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UNDERWRITING REALLY ISN’T THAT MYSTERIOUS BUT IT’S NOT STANDARD BY ANY MEANS EITHER - Part 1

By
Mortgage and Lending with Los Angeles & Ventura Counties in CA

 

The other day, I came across a post by Ralph Gorgoglione asking whether the underwriting process was a standard process or did it vary from lender to lender.  While I commented that very little about the underwriting process these days seems standard anymore, the underwriting process most certainly isn't a mystery either or least it doesn't have to be (yes, it can vary from lender to lender). 

There are a number of things that can wreak havoc on a loan transaction (as Ralph points out) and while many of them are underwriting related issues, there most certainly is no reason why agents shouldn't be allowed to be privy to why these matters have come up and what is being done to resolve them. 

 

Personally, so many of the scenarios that do come up in the underwriting process are not deal breakers but so often it seems that the agents in the transaction as well as our own borrowers sometimes get so worked up over the requests for additional documentation and simply don't seem to understand why these matters need to be addressed.  I guess we (MLO's) are to blame for that one - we need to be better educators with our borrowers and their agents. 

Some of the things that I see agents around here complain about are actually very valid matters that need to be verified and documented yet instead of understanding the need for the documentation, agents and/or buyers will just gripe and complain about having to provide the required documentation.  This can also be attributed to so many years of borrowers having to provide so little documentation (and we all know how that ended) that now any requests seems like too much. 

Those days are long gone folks and quite frankly, I'm glad.  All loans now are full doc loans and not only does everything regarding the borrower's ability to qualify and pay for a mortgage need to be verified and documented but properties also need to be qualified as well. 

Granted, much of this can be done in such a way and in a particular time frame so that it doesn't have to necessarily delay the escrow process.  This is where an experienced, hard-working and diligent MLO is absolutely vital. 

One of the scenarios that Ralph asked about were the problems with Homeowner's Associations (HOA).  This is most certainly a challenge and it doesn't seem to be getting all that much better either. 

Not only has our current declining economy been really tough on homeowners but it also has been extremely hard on the millions of condo complexes and the HOA's that manage these units. 

The challenges that we are seeing so much of now with condo requirements have always been there as guidelines for borrowers purchasing a property in a condo complex.  The problem is that these guidelines were never an issue before until now.  The three most troublesome matters with purchasing a condo right now are a) the owner occupancy ratio, b) the financial status of the HOA and c) any pending HOA litigation.  

In a strong and rising market, these matters weren't an issue:  owner occupancy was great, the financial status of the HOA was strong and the HOA's generally handled their legal issue quickly and completely.  In today's declining market, this has not been the case and many HOA's are in severe financial and legal distress.  This makes purchases in these complexes much more risky for lenders and their investors. 

As we all know, all mortgages are packaged up and sold off to the secondary market after the close of escrow and if a lender can't sell it, they won't fund it.  These days, secondary market investors are looking for safer investments and that generally does not include properties in high risk condo complexes. 

While it's still possible to purchase a condo unit, there are numerous hoops a borrower and an HOA have to jump through before getting to the closing table and this will most certainly require some additional documentation. 

Once again, this process is most certainly not some top secret that only MLO's are privy to but it will require patience, understanding and perhaps even some assistance from agents working with buyers/sellers who are looking to purchase/sell a condo. 

If agents are not willing to do what's necessary to serve their clients who want to buy/sell a condo then they need to refer the client to someone else who is willing to do what it takes to help the buyer/seller purchase/sell a condo. 

Stay tuned for part 2 where I discuss some of the challenges of verifying a buyers employment.

UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 2

UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 3

UNDERWRITING REALLY ISN'T THAT MYSTERIOUS BUT IT'S NOT STANDARD BY ANY MEANS EITHER - Part 4

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 Donne Knudsen

Realtor® - CalState Realty Services

DRE#: 01364050 / NMLS#: 249822 

 

805.2069123

 

E-mail   My Blog  

Serving low-medium income individuals and families as well as first time buyers with both their real estate as well as their mortgage needs including down payment assistance

Los Angeles County  --  Ventura County

© 2010 - All Rights Reserved

Robert Rauf
CMG Home Loans - Toms River, NJ

Good Morning Donne! We still have good UW's, but they are dealing with an entirely new rule book that is just as frustrating to them, and they see all the silly post close issues that hit them daily, that is where a lot of the nonsense stuff is coming from, it is on the back end when a loan is sold.

