stop to this practice).

Wouldn't it be wonderful if there was a single, universally accepted preapproval and buyers didn't have to jump through hoops for every offer? Maybe some day...

This situation is really weird though. I've never heard of a loan officer making recommendations on how to modify an offer! As inappropriate as that is, it may actually be inside information. It's possible he DOES have a license and that he has seen the other offers on that particular property. Now I would never suggest the buyers remove their inspection contingency but I would be inclined to call the listing agent and ask if some of the loan rep's "Suggestions" were actually the LO's idea!

My pet peeve, there are several agents who list the re-po properties and their comments will be "buyer to be pre-qualified by XYZ" THEN there is NO contact info to know who to call to get the pre-qual. The agent will say "go to their website" and not have a web addy. Of course I have done this enough to know that to keep this separate that I can have my buyer get a pre-qual and not identify the home he is looking at. I have lenders at several of the big name banks that would love to have my clients business but know that all they really get to do is not slow done the purchase.

Once of the big three, swears that the person taking info to pre-qual does not report to the dept handling the property (around here they are asset managers) Buyers don't like it, it feels like an invasion of their privacy. I think a lender letter should be good enough to get things started. cw

Hi Lenn,

I used to work with a Lender who was taking great pride in their ability to create relationships with REO Agents (their main focus for the next few years), which they made agreements with the REO Agent to have all offers to be submitted first with Pre-Approval thru their Assigned Loan Officer. They did mention at one meeting that it was NOT a RESPA violation, if they wanted to make the borrower use their services in order to have their offer accepted (basically creating a condition in the Contract by the Listing Agent stating the Buyer must use their Loan Officer to buy their Listing). I have run into a similar situation with a normal sale too, which I believe the Listing Agent was just trying to steer business to their Mortgage Partner.

Here's what I've done in these circumstances for my clients. I've been in the business for awhile, so I've developed contacts around the industry. If I have a Borrower being told that they need to be PreApproved thru a Loan Officer with the Bank, then I usually will contact one of my contacts within the Bank to write me a PreApproval to submit with the offer. As for being PreApproved by a Specific Loan Officer, then I present the items to the Specific Loan Officer personally (without any of the clients contact or personal information). This helps to alleviate any potential damage they may create from the plan that I've developed for my client. I've learned this strategy thru my own mistake of allowing the borrower to contact the Required, Specific Loan Officer, who had convinced my client to go with a 5/1 Interest Only ARM (in 2008), when we specifically discussed the ramifications of an Adjustable Rate Mortgage in this current economic environment, which our plan called for a 30 year fixed (our concern was for hyper inflation in the near future). Now we're discussing the possible Refi, but he'll need to pay MI because of the drop in value (he originally placed 20% down).

I hope this suggestion helps.

Best wishes,

Mike

I understand & agree with lenders requiring their own company to pre-qualify a buyer...there are too many loan officers out there that 1) Don't have a clue what they're doing, or 2) Don't take the time to fully qualify the buyer.

After spending so much time on a transaction a lender can't waste their time on buyers that fall through just before closing over something that should have been caught up front.

Having said that, the lender doing the pre-qual should PRE-QUALIFY THE BUYER, not offer advice on what it's going to take to win the contract.

I am challenging an Indy list agent as we speak who says the seller says we MUST have a PQ IF we want the offer submitted. I know who is and who is not requiring PQs and Indy ain't one of them. I haven't challenged this yet in my market but is it worth the steady stream of business you get from that servicing company or your license?

Just submit my friggin offer and if they require the preapproval, have them write it in the counter. Thank you very much.

I have a fudiciary duty to my client. The Brokers and both lenders need to be notified of the process the buyer is going through. If we do not report these practices, violations, they will continue.

Mary. Indeed. What we do is always in the interest of our buyer/client. The question is, if the listing agent and lender are working together to steer our buyers to a particular lender, in whose interest are they working?

Renee. Very well stated. A requirement in a counter might make sense if the contract offer is not sufficient in terms of the buyer's qualification.

Dan. That's what I thought.

Mike. What your comment says to me is that you are ingaged in your buyers transaction and are acting in their best interest. Good for you.

