For many, 2010 will undoubtedly prove to be one of the toughest years in the mortgage industry. The underwriting guidelines still continue to change daily, government regulation and intervention is at an all-time high, legislation is being proposed to change compensation models for Loan Originators, more fraud verification policies are being put in place to protect lenders adding confusion, borrowers are forced to jump through ridiculous hoops and great mortgage professionals are exiting our industry in droves. Let me repeat that.... "Great" mortgage professionals are exiting our industry, not "Good", but "Great".
I'm sure you know how we got where we are at, but do you really know where we are at? Everyday I speak with my friends from markets across the United States that are considering changing careers. The same questions come up, "How is it possible to create a great experience for a borrower with this environment?" I don't pretend to know the answer because, in my opinion, there isn't one.
Telling your borrower three months after closing they need to provide proof they've personally paid a credit card on their credit report for 12 months, showing their bank statements for the last 12 months. How and why would they have trust and confidence to refer their friends and family?
When you receive a loan approval with 45 prior to doc conditions, then it takes 45 minutes to explain why so much documentation is needed. How are your clients to have the trust and confidence to refer their friends and family?
Loan guidelines forcing Mortgage Professionals to order two appraisals on a property, after one has already been received $14,000 above selling price. How are today's clients to have trust and confidence to refer their friends and family when they feel they've been mistreated and forced to pay excessive costs?
When this happens over and over and over on every transaction, why would Real Estate Professionals continue to refer their clients? It's simple... they don't. They move on to the next Loan Officer. Your past clients don't refer you anymore. You soon realize you don't have a passion for this industry anymore and "Even Great Warriors Die In Battle."
For those that make it through this, we are the survivors, we are the fighters and we are the ones who will shape the perception of this industry so many love. Live the Dream - Carpe diem quam minime credula postero!
About the Author
My name is David Krushinsky and I am a Phoenix mortgage specialist that is truly passionate about my profession and the result is that nearly 100% of my business is by referral from satisfied clients, trusted financial advisors and the most experienced REALTOR®'s in the Phoenix area. Questions? Call 480.339.1576 orVisit My Website
"Loan guidelines forcing Mortgage Professionals to order two appraisals on a property, after one has already been received $14,000 above selling price."
This one is a puzzlement. If the buyer and seller can show an "arms length" transaction, is this guideline being wrongly applied????????
Hi Lenn! I've had a few transactions which have required two full appraisals. The following are some situations which would cause the need for an additional appraisal.
For FHA loans, HUD has published a waiver to the previous regulations limiting purchase transactions if the seller was not vested for a minimum of 91 days at the time a purchase contract is signed, or if the seller did not fall under certain exemptions set forth by HUD.
In cases in which the sales price of the property is 20% or more over and above the seller's acquisition cost, the waiver will only apply if: Justification is made for the increase in value by supporting documentation and/or a second appraisal which verifies that the seller has completed sufficient legitimate renovation, repair, and rehabilitation work on the subject property to substantiate the increase in value or in cases where no such work is performed, the appraiser provides appropriate explanation of the increase in property value since the prior title transfer.
FHA also requires a second appraisal as applicable per the Property Flipping guidelines (new waiver exception dated February 1, 2010 AND property flips occurring between 91 - 180 days with more than 100% increase in sales price from previous sale).
Currently, most Conventional loans require some type of confirmation of value, by desk-review or Automated Valuation, which is usually charged to the borrower. The HVCC already selects a random appraiser for Conventional loans, but when the automated valuation/desk-review comes back below the appraised value, an additional appraisal could be required to justify the first appraisal. Loan amounts above conforming limits may also require additional appraisals.
Converting a primary residence to investment property will also require an additional appraisal on the current residence. If borrower is renting out their current home and purchasing a new primary residence, to use rental income to qualify, the following requirements must be met: 75% of rental income may be used to offset the mortgage payment in qualifying if there is documented equity of at least 30% in the existing property, derived from an appraisal or AVM minus outstanding liens. While this situation specifically does not relate to my topic within the post, it is still one to watch out for.
The situation referred to within my article was simply the underwriter disagreeing with the comps used by the appraiser and requesting an additional appraisal. The fear was the loan would not be able to be sold in the secondary market. It's too bad because the consumer is the one who really loses.
Disagree with Michael, somewhat. 25% may be left standing, but who is to say the attrition selected the right 75%? Though we assume only the strong survive, we forget that cockroaches ride out nuclear holocausts quite nicely.
It's a jungle out there for all of us right now. I'm on a bit of a hot streak of late, but not one deal is immune to unraveling due to the factors referenced (and not referenced) here. Even the ones I've successfully navigated this year to date have had one wrinkle or another that had to be ironed out prior to close (had the multiple appraisal issue, underwriter kicked comps used by an appraiser on another one, etc).
The only solution, from my vantage point, is to stay busier and put more deals together than ever. The only way to buttress ourselves from extinction is to offset declining closing rate with a higher volume of total escrows. Always a quality over quantity type, not my preferred method of business to run around like a chicken with its head cut off, but survival trumps looking suave.
