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CPR needed on a dying deal!!

Help! Call 911! Well, one of my closings for this week is dying a slow death. I just hate it when that happens. We were supposed to close last Friday, then extended until today, only to find out Wells Fargo has denied the loan due to the Buyer's debt ratio being to high by 1%. Only 1%! Seemingly, there is some additional income, from a part time job, that was disqualified, due to not being seasoned (less than 12 months). How can something so small kill a deal?

Anyway, the Loan Officer called me today, to give me this news, and to request a 3 week extension so they can submit the package to another Lender. A 3 week extension! I'm not quite sure how an extension and a new Lender is going to change the debt ratio. The facts are, these are first time home buyers, that were getting a pretty good rate and a 30 year fixed 100% first mortgage from Wells Fargo. If they switch to another Lender they are looking for an 80/20. Now I have been doing this for a while and may be looking at this wrong, but wouldn't an 80/20 make the ratio even worse than it already is?

My suggestion was to check with the underwriter, at Wells Fargo, to see what the loan amount would need to be to fit within an acceptable ratio. By my thinking, maybe, if we knew this figure, we could adjust the purchase price downward and do the deal, instead of granting an extension on a deal that may or may not work. Does this make sense? Is it a doable solution? Maybe reducing the price by $5,000 or so would work. We could then lower costs to the Seller to get as close to the original NET as possible.

I'm thinking out of the box here to try and get my Sellers out of their house. We have been trying to sell this place since June and they have in fact already placed a sizeable deposit down on a rental home. I don't want them to lose this rental deposit or this deal. I have grown to really like these folks and I want them to be able to move on. At this point I am not even concerned with getting paid. Heck, I made enough money this year. Sometimes you just have to do one for the "ole gipper."

I'm looking for 100% financing on a purchase price of $175,000 with the Seller contributing 5% towards Buyer's closing costs. The Buyer has a middle score of 620.

So, what do you think, ActiveRain mortgage guys and gals? Any hope showing? Any way my Sellers can still salvage Christmas? Are there any mortgage brokers wanting to ride a white horse this Christmas? All thoughts and suggestions are appreciated. Giddy up!!

Posted by Bryant Tutas Broker/REALTOR(R) Tutas Towne Realty, Inc on 12/19/2006 05:42 PM

Comments (109)

debt ratio, real life

109 Comments on CPR needed on a dying deal!!

DEC

2006

Reserved Parking For #1 "The Lovely Wife"...TLW...ROAR!

Darlin' (Hubba! Bubba!) Speaking of White Horses...

You owe me one of those. I know you think I am kidding.

NOT. Giddy Up Darlin'...Looks like you better cut a check. :)

Sorry Guys. I am waaaaay off topic on this one. SVW SEE :))

TLW "The Lovely Wife"...So How Much Does It Cost To Hire Someone To Serve You Breakfast In Bed...ROAR!

Bryan,

I hope your loan officer is not a member of AR, because he's not going to like what I'm going to say.

I have 4 rules about clients and referral sources.

1. We protect the license above everything.

2. We protect the client above everything, but the license.

3. We protect the referral source above everything, but the client and the license.

4. We protect the commission above everything, but the referral source, the client, and the license.

We have the rules because it's hard to make decisions when there is money on the table.

Now to apply the rules. This was a dumb, but forgivable mistake (I'm over looking the time frame), it was not the client's or the referral source's fault. So the solution is to use part of the commission to buy the rate down an 1/8 which should solve the 1% problem! Thus we've protected the licence, the client, and the referral source! We'll make it up by additional referrals.

To many loan officers think only of their current commission, forgetting the client and the source of all business.

Bill

William J Archambault Jr

The Real Estate Investment Institute

http://www.reii.org

Bryant, I'm a neophyte at this stuff, but Bill's doesn't sound impossible. I'm certainly going to put it in one of my 'rear brain' files for future issues. I guess my only question is, doesn't the 'lowering the price by $5000 do the same thing?

Ah Bill. Good point as always. I can't do better.

Hey Bill, good advice as always. I know there is a solution in here somewhere. A 1% debt ratio issue can not be that hard to overcome, that assumes of course that there is not a bigger issue that I'm not aware of.

Carole, lowering the price will achieve the same thing. Assuming the gap is not to big. So now I wait until morning to see what the figure is.