We had one come back to us because their was a power of attorney, and the person signing miss spelled Attorney when signing.... that is how ridiculous the post closing world is.  it makes us all look stupid

May 22, 2010 04:36 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Rob - I guess I've been lucky that I have had very few post closing issues.  I've heard from some fellow MLO's that they're having quite a few.  It's been awhile since I have sent anything to Flagstar but others are telling my that they are infamous for a lot of post closing issues.  Misspelled word - SERIOUSLY???

On another note, I had an agent get pissed off at me yesterday when I pointed out a cloud on title.  She had the audacity to tell me to just stick to the loan process and do my job and title and escrow will do their job. 

For the record folks: READING THE PRELIM IS PART OF MY JOB!  Reviewing all of the supporting documentation before submitting it to the lender/underwriter is one of the duties and respnsibilities of my job.  Not reading the prelim and not being aware of any potential title issues is a huge disservice to my clients because these issues can/may cause delays to the loan process.

May 22, 2010 05:34 AM
Paul McFadden
Responsive Pest Control - Seattle, WA
Pest Control, Seattle, WA.

Donne: Thanks for this. Our job isn't getting any easier. Almost all of the agents and borrowers I work with have been very understanding. My biggest frustration is the waiting before submitting to underwriting. Whether it's tax transcripts or the appraisal, it's tough to lock especially with the lenders and my company monitoring pull-through percentages. Thanks again for the post. It's great information!

May 22, 2010 07:43 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Paul - It is getting more and more challenging all the time.  I find that the borrowers that I have been able to educate before getting into escrow are usually easier to work with than the agents that I haven't had much contact with.  I get more grief from inexperience and uneducated agents who simply don't understand that the old rules no longer apply.

On another note, I too monitor my pull through rate very closely and don't lock in until I get the appraisal back.  I get the kinds of loan options I get because of my pull through rates.  I'm not going to jeopardize it with lock fallout on transactions that aren't going to close.  Around here, we get a lot of property issues so until I know there's no property issues, I'm not locking the loan.

Thx for stopping by; I appreciate it. Have a good weekend Paul.  :)

May 22, 2010 10:07 AM
Lyn Sims
Schaumburg, IL
Real Estate Broker Retired

Great explanation and it seems that this is becoming a new problem that we've never had to deal with before.

May 22, 2010 10:12 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Lyn - Up until about 12-18 months ago, I rarely had problems getting loans for condo.  Nowadays, when a clients mentions buying a condo, I cringe.  Around here, so many condo complexes are in no position to allow FHA purchases because they're status is an absolute mess.

Thx for stopping by; I really appreciate it.  :)

May 22, 2010 10:24 AM
Marney Kirk
Cummings & Co. Realtors - Towson, MD
Towson, Maryland Real Estate

Donne, this series is fantastic, thank you for writing. I can't wait to read #3! We had issues when we bought a condo recently, so I know the hoops we had to jump through. I understand the need/issue with them, though, but even when the HOA/Condo Assn is financially sound, things are very difficult!!!!

May 22, 2010 02:12 PM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Marney - I certainly know what you mean.  I too had a recent condo sale where the owner occupied ratios were fine, the delinquents/defaults were low and there were no pending litigations however, the HOA had changed management companies three times in the past two years and the new management company had just taken over recently and they were missing a lot of the HOA documentation.  It was very challenging getting to the closing table.  Thx for stopping by; I really appreciate it.

May 22, 2010 03:16 PM
Chris Olsen
Olsen Ziegler Realty - Cleveland, OH
Broker Owner Cleveland Ohio Real Estate

Hi Donne - The only aspect of this process when underwriters ask for more information that I get peeved with is it happens at the last minute oftentimes and blows dates out of the water -- utilities need to get re-changed, moving trucks rescheduled, time off work, etc.

May 22, 2010 04:40 PM
Robert Rauf
CMG Home Loans - Toms River, NJ

Isnt that great, getting yelled at for doing your job?  We are supposed to read and review what we get, not just stuff it into a file... Why would we gather info to start with if we didnt review it, (and even more importantly know what we are looking at)?????