My buyers were forced to pay an additional $450 appraisal fee because the Seller is an LLC! The purchase price is less than the seller's acquisition cost, and the "flip" time frame was just over 90 days. The situation: seller is a builder who bought the property from a client building with him. No major renovations, just a sewer repair. The extra $450 was a burden to the young buyer who was tight with closing costs, etc. anyway.
David- It is getting more difficult but having been in the business for 16 years, I have seen good and bad times.
One bonus about having a trusted Realtor go to the dark side (use the big box bank or another loan officer) is the response I receive when they come back. Usually they are overwhelmingly thankful that I'm still in this crazy business and some even apologize for "leaving me" even if only for 1 deal.
Excellent blog.
Also- re: the 2nd appraisal issue, most certainly I agree with your information here. Just had to get a 2nd appraisal because the property was a flip. Folks flipping properties should be familiar with this requirement by now. Listing agents should be aware if it is a flip and prep the seller ahead of time.
Thanks for your detailed post and comments. I try to speak with good LOs every week to ask "what's going on" and "please explain this to me". Having it in writing here sure helps!
Hang in there! Only the strong and, in some cases, strong-willed will survive. I expect this year to be better than 2008. For me that was the nadir. Somehow we will make it through although loan officers need to be smart. If they need to affiliate with a stronger outfit the time is now. Pride and stubbornness have no place in 2010! Thanks for the post!
I'm all for the purging of the system, but when we are losing our great lenders and realtors there is a problem. When the job becomes frustrating and unpleasant enough to turn the people providing the service against the industry there is a problem.
This government change and intervention isn't helping anyone.
My mother's been in the industry for over 30 years, and she has never seen what we're going through now. It changes constantly, and she may choose to leave finally after all of these years.
The banks have been scrambling cover their sorry asses after nearly destroying this country. Now they are overdoing it on the safe side. I feel for loan officers as well. I would only say that they need to let realtors and their clients that the lending environment is a moving target and to expect a few surprises. Two appraisals is a bit extreme. Bank should pay for the second one.
The banks still control this country wether they let us think they do or not... I have not run into the two appraisals yet... or had any problems with the new rules... I am trying to stay positive and hope for the best!
The double appraisals are one of the most frustrating parts of the current mortgage market. HVCC was created to make sure appraisals were not tainted by relationships betweeen the mortgage professional and the appraiser. Yet when an underwriter doesn't like the appraisal or some of the "conditions" of the sale they order another one at the buyer's expense. It isn't the buyer who doesn't like the appraisal so why are they forced to pay for the follow up by the underwriter?
I have seen some very heavy hitters leave the business in the last three years. Our market has shifted several times (scary fast) and some were simply unable to adapt and shift to current times. I am actually feeding leads to some others who have trained me and mentored me in my first years here. It is a very humbling experience.
I want first time buyers and I want referrals. I want the first time buyers because they are moldable and trainable. I want the referrals from them because it just makes your job (on the marketing end) easier. I believe education is the key when we prepare buyers mentally for the tough challenge ahead of them.
This is seriously "a canary in the coal mine" times. I prep them, tell them about potential challenges and then let them know we will run into something that we have NOT YET encountered so we are better equipped to deal with it down the road and comply.
Lending is based on risk, with every new foreclosure profile that is seen, I swear 100 new guidelines are created. It's frustrating as hell but I am glad lending is still around.
Good post David. I can feel your passion and enthusiasm. I admire your fight and I agree with you that the survivors will be the ones to re-shape the perception in years to come. Have a great day!
This market is tough on everyone in the real estate industry....we just need to try and continue to give the best service to our clients and look to an even more productive future.
When one of the good guys is a casualty, it is a tragedy. Another reason I see good mortgage people exit is because they are brokers, not direct lenders, and the system is slanted against them.
Great post David, the vid looks like my most recent interaction with Wells Fargo u/w (just kidding, but not by much).
I must say a VAST majority of my time these days is spent trying to envision what curve will be pitched next. By over documenting from the start we can "shield" our customers from some of this pain. You are 100% right, however, that it's tough to under promise and over deliver in this environment. How many of us are collecting two years tax returns on all (even w-2 salaried) borrowers these days? If you are not it's because you haven't been hit with an unreimbursed business expense found from a 4506T yet- but you will be!
Tough times to be looking for a mortgage loan, but the rewards can be sweet. On the plus side look at the good news. PMI guidelines where just relaxed by UG, and some new players are coming into the fray with clean balance sheets and no baggage.
Mortgage lending has become a full contact sport. "Carpe diem. Seize the day, boys. Make your lives extraordinary." Good luck to all of us that are left to fight this good fight to the end!
It's absolutely amazing what is currently going on... I have a client getting ready to close on property #4 (all properties easily cash flow with some fantastic returns) and each loan gets more difficult as we go.
Wonderful post. I truly feel your pain as my husband is an LO for a broker. As far as people leaving your business in droves, well we have to hope that they are the people that we want out.
I think one big help would be for REALTORS to find an LO that they really trust & ride it out. REALTORS need to take responsibility for understanding the changing mortgage process and work with the LO to keep the buyer calm & engaged.