BB:

Sure do hope somebody out here comes thru for you and your seller and these buyers! They must be sorely disappointed, and so close to the holiday stresses everyone involved. Good luck! sleep tight, something will happen to salvage this deal

BB,

From what you have shared that should be possible all sorts of ways, which makes me think the loan officer on your transaction may not be 100% forthcoming in his reason for a decline. The reasons to take this deal "elsewhere" is a really short list. The prime "suspect" is that the loan officer is wanting to create a new application with a slightly higher borrower income and tell the new lender he needs a "stated income" documentation program. This is highly common and highly fraudulent....but so is exceeding the speed limit.

If this is truly a 1% Debt-to-income ratio issue and NOTHING else, then Bill hit it right on the head. You lower the interest rate to lower the ratios. Buy-down the rate by sacrificing lender commissions, seller contributes some of their proceeds....something! That's a couple of hour time-frame for fixing the deal. If the answer is that you he really needs 3 more weeks then his clients better use tomorrow shopping for another lender.

What I'm trying to say is that the reasons you have been given for the decline do not add up. If the loan officer won't give you the underwriting approval/condition list from Wells Fargo, then you could try calling the local Wells Fargo office and asking to speak to the underwriter directly. When brokering a loan, if it results in a decline, the lender will provide the loan officer with the decline and the reason. Trust me, Wells Fargo would do this. I'd ask for that document.

Lastly, these sound like good folks and if I can answer any questions for you or them don't hesitate to call me or e-mail. Ken Stampe 972-765-4005 ken.stampe@bankofamerica.com

Bryant.... not here to knock Wells.... but I have seen this happen. There is something else to it. Why do I say this? If I was the loan officer.... part of a loaf is better than not at all. I did a deal last year because I lowered the rate to make it qualify. PLAIN and SIMPLE.... I made less on the deal. It was an FHA deal... the original loan officer had it at 7.375% and I took it down to 6.5% and we were still above the qualifying ratios.

Part of my point is... not only did I make it work, meaning less money to me, but I got the underwriter to except the deal as is... giving me an exception on the ratio. Again, in my opinion, they are saying just 1% over? there are many ways to get around this.

Hence the reason that I am very good at saving deals because I think outside the box. I know you don't have full control over this, but I would love to tackle this project per se. Two reasons.... I am very creative and not greedy... 2nd... I can underwrite all of my deals in-house.... and part of this, I can beat out Countrywide and Wells Fargos rates.... how do I know this? Because I have their rate sheets from the wholesale side. Just because you are biggest, doesn't mean you are the cheapest.

Bryant.. I can be reached by my cell phone up until 11 pm tonight....or after 7:30 am tomorrow morning. 609-440-5133 My e-mail: jbelonger@assuredlendingcorp.com I truly think I can find a solution, without reducing the price, just because I am very creative and that's if there is nothing more to it than the 1% difference. And the best part.... I could do this from start to finish in 4 to 5 days. Even with the holidays.

LOL.... I didn't read Bill's comment and Ken said the same thing as I did.... but he got in here before I did... I started writing this and then received a phone call. Hence the reason why I posted after Ken...

But Ken mentions the same thing as I do..... 1% is a very poor excuse.

BB,

I could see that an 80/20 could make the deal work (depends on what the PMI cost was vs the blended rate of an 80/20), but it may not be a practical solution. My initial instinct is the MCM. Check out the brochure that I gave to you and TLW. Ask the LO what loan products have been considered. If I can be of assistance let me know. I recently had a 100% FNMA MCM purchase approved with 6% seller contribution, low MI. Borrower had 64% back end ratio and $50 in the bank, Score about 100 points better, go figure.

Hey guys, thanks for all the quick responses. I know this deal can happen. I have to make some calls in the morning to see what I can uncover. I've had the impression from the get go that the LO is very inexperienced. Every time I cal ll there are babies screaming in the back ground. I don't guess that is really related to inexperience but this is business and babies screaming in the back ground doesn't put forth much of an image. I'm not very comfortable giving them another 3 weeks.

