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Loan Cost Estimates Gone Wild and the Insanity that Controls the Industry

By
Real Estate Agent with Evergreen Realty

As anyone whose read my profile knows, I started in the Real Estate business as a loan officer.  In the last few years I morphed into a Realtor, and being pretty good at it, I've been happy to call this my little neck of the woods lately.  I recently had occasion, however to join forces with a Loan Officer I know on a client I referred him, as his processor for a purchase money loan.  I had done a lot of the processing on my own loans, "back in the day" but never wore the title.  It's the first time since all these changes to protect consumers have been put into place, that I've had a bird's eye look at the insanity that is a broker originated loan.

My buyer is purchasing a short sale that has fallen on hard times.  In reading through the new rules regarding Good Faith Estimates, it turns out that any cost/item required by the lender to close the loan must be disclosed on the Good Faith Estimate, and must be estimated within 10% of it's actual cost, as charged by an independent third party, or the difference must be paid by the Loan Officer.  Here's what this means.  The property in question has a well, a septic system, and some deferred maintenance.  If there is anything called out with any of these things, and a cost for inspecting and repair ends up costing more than 10% of what was estimated, then the loan officer has to pay for it.  

What if the well doesn't work?  What if the septic system is bad?  What if the bank requires expensive repairs to be done after the appraisal is done?  Why is any of this the loan officer's fault?

In anticipation of possible trouble, costs for this loan were estimated extremely high and the buyer is understandably concerned.  Such requirements are probably out there killing many a deal unnecissarily.

Is anybody out there actually thinking, or has the financial world simply lost their collective minds?

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Comments (6)

Vickie Nagy
Coldwell Banker Residential Real Estate - Palm Springs, CA
Vickie Jean the Palm Springs Condo Queen

Well stated. It now appears that the financial world HAS in fact simply lost their collective minds.

Sep 02, 2010 06:08 PM
Harry F. D'Elia III
WEDO Real Estate and Beyond, LLC - Phoenix, AZ
Investor , Mentor, GRI, Radio, CIPS, REOs, ABR

That is a new one on me. It does not seem fair on the loan officer. Big Banks calling the shots who got us in this mess.

Sep 02, 2010 06:09 PM
Robin Dampier REALTOR®
Coldwell Banker King - Hendersonville, NC
Hendersonville & Western NC Real Estate Source

There seems to be/are a lot of things not making sense these days.  It seems like multiple fiascos a day are occurring to further destroy the currently very fragile economy????

Sue of Robin and Sue

Sep 02, 2010 06:17 PM
George Bennett
Inactive - Port Orford, OR
Inactive Principal Broker, GRI

Thanks for the 'Heads Up.' I'll have to check into this locally to see if the insanity is pandemic.

Sep 02, 2010 06:17 PM
MichelleCherie Carr Crowe .Just Call. 408-252-8900
Get Results Team...Just Call (408) 252-8900! . DRE #00901962 . Licensed to Sell since 1985 . Altas Realty - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Hmm, I thought that the only costs the lender/broker can be on the hook for are actual costs having to do with the loan, not the repairs.

Sep 02, 2010 06:23 PM
Carol Neu
Evergreen Realty - Big Bear Lake, CA
SFR, RCS-D - Big Bear Foreclosures

If the repairs are required by the lender as a condition of getting the loan.  So, lets say that health and safety issues were called out in the appraisal - broken windows, sagging steps, doors not working properly, pump in well not operational - the lender will require them all to be fixed prior to funding the loan.  Therefore, they must be estimated within 10% of their actual cost on the Good Faith Estimate.  Additionally, the vendors to be used must be itemized on the Good Faith Estimate - name and contact info.  I have no idea what happens if the buyer chooses to use a different vendor.

In another deal I had some items called out in an appraisal that the lender required to be fixed prior to close.  I ended up paying for them as the Realtor on the deal.

It's nuts!

Sep 02, 2010 07:34 PM