Cheryl. Seems to me that if the contract offer is complete and the offer is accompanies by a financial statement, the listing agent who can't qualify a buyer needs to get a job.

Jenny. Good idea. I definately thought the listing agent should be contacted.

Lenn,

It's wrong, so I think it needs to be challenged. In Ontario, there are opportunities to add some pressure by regulatory authorities.

I find it incredible that the loan officer would suggest deleting a home inspection. To offer such advice here, one must be either a registered real estate agent or a lawyer. It's way out of the ballpark for the loans officer. And, likely professional negligence as well.

We don't have that many banks in Canada, but I can't think of one which would permit this type of comment by one of its employees.

Brian

Brian. Agreed. Fortunately the buyer is an attorney and knew that the lender had gone too far.

I'm not sure how it is on other states but here in Hawaii our purchase contract has a financing contingency where the buyer is required to provide a loan approval letter (not a pre-qualified letter) within X-amount of days from the accepted offer date. However, you can replace this letter with a loan commitment letter from the lender which usually I don't get until about 2-weeks out from closing. Also, I am able to notate on the contract: BUYER TO OBTAIN FIRST MORTGAGE LOAN WITH LENDER OF BUYERS CHOICE AT PREVAILING RATE AND TERMS ACCEPTABLE TO BUYER.

I've seen many listings where the listing agent requires a specific bank approval letter for the offer. However, you're not required to use that bank for the loan. You just need to get pre-approved for the loan because some agents feel more comfortable having a prospective buyer go through the loan financing wringer with a large bank like a Bank of America (fka: Countrywide Home Loans) because they're regulated by the government and must follow set rules. But, non-banks like your smaller brokerage firms are not governed so some listing agents are weary about that and don't want to get caught wasting their time on a buyer who may fall through on the deal due to a financing contingency.

Also, I've heard of agents who receive referral commissions for referring a client over to them for financing. I think it is a form of steering especially if you're being paid for it. Although it would be nice to get some side money, I personally don't play that game. I always ask my client(s) if they have a specific lender to work with in getting pre-approved for a mortgage loan. If they say yes then I ask for that person's contact info so I can start the process. If they say no, then I offer them a few choices of lenders who I refer my deals to and allow them to choose. By doing this I then close the door on any assumption that I steered them to a particular lender. Plus, if for some reason my client doesn't feel comfortable with that specific lender for whatever reason, I can suggest the other two who were not initially chosen. In the event I am asked which lender I would recommend, I will praise each lender for their equal strengths and abilities and put the decision making back onto the client.

* Is the listing agent using their property listings to STEER buyers to a loan officer?

It is not the agent's requirement, but direction from their client (REO) to have all offers presented preapproved by their preferred lender. Buyer is under no obligation to use that lender. It just lets the seller know they are a qualified buyer. It is also the bank's safety net - those lenders have agreed that if they have given a preapproval, and if the buyer's own financing falls out for some reason, they can do that loan and get the deal closed.

* Is the loan officer giving the listing agent some benefit for these referrals?

There is no benefit whatsoever to the LA. In fact, we don't even know these loan officers that are giving secondary approvals. That is called a kickback, and it's illegal.

Keep in mind the buyer can still use their own lender, even thought they have been preapproved with the preferred lender. What that guy did to your buyer was unethical and I would report it to listing agent and seller and warn them of the consequences of those actions. I have never had that happen.

I am an REO agent, and to be truthful, it irks me too - both on my listings and when I am making offers. Buyers simply don't want to jump through those hoops and will sometimes pass on making an offer when that requirement exists. I think it lowers the amounts of offers they receive, BUT at least when a buyer does jump through that extra hoop we know they are qualified. I would rather have fewer REAL offers than a bunch of offers that may or may not consummate. The ones I hate the most and have the most problems are the preaprovals that are done by the selling agent who also dabbles in loans... those generally always have issues.