Bryant..... real babies? or baby loan officers?, lol

And the 3 weeks... he had that long to begin with. The other point.... when did they find out about the ratios? They could have sent it to another broker to begin with. Like everyone else, there is something else to it. My experience and knowledge, someone dropped the ball. What did they over-look that truly killed the deal..... this is my opinion.

Bryant-

I believe that you can only get 3% seller contribution on a 100% financing. To obtain more, then you need to go through the downpayment assistance programs. Try, www.nehemiahcorp.org/ - Unfortunately it's just another hoop to jump through...

Ask Wells Fargo to lower the rate.

Ask Well Fargo if they have an Expanded Ratio Program and/or a Graduated Payment Mortgage(Graduated Payment Mortgages (GPMs)

To increase the credit score fast , your Buyers need to be added to their parent's credit cards as authorized users...only if they have great credit. If they can improve their score to 680 it should help to lower the rate.

Wells Fargo is Affiliated with the County Grant Programs here in Texas...Check your area because they might have Grant money that you can apply for...Just another hoop to jump through

Good Luck !!

Lorna,

You make some good points, however FannieMae will allow for up to 6% seller contribution on 100% financing on their MyCommunityMortgage

BB, Check the link. 40 year terms and Interest-only options available

Laura..... not true.... in regards to some companies and types of deals. In the sub prime world, you can do 6% with most programs. Even some other programs.... it can be done.

Ron... exactly. this program is a secret weapon.... and I sometimes don't like to tell all, hence the reason why I get deals done that so many don't.

Hey Ron.... good to see you around. You disappeared lately.

BB.

Did the Buyer use Wells direct or through a mortgage broker? I maybe able to assist you in attempting to re-start this closing..

We`ve had alot of success with wells. Surprising this doesn`t sound like their MO this close to Closing.

Interesting. I had a buyer this summer who started VA...and couldn't get approved! Just incredible. The excuse? The husband's former wife had not signed a quit claim deed on a property they HAD owned, and his name was still on it.

So, I suggested to the loan officer to try it FHA...and what do you know? We got it thru...yeah it took a few more weeks. But, it closed.

Always amazes me when lenders don't follow thru or see how many other options are out there.

So, I suggested to the loan officer to try it FHA...and what do you know? We got it thru...yeah it took a few more weeks. But, it closed.

Always amazes me when lenders don't follow thru or see how many other options are out there.

Jeff B,

BAM, right on! You are right this is a secret weapon. Oops, until now! Many LO's have not caught on to this yet. Plus it does right by the borrower on 100% financing. This is my 100% bread and butter. Absolutely awesome with desktop underwriting, I am knocking the socks off of a large percentage of the 80/20's. I cut one clients payment on 100% purchase recently by almost $200 a month.

Jeff, I have been wrestling with AR time vs my commitment to my business.

Hey Scott, they are going through a Broker.

Jeff and Ron, I think they are using the MCM. I could be wrong but I thought that's what the LO said. I know they had to get a first time home buyers certificate. With all these great comments I will definitely have the right questions to ask in the morning.

Remember, I am on the listing side so I am very much dependent on them being straight forward with me and we all know how that goes.

MCM does not require a First-time homebuyer education program/certificate.

Bryant, I am going to agree with a couple of things that have been said already.

First, I would agree with what has already been said about buying the rate down in stead of reducing the sales price, and it would be cheaper for the Seller.

Second, I would also agree with Lauren. My 100% Loan Programs would only allow the Seller to contribute 3% to Seller Paid Costs. I am wondering if that is the real problem, and the LO is trying to cover his tracks, because at this time of the year 3% might not be enough to cover the closing costs depending on how taxes are paid.

George...as an FYI.... read Ron's comment. There are several programs that allow for 6% seller help on 100% financing....

BB,

One last comment then I'm on to other business. You might consider conditioning the selling side/buyer to obtain a "second opinion" on the borrowers qualifications/eligibility from a lender/broker of your choice before extending the contract purchase date for them.

Hey Ron, I had already told my seller that. Great minds think alike:)

Jeff, I was just referring to mine, and this guy might be in the same boat.

IF I read things right, they were originally brokered to Wells Fargo, then, in my experience, they were "approved" by the broker without underwriting approval, which means, of course, that they were NEVER approved. Not including part time income isn't something discovered at the last minute. I don't buy it.