Catch it up front and you can minimize the problems, catch it later and it is like being bitten in the tush!

May 24, 2010 04:12 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Chris - I feel your pain.  Earlier this year, I had a borrower purchasing an REO and his BA specifically stated in the purchase contract that the utilities be on during the inspection period because I have trained my FHA borrowers that this is a must in order to get a complete appraisal. 

PTD there was a condition that the underwriter asked for that the AMC's appraiser missed when he was out the first time.  We had to wait five days for the utilities to get turned back on so the appraiser could correct his mistake.  The worse part is that the AMC tried to charge my borrower for the re-inspection.  I DON'T THINK SO!!!

Needless to say, I was NOT going to allow that to happen.  Of course, the REO LA and the seller bank blamed me for the delay and it was all my fault.  Just another classic example of another AMC that refuses to be accountable for their own appraisers.

Rob - Oh don't even get me started on that scenario.  For more than two weeks, I was hounding title for the prelim and by the time I got it, the appraisal had already been done and sent to the underwriter.  This is when I noticed the cloud.  Call it intuition or just plain experience but whenever it takes more than a few days to get a prelim - RED FLAGS!!!

Thx for stopping by guys: I really appreciate it.  Have a good week.  :)

May 24, 2010 04:48 AM
Robert Rauf
CMG Home Loans - Toms River, NJ

Good agents are not always easy to find, I wrote a blog a few weeks ago about the very subject comparing 2 deals, one with a bad agent, and one with 2 great agents...

May 25, 2010 05:29 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Rob - I remember that post.  I remember thinking that it sounded a lot like so many agents around here.  It is amazing that there are so many agents out there who really don't belong in this business. 

As for me, I just chalk up my most recent experience to yet another local Realtor that I hope I never have to deal with again.  I don't know what kind of MLO's she's used to working with but an MLO who doesn't read and understand prelims is yet another person who probably doesn't belong in this business.  JMHO

May 25, 2010 05:57 AM
Renée Donohue~Home Photography
Savvy Home Pix - Allegan, MI
Western Michigan Real Estate Photographer

I WANT TO THANK YOU DONNE for including all the posts in my outside blog.  You really took the mystery out of this mysterious process!

Jun 01, 2010 11:19 AM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Renee - You're welcomed!  I'm glad you like them.  Even though our markets are saturated with all cash buyers, the financed buyers we do have need to understand (as well as their agents too) more than ever the trials and tribulations of the lending industry right now.  I have always felt that the more educated that buyers and agents are about the underwriting process the easier it makes my job.

Thx for stopping by; I really appreciate it.  Have a good day Renee.  :)

Jun 02, 2010 05:41 AM
Mike Henderson
Your complete source for buying HUD homes - Littleton, CO
HUD Home Hub - 303-949-5848

I'm a loan officer as well and I don't do condos any more.  I refer it out to an expert.

Jun 12, 2010 03:30 PM
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Mike - I almost feel the same way about condos.  Whenever a client mentions condos to me I literally groan and then proceed to explain to them the trials and tribulations of getting condo financing.  I haven't done a loan on a condo since last October.  Around here, most condo purchases are cash.

Jun 12, 2010 06:27 PM
Anonymous
Tom Hayes

Hi Donne

 

I was wondering if you could make a general comment on lender overlays, as they apply to Freddie/Fannie condo owner occupied requirements. Currently, Freddie Fannie have no requirements (very nice) if borrower is using property as a primary residence or a second home. Are lender "raising the bar" in your opinion. 

 

Many thankskaki

Aug 13, 2010 02:07 PM
#31
Anonymous
Tom Hayes

erm, sorry about "kaki", I thought it was the message verifier box asking me to write "kaki"

Aug 13, 2010 02:09 PM
#32
Donne Knudsen
Los Angeles & Ventura Counties in CA - Simi Valley, CA
CalState Realty Services

Tom - Condo financing has become very challenging for both FHA and conventional loan products.  While Fannie & Freddie don't require condo complexes be FHA approved, there are some requirements that the HOA will have to meet in order for financing to be approved.  This is one of the biggest issue to condo financing - HOA issues.

Aug 14, 2010 01:17 PM