REALTORS need to understand that EVERY transaction these days can be difficult. And the LO isn't making these hurdles up for his own amusement. Switching LOs isn't going to solve your problem & heading over to a BIG BANK definitely isn't going to solve your problem.
More than ever, the business relationships that we cultivatae need to begin and end with loyalty.
The one thing we can all count on is change, the only thing we all have in common is time, it's all about what we do with the time we have, and how we can adapt to the times, A great mortgage beoker, is a great thing to have, relationships are built on time, trust, and ethics. The things that are most important cannot be bought. Great post, keep up the great work
This post rings true for me too. I have several loan officers I work with, some better than others. When demand becomes excessive, it is not a service to my customers. I am a Real Estate Broker, not a circus ringmaster telling my customers to jump through hoops like a circus dog.
I will keep using the loan officers who offer the best service with the least amount of problems consistently.
David I love your writing here and your candid reality that NO MATTER HOW good a loan officer in this market, there are so many variables that come into play, that loans and the whole buying process can be like a continual pulling of teeth, magnified by EACH LOAN in process. And we can certainly lose relationships in this day and age if Realtors don't also know the intence crap involved in udnerwriting a file. I made this comment below on Lenn's re-blog of this article ...
"I haven't had any train wrecks ... BUT I had one file that had the end investor repulling credit months ... MONTHS ... after closing saying we had to requalify the buyer. This guy BOUGHT A CAR after settlement, had low credit, and high debt ratios. To this day I have NO IDEA how we didn't have to buy back that loan."
"Great" mortgage professionals are exiting our industry, not "Good", but "Great"
I have seen some decent LO's leave, but they great ones are still here. They are the last standing. Same with the realtors. Sure we a lost friends to all the change but they were far from being "Great" LO's or Realtors for that matter. If they were great they would have changed with the market. For me anyways 2009 was a great year and 2010's going to be even better!
I Love this post! I've been saying something similar for awhile now - that being a mortgage broker must be one of the most thankless jobs on the planet right now. Yes, our job as real estate agents is tough, but we can (and do, sorry) blame many of our troubles on YOU. A girlfriend of mine recently left the industry because she found herself drowning her tears in a super-size martini every night out of frustration that she simply couldn't do a good job for her clients.
A GREAT mortgage broker can probably find a different career where he or she is far more able to produce a satisfactory outcome for the client... and if I were a mortgage broker, that's probably what I'd be looking for as we speak...
Jeremy - That sentence doesn't mean that everyone leaving the business is great. I was referring to some great producers I've known throughout the years, which are currently leaving the industry. That's what inspired me to write the article. Good to see you're having a terrific year. Michigan is a tough market. Keep up the good work.
Realtors know what is happening. With 62% of our Oceanfront condos selling for cash in 2009, the topsy turvy World of Real Estate Financing is an unfortunate Reality we all have to contend with. While I am busier than ever and I can't complain about the financial results, I reflect every day on the fact that I could make my money easier than this. The quality of my Life has deteriorated in ways that I can not even begin to describe (which most of you know enough about anyway, because we're all going through the same thing...) and I have been giving a lot of thought to other options.
That being said, pulling away is easier said than done. I feel I owe it to my Clients to see them through these treacherous waters... The part that I hate to admit is this: the ever changing rules and obstacles are actually enticing me to stay; it's like an addiction to the drama now inherent in almost every deal... 1001 steps to closing... I'm on it! I hate this business! I love this business! ?!?!?!?!?!?
Thanks for saying what is on quite a few of our minds. Great originators are leaving the business, there is no way this is good for our industry. These were our mentors, confidants, colleagues, friends and etc. In all my years in this business, this is the first time that I feel like I don't know what the outcome will be when I submit a file. Unless you are in the trenches, you don't understand your blog. Keep it going, we will adapt and overcome, and new great originators will be born!
David, good article. I was at a closing the other day and the loan officer handed the buyer a form to sign that was for approval to re-reun everything through Underwriting after the closing.
Hi David~ The survivors may not be the best of the best, but they are survivors. I have seen exceptional people exit the business for too many reasons to mention here. I find it very sad when the exceptional ones leave....
I have clients complain about Loan Officers more recently than ever before and it's time consuming to explain they are working with some really stupid guidelines.
David, you really hit a bullseye on this post and I also echo everything in it. HVCC, MDIA and stupid underwriting has been like sand in the wheels of progress. Clients blame us but we press on hoping to survive this mess. Thanks again for telling it like it is!
True professionals don't bail at the slightest sign of trouble. It's a new market, and a paradigm shift. It has its positives and negatives. Everyone is redesigning how they conduct their business and only the strong will survive.
The LO's who are still in this business are the true, serious, in it for the long haul professionals. In spite of all the legal requirements, tight guidelines, and making our clients jump through multiple hoops BS we are going through, we are still here and STANDING PROUD!
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"Loan guidelines forcing Mortgage Professionals to order two appraisals on a property, after one has already been received $14,000 above selling price."
This one is a puzzlement. If the buyer and seller can show an "arms length" transaction, is this guideline being wrongly applied????????