I'd try a direct lender to put them through Desktop QUICKLY on something other than 30 year fixed. IF, what the lender said is true and that they are denied for 1% on a back ratio, simply going to an ARM would cure. 620 is more like an FHA buyer, but that would take a bit of time. However, there are conventional instruments all over the place for 620 scores these days.

Bottom line for me, I don't believe that any lender waits until the last minute to verify income. It sounds like this broker or Wells Fargo doesn't have any more 30 year money to lend in the last week of 2006. Over their quota for 620 score loans, perhaps??? Wouldn't be the first time and they will never tell you.

Am I jaded?? You bet your boots I am which is why I stick to lenders, title companies, inspectors that I know I can trust. Once a lender says a loan can be done, HE'D BETTER DAMNED WELL GET IT DONE OR LENN'S GOING TO KNOW WHY. There is NO last minute excust I buy. All it means to me is that the loan was never underwriter approved and the loan officer didn't get to it until the last minute. That stuff went out of style 10 years ago.

I just tuned in to read the comments. Very informative discussion, and a good quick review of alternative solutions to a not so rare problem. Thanks everyone!

I'd check the HUD and see what the mortgage broker's yield spread premium (YSP - his fee) is and make sure the contribution to the buy-down comes out of his pocket and the buyer's broker's pocket before it comes out of yours, especially if the mortgage broker is getting a bigger fee than you, which doesn't sound right, but might shock you to find.

BB,

There you go!

Also, I wanted to mention that I provided V.F. with some cards and a few MCM brochures. She sounds very excited. Also understand that you were the selling broker on her home when she relocated to Florida.

I have a mortgage broker in both FL and Asheville(only a mortgage broker could live in two places at once) She has worked miracles for me. After reading every single comment, I now see that she is not alone in this ability! I also learned a HUGE amount. THX!

Lenn, I like your style:) I deal with these types of issues daily. One of the downsides of being a listing Broker is I have to rely on folks being truthful with me. You can be sure I keep a list of brokers I will avoid next time I see a deal with their letter attached.

Gabriel, I would love to see a HUD but won't be happening any time in the near future. Got to get by the underwriter first.

BB:

Had something very similar happen last year to a client.. about this time of year.. We went to another broker who got his 100% financing thru in 3 weeks at a better rate..Second lender later told me the first lender had a very high YSP on loan which of course pushed the buyer to a higher rate then originally quoted... Needless to say I never used him again and he was getting well over $2,000,000 in loans from me annually.. Lenn said it.. If you want me to use your services then you better be able and ready to perform.

Bryant, you mentioned a first time home buyers cert. a few comments back... if that is the case then they went for the SHIP program, a down payment assistance program, or some other county sponsored first time buyers program. There are some pretty strict terms attached to this program, if this is the case. Do you know if the county is giving the buyers any money to help, or if the county is involved in any way?

Broker Bryant,

I would try FHA or My Community if the loan limits for your area are ok. FHA is a little more forgiving on ratios. Maybe they have a small credit card balance your seller would be willing to pay off if he is not already paying closing costs. Lots of Great creative responses.

David Love

Bryant.... that gives me a great idea... I have a 107% program that always me to pay off credit cards and car loans within this loan. And still get seller assistance. This loan has made many of loans meet requirements because of the ratios.

And the one thing that is unknown in here.... what was the actual ratio that was exceeded by 1%???? So many people trying to figure out what program it might have been. But knowing the actual ratio can tell a lot also... just food for thought.

All good stuff.

Now I have an ugly question. Bryant, where did you find this particular individual.

And if I may be so bold, (since we work in the same neck of the woods) you haven't referred him to anyone else have you? :)

In the interest of full disclosure, I haven't been a MB for a million years but asking for an additional three weeks takes, well... it takes a lot of something.

For the good of the group here, I hope you post the outcome.

Enjoy,

DEC

2006

Bryant,

I'm not a loan officer, but I know that last year I had a Wells Fargo loan that was dying on the vine due to a bad appraisal. The appraisal was so patently absurd that even the buyer didn't believe it and switched lenders immediately. Two days later we were at closing with a different company. I've got to believe that if a fresh lender can make a closing happen in two days that someone with the file currently can make it happen in less than two weeks. I would suggest a shorter extension period and making it contingent on a check with multiple lenders.