The requirement is NOT set by the LA, but the bank seller. While you may present fully qualified offers, with fully qualified mortgage approvals, many agents do not. They submit nothing more than unverified computer generated preapprovals that are really more like prequals. Nothing has been verified. At the 11th hours, it falls out of escrow due to lack of financing and the seller has lost other potential buyers and valuable marketing time. I guess you can thank all the lazy agents and their loan officers for this increasingly common requirement. You don't have to do it - just know the bank may not consider your offer if you don't. I was told by an Asset Manager that they prefer it, but don't require it; and to still send in all offers. Every bank is different. If you have an offer the listing agent should still be presenting, with or without the preferred preapproval.

There are 2 more things that the bank's are now requiring listing agents to do now that you may seen or will be seeing more often now:

1. leave literature inside the property pertaining to the preferred lender (and they send field reps to check the property to make sure they are inside); and

2. When they don't require you to get preapproved by their lender, they will require the buyer's own preapproval contain the language that they have verified income, assets, credit, bank statements, etc. It must also be signed with a live signature, and not computer generated.

With respect to the buyer's credit, supposedly if it is all mortgage related, and within 30 days, it does not affect their credit score. The problem is when the buyer has to keep doing it. I have started writing on my purchase agreement under "other terms" that "buyer will agree to be preapproved by sellers preferred lender upon seller's acceptance of their offer."

Whew! Long post, lol!

Stacey. We do not know that pre-approval by that particular loan officer is the banks requirement.

Further, we do not know that there is no benefit to the listing agent. They did, in fact, insist that this loan officer pre-approve the buyer.

If that had been all that occurred, I would never have written the post. It was the loan officer's attempt to pursuade the buyer to change their offer.

That is not normal procedure.

Michael. All normal procedures. However, if a listing agent referred you to a pre-approval source and that loan officer suggested that the buyer eliminate the home inspection contingency, I suspect that your "red flag" would go up too.

Lenn,

I know you don't know - that is why I am telling you. The listing agent derives no financial benefit whatsoever. In fact, it is the opposite because it deters some buyers from making offers. Sending them to the preferred lender is under the direction of the bank/seller/client. You do what you clients ask you to do, don't you?

There is nothing illegal about ASKING a buyer to be preapproved by a source you feel comfortable with. You CANNOT, however, force them to use that lender. I forward the offer whether they have been double dipped or not - I let the seller make the determination whether or not they accept.

What that loan officer did in your scenario is bordering RESPA violation and I would report it. It is not the norm and he overstepped his bounds. The preferred lender is only to provide a verified preapproval showing the buyer is indeed qualified for the seller.

I am just giving you persepctive from the other side of the table - because believe me, you have no ideal how many flimsy, unverified, 1st year agent who now wants to do loans, unverified approvals I get.

This post is not intended to be an argument - but it would be interesting to know if you felt the same if you walked in the shoes of the listing agent... Not all of us are bad!

I know that the law works slowly, but there is a license law requirement in most states that says that ALL offers have to be submitted. I would trot that out here in GA. The scare should be immediate. Like Renee said above, have the lender put it in their counter.

JUL

Stacey.

You have repeated another unsubstantiated statement concluding that:

"The listing agent derives no financial benefit whatsoever."

Whether or not the listing agent "is deriving some financial benefit" is the unknown in this matter. The relationship between the listing agent and the loan officer in this case is suspect.

We see time and time again where listing agents attempt to direct loan apps to friends, relatives, affiliates, lenders who refer buyers, etc., etc.

I know a local heavy listing agent whose wife is a loan officer. On each and every listing he carries, the comments state, "pre-approval required by XXX to accompany offers". No financial benefit????

The quid-pro-quo of receiving buyer referrals from loan officers is well known. We have an offer out on a foreclosure now where the listing agent has attempted three times to have our buyer pre-qualified by a "preferred lender". Our buyer has a "written loan commitment" from their credit union and is not going to make another loan app. There are no other offers on the property. Our offer is over list from a clearly qualified buyer. We've asked if the bank/owner has made this a condition of the contract and the listing agent simply says, "No, but I do a lot of business with this loan officer and I want him to have a chance ".

Red flags all over the place.

"BREATHING"?! Man, listing agents are getting really picky.

I don't think the loan officer actually did anything wrong, except give a lot of advice that he wasn't technically qualified to give. It makes perfect sense that if the buyer really wanted to get the house, he should offer a presumably higher price and forgo a property inspection. The loan officer was "practicing real estate without a license"; lots of people do that.