Bryant,

Thanks for the post. I am not a mortgage rep. However, this has been very enlightening.

It never ceases to amaze me how many fantastic people we have here in the Rain! What a great response you have been given from our experts! Thanks guys I have learned a lot.

1%?!?!?!?!

Tell them to pay off some credit cards or some other debt! Also, ever heard of a 2/1 Buy down? This will most definitely save the deal! The seller can even pay for this! Let me know if you need any more help!

Ramesy..... a 2/1 buydown costs much more. If they were doing 100% financing and had the seller paying 5% of the costs already, it sounds like they didn't have much room to work with. Just my 2 cents... many people are jumping in here thinking there could be an easy solution. I truly think that there is more to it than a 1% over the debt to income problem that they claim there is. Again, just my opinion. But this has also been echoed in here also.

Even if the guy is inexperienced, Wells usually runs their loans through several systems.... so again, there has to be something else. But also... why now, the last minute. Hence the reason.,.. it could have been a bigger problem that the loan officer was working on... didn't tell anyone about this..... and now it has caught up to him. Again, just my gut feeling.

Jeff B,

I pretty much concur with your instinct that there is probably more to this situation than being 1% over on qualifying ratio's. Lenders/underwriters are in the business of closing loans, that is, they look for ways to approve as opposed to denying. A good underwriter would generally come back with an alternative solution that would get the loan approved.

A good/experienced LO/Broker will always have multiple backup options in place if they are available.

Ditto on your latest response Jeff. That's exactly what my earlier post said.

Three weeks to extend? Sound like three weeks to go from womb to tomb.

While I'm not making light of their situation, it sound like when you go to eat in a restaurant.

You're seated (you meet the Realtor and like the house), you place your order (you meet the MB, submit the paperwork) , get your drinks (GFE comes and everybody signs all the documents) and you're pretty much just waiting for you meal, (just waiting for your close date).

So, your talking with whoever is there with you, just passing time (packing, mail transfer), other people are eating, (the days are going by) and before you know it - your expected close date is here (the waiter smiles and asks if you would like more drinks/bread/whatever).

Then five minutes pass, no meal, (no phone calls back). Ten minutes pass and the waiter says "There was a problem in the kitche with your order and they didn't like the quality of their work - so they're going to start again, just a few minutes folks, sorry."

Translation: he forgot to put the order in.

And just for everyone's knowledge - I can make anything into a food or food service analogy. :)

Enjoy,

Ron.. thanks. I don't mind others jumping in with their 2 cents in here, as loan officers. Everyone is trying to help. But I think you and I know, from some of these answers, that either they aren't thinking or just inexperienced and eager to help also. Not trying to be negative here.

But you are absolutely correct in saying.... A good underwriter would generally come back with an alternative or suggest. And I have been out of the likes of a Wells Fargo's system, being a giant, but I would almost bet that they are even told to make deals work or be a deal maker and not a deal killer.

My underwriters in-house are told to be deal makers. Now, this does not mean that they push the envelope, fraud...etc etc. Investors need to be careful and cautious.... but I have gotten exceptions made many of times, especially a 1% DTI....

Ron..again....good point about the underwriter...

Chris... that's good... and funny

Hey everyone thanks for all the comments and suggestions. As I had stated before I am not working with the buyer so unfortunatley I have no control over who they use for the mortgage. I am currently just waiting for a call back from the LO so I can try and get to the bottom of the issue. Once I have all the information I will be in a position to councel my sellers on the way forward. Hopefully there will be a solution that will get this deal closed quickly.

I hope it works out for you. Some fabulous points and suggestions here

The lender may make a condition of the loan that a credit card be paid down to get to the ratio they require.

I have read all the posts here and the comments and interest has been tremendous. I posted a reply at the link below. I hope that it is not offensive to anyone. But it takes into account a lot of the points discussed here. It will probably be good food for thought for the future.

Bryant it sounds like the deal is doable just may take some input on your side with all the good comments posted here. Good luck.

http://activerain.com/blogsview/28279/Paging-Dr-House-A

Actually, Jeff, there are other ways to handle a buy down. Other loan officers do have experience, and maybe some know more than you. With one of my investors I can give someone 5% and I don't have to charge my client a dime for it. Just my two cents.

I agree that we don't know all the facts from the loan officer. This usually doesn't happen the day before!

A lot of comments on this. I think the best course of action is to buy down the rate. If it's only a 1% difference in the ratios this should solve the problem. it does however cut into your loan officers profit margin. I think I would change loan officers. They should have known that the secondary income wasn't allowable if it hasn't continued for 2 years.

Arriving late...seems to be enough sound comments...

My $.02...inexperienced LO + inexperienced UW = probs...regardless of lender.

I must concur with the thoughts that a 1% diff. in DTI ratio wouldn't/shouldn't kill a deal...way too many other moving parts that can be tweaked to overcome that.

I love reading all this stuff. Thanks Bryant for sparking excellent discussion!

BB...I hate being so dependent on others for info...Loan Officer..Buyer Agent...underwriter...you name it. You must be FRUSTRATED!! I sure hope it all works out for you and your seller.

I hope the loan officer returns your call. Best of luck...

Jay

OK mortgage guys and gals more info for you. Let me summarize what I have. This is info I squeezed out of the LO today. It seems the DTI ratio was at 67%. I do not know their income. Middle score had gone up to 637. Great payment history but credit is only 14 months old. Can not afford more than $1,300 PITI of which PI is $185.

Again the purchase price is $175,000 with a 5% Seller contribution. The appraisal came in at $192,000 which is about what I expected. My estimate of value was $195,000.

According to the LO the MCM would not work because they are at a level 3 and the rate was too high to meet the $1,300 PITI. I think she said 7.75%. The Wells Fargo was at 6.8% but the ratio is off.

She can now do a stated income 80/20 at 7.5% and 12.5% but PITI is closer to $1,500.

So there you go brainiacs:) ALL opinions are welcomed and appreciated. JB remember this is my post. Please let everyone say their piece. This is a true situation but is also being used for educational purposes.

I haven't thought this all the way through but what comes to mind first is a seller hold second.

But I'm on a conference call and I have the mute button pushed on the speakerphone, so... :)

Beware checking that little "notify me of new comments" box....whew. After reading the 60 or so comments after the one I made last night I would like to offer a little insight on My Community Products.

When Fannie Mae rolled out the My Community initiative a couple of years ago they did it differently then any other program roll-out they had undertaken. What was unique was in the way Fannie Mae approached the capital markets divisions of the major mortgage servicers such as Countrywide, Citibank, Wells Fargo, etc. Typically when Fannie Mae introduces a new product in their line (i.e. expanded approval levels 1, 2 & 3 through DU/DO) the discussions between Fannie Mae and the major servicers center on the guaranty fee. I don't want to bore loan officers (and non-loan officers) with secondary marketing terminology, so put it in plain English...everybody wants to get the best price from Fannie Mae so they can pass on the best pricing to their correspondent, wholesale and retail channels. Pricing usually wins the day on a program with specific guidelines. I mean, if you can broker an EA-2 loan to Wells and to Countrywide you are probably going to look at the rate sheet to make your decision.

So back to My Community....

When Fannie Mae rolled-out MCM, they asked each mortgage servicer what they wanted most, lower g-fee (better price) or certain program variances. The result? Different companies offer the MCM with different features and pricing. For example:

Countrywide

intially offered the MCM with the best pricing but required a 620 FICO score. Now they did allow for manual underwriting for a client with non-traditional credit, but if an applicant has a 615 FICO score, game over.
doesn't require homebuyer education,
provides lower private mortgage insurance coverage
41% DTI
No reserve requirements
income limited to 100% Area Median Income
no downpayment required
6% seller contributions allowed

Wells Fargo

All programs manually underwritten
Greater flexibility with credit approvals since no arbitrary credit score requirement
Income cannot exceed 120% of Area Median Income
Seasonal income, boarder income, stated secondary income are all eligible with restrictions
4% max seller contribution
Homebuyer education IS required
Generally 45% DTI requirements but drops to 40% DTI if secondary income is used
May require up to $500 down-payment

So you can see that while Countrywide went for that which was easily underwritten by their CLUES engine or through DO/DU, Wells Fargo chose a manually underwritten method. Countrywide offered a streamlined product with better pricing, Wells Fargo offers it with the opportunity to get more customers qualified manually.