The listing agent would indeed receive some financial benefit if the buyer takes the loan officer's advice and his offer is accepted, but it might be hard to prove. And the property might be sold to somebody else anyway. Sounds to me like the loan officer is helping the bank/seller more than the listing agent.

Fortunately, the buyer was sophisticated and knowledgeable enough to realize he was being given advice contrary to his best interests. If I were his agent, I would have been pretty annoyed.

Cheers,

Robin

Robin. The agent was pretty annoyed. That's why they contacted me.

Hey Lynn,

I agree with you on the scenario you listed above. Obviously there may be a financial benefit if they are referring to friends/relatives. However, I was specifically speaking about bank owned properties where the comments advise the buyer is to be pre-approved by the bank seller's preferred lender. We don't even know these people. We (or at least "I") state that in my comments as directed by my seller. They make us print out the MLS sheet to verify that the comments are there and send field reps to make sure brochures are in the property too.

It would be interesting to know though the relationship between the seller (bank) and the preferred lender (bank). Sometimes it is in-house with the sellers own bank, other times it is a different bank/mortgage broker. I send all offers to the seller, whether they have jumped through those hoops or not.

Again, when I write an offer and put in the terms that the buyer will agree to get preapproved by the seller's preferred lender upon acceptance of their offer. Why do it just to compete with so many multiple offers right now, and not even get the property.

Interesting, the loan officer attempted to do the buyer's agent's job and told the buyer how they could be sure to get the contract. It, also, sounds as if the loan officer is making promises they cannot keep/have no control over. Aside from this violating a great number of laws, if the buyer followed the loan officer's advice and did not get the contract would they be able to sue the loan officer for damages that result (money lost attempting to complete the transaction and the additional cost of purchasing a comparable property if prices increase).

Joseph.

You are smarter than the average bear.

In my opinion, the listing agent has to submit all offers received by them, to the seller. If the offer is incomplete, I do not think it is up to the listing agent to withold the offer.Let the seller (bank) weed it all out, and send a counter if they want pre-approval from someone else. If my buyer is pre-approved with a DIRECT lender, then I do not see why they must be pre-approved by another one.I have personally been told by LO's from Wells Fargo, and from Bank of America, that they will notate on the pre-appoval letter that my client is willing to go with them as the lender. They said it will give my buyer preference over the other offers.I have even had them go as far as requesting my buyer to pull credit again, when we have a less than 30 day old report, approved DU findings report, a 1003, and more than enough money in the bank for closing and down payment.

Also try to get your pre-approval from their lender when you need it. I have waited as long as 3-4 days for it, when by then the listing is already pending or in back-up status.

I think if they want a pre-approval from their lender(who is usually them who owns it), then this should only be required if they are considering accepting your offer. They could request it in the counter offer,or the highest and best request, that way everyone quits wasting so much time. I feel for some of the LO's who have over 200 requests a day, and can't even get their regular work done.

I really think this issue needs to be addressed with CAR, and anyone else who can help.

What is to stop a buyer from agreeing to go with the REO owner as the lender, and then changing lenders after the offer is accepted?

It is really very frustrating having to jump through all these hoops to get an offer submitted,only to know that you won't get it anyway.Most of the REO's never respond back, never counter back, and never nothing, until you happen to see it pending on the MLS and realize it wasn't your buyer who got the offer accepted.

Just my 2 cents!

Deborah. You voiced many of the frustrations that our agents face day after day.

That loan officer advising our buyer to change his offer was just the latest.

Lenn - Obviously this is a hot subject based on all the comments. I don't like the seller requirements of needing to be approved by a specific lender that has nothing to do with the transaction. I think is would be better if they just asked for better qualifying information from the buyer's lender when the buyer submits the purchase contract in order to proove that the buyer has the ability to purchase the home.

AUG

Sound like the same story all over. What a messy practice... This complicated process isn't going to get smoother until it is required to be less complex. ~ JC

personally as a realtor and loan office, To many realtors try to direct, steer their clients to a specific business (please, dont give me that we give 3 business names BS)

I do no steer my real estate clients towards any business and, guess what, houses close on time!

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