The result is if you look at all of the wholesale or correspondent companies and compared the My Community Program it would vary from each one. I hope this helps.

Ken Stampe

Bank of America Mortgage Lending

http://blog.homeloandfw.com

Well there you go. I said "seller hold secong" but Ken is saying CW will do 6% seller contribution.

There's the missing 1% right there.

But I'm still on a conference call. :)

Bryant, your still getting crummy information from the loan officer. I'm inclined to think they are having to ask someone in their own office why the loan doesn't work. You may be getting information 3rd or 4th hand. Why?

$175,000 loan at 7.75% is a principal and interest payment of $1,254 per month. That means taxes, insurance and private mortgage insurance COMBINED had to come in at $46 or less. Uh, not likely.

Now that loan officer is saying an 80/20 with stated income would get to a "yes" answer. Using your numbers (those given to you I should say) you have the following:

1st mortgage of 80% of $175k or $140,000 at 7.5% = $979 per month
2nd mortgage of 20% of $175k or $35,000 at 12.5% = $374 per month

That means the new principal and interest payment is $1,353 BEFORE taxes and insurance is accounted for. If they were at a 67% DTI before, they would now be HIGHER than 67%. So herein lies the rub:

Using stated income means the debt to income ratio is higher, therefore the only way this could result in a loan approval is for the loan officer to complete the application with a FRAUDULENT amount for income for the borrowers. FURTHERMORE, the borrowers would sign a LEGAL document claiming the information is accurate.
The reason lenders have debt-to-income ratios in the first place is to prevent people from buying homes they can't afford and will lose to foreclosure. BB - this is your "house is not an ATM" about to happen. I don't know these buyers and I know for sure I DON'T HAVE ALL THE INFORMATION ABOUT THEM. But what I do have says they can't afford a house at $175,000 financing.

There may be a better loan program out there, in fact we at Bank of America have a couple that MIGHT work. The use of a buydown, seller financed second liens, etc. may possibly result in a "YES" from a lender. However, my best advice after 10 years in the mortgage financing business is to say this....

Advise your sellers that the buyer is (or is about to be) out of contract after the option period and put the home back on the market.

Good luck, if I can help please e-mail or call me.

Ken Stampe

Bank of America

972-765-4005 ken.stampe@bankofamerica.com

Christopher..... you lost me/??? You said...I said "seller hold secong" but Ken is saying CW will do 6% seller contribution. There's the missing 1% right there.

Why am I lost? Because Bryant didn't talk about the seller contribution or seller help being the issue. The loan officer in this case blamed it on the DTI being 1% higher.... just trying to clarify what's going on.

And again... we are all talking about the MCM< now.... Ken, some great information. But everyone is somewhat assuming this program when we don't even know what the ratio even was. That's where I would start with this. And as I said before... there are several ways to go with this and not just the MCM.

And I am not going to mention a companies name. But I got a call from a client today that received a commitment from a large bank..... one that has been mentioned. A full approval.... and as she was getting ready for settlement, she was told they can't do the loan now. The reason being... "we don't do single-wides"

Again... this could go in so many directions. Did the loan officer lie? Did the loan officer forge a commitment letter? Did the underwriter make a mistake? Just as in Bryant's case, still several unknowns. Just food for thought.

Ken, the 100% first with Wells Fargo was at 6.8%. The 80/20 sceario is based on a stated income so they can use the second job and lower the ratio. I hop this helps.

Bryant, sadly, we just don't know enough information. More than likely, the loan officer will STATE the income from their primary employment to be greater than that income actually is. My point in giving you the math in my last post is to show you the problem.

If the client has a 67% DTI now, they have a HIGHER DTI on an 80/20. You are explaining that to your knowledge, the problem with their DTI is a second job which they cannot use that income in qualifying the buyer. STATED income won't fix that. But if the loan officer RE-STATES their primary job income to a HIGHER amount then they make....well that would "fix" the DTI problem.

Please undertand that there are NO 80/20 programs that I am familiar with that allow for over a 60% DTI. So the MOST LIKELY SCENARIO is that the loan officer will "SOLVE" the DTI problem by just STATING an income amount that "WORKS".

Stated income is, by definition, relieving the borrower from having to document the income they actually earn. I don't know how much that second job income was but my guess is that their TRUE AND ACTUAL household income puts them at a DTI of 50% or greater which was OK for the loan program Wells Fargo was underwriting to. So now that the loan officer is going with "stated income" they are going to have to "state" enough income to qualify at more restrictive DTI requirements.

Ken

BB do they have any installment items that can be paid off?

Would it make sense for to bump up the sales price by 1% and buy down the rate further?

Will be interesting to see if any of the many suggestions from the Actively Raining lenders results in a saved deal on this transaction - Bryant - please keep us posted!

Jeff,

I'm blamming the conference call for my slip on that one. :)

But I'll refer to my "restaurant" analogy in response to your "food for thought" comment. :)

Enjoy,

BB,

Firstly, congratulations on a post that has stirred up a lot of responses and potential solutions. For those of you AR's that are not Loan Officers/Mortgage Brokers welcome to our world!

At this point I would not begin to offer any potential solutions to this borrower's problem in getting qualified for this purchase. There are still to many variables and unknowns and I would have serious reservations that you could rely on complete accuracy of everything that you have wheedled out of the loan officer. Maybe a stated income would work, maybe not. Is this a stated wage earner or a stated self-employed, this makes some difference. Stated income has to be realistic for job field. I would not accept this as a stated income application knowing that the borrower had to lie about the total monthly income.

I would only touch this by having a discussion and doing a complete and detailed pre-qualification with the buyer. Asking my own questions and getting the facts straight that are revelent to the transaction. This needs to be started anew with a clean slate with a LO/broker that calls it like it is and not what you want to hear. if you are of the mind to keep the possibilties open....then

Here is my solution/recommendation:

Put the home back on the market and go on down the road so not to waste valuable time marketing the home and not stringing out your sellers. Advise the buyer that he can pursue financing options with someone of your choice and if he can get a solid pre-qual/approval (acceptable to you) before you come up with another buyer, so be it and he has his new home

Ken Stampe, I am very unknowledgeable when it comes to loans so let me make sure I understand. Are you saying that the second job income can not be used on a stated income loan? Let's say they have an additional $1,000 a month on the second job and they use this to increase the income, since it is valid income, wouldn't that bring the ratio down? Or is the second job disqualified whether the loan is stated on not?

BB,

A P.S. to my last response. While I have not taken the time to check all the various investors I have, it does stick in my mind that most of them may have a minimum middle score of 640 to do a 100% stated income loan. Just a quick recollection as a I don't do many of these. I much prefer no ratio or no doc, however neither of these two will not work in this situation.

Another matter you mentioned, a 14 month credit history will kill most Alt A or subprime loans. Most investors will want 24 months in this kind of situation.

My gut instinct is now that this deal was doomed for failure at the moment the LO/Broker said... yes...I can make this work!

Info overload....

Take whatever the PITI is and divide it by the max DTI ratio allowed to arrive at the income that needs to be stated...i.e. if PITI is $1500 and DTI is 50%, income needs to be stated at >$3000/month. Does the borrowers income really fall in line....?

5% Seller contribution on $175k = $8750. There is cash on the table...not to mention any YSP *gasp*

Only other thing I can think of is if the borrower has any debts that have less than 12 months remaining before payoff, they may be omitted from the debt ratio...

Thats about all I can offer without talking to the LO.....

I agree wholeheartedly with Ron Withers :)

Bryant, I tried calling you because sometimes things don't translate to the written word as easily as they can be communicated. I got your voicemail so I'll try it this way.

1) most loan program guidelines require a length of time for employment in order to be elligible. What has been explained about this transaction is that the buyer's secondary source of income doesn't meet that requirement.

2) If a person makes $2,000 per month at Walmart and works part-time at Kinkos for $400 per month then they have two employers. If the buyer hasn't worked at the second job, Kinkos for enough time to qualify in using that employment, the lender won't consider the income from Kinkos.

3) If a loan officer puts $2,400 in income for the buyer and puts the source as Walmart, the paystubs and W2 forms won't support that income. Therefore, the loan officer might select a STATED income program so that they don't have to provide W2s and paystubs. While on the surface this may seem logical because the buyer really does make $2,400, it is considered income documentation fraud. Knowingly inflating income or misrepresenting information on the application is a commission of fraud. There is a reason the lenders don't count secondary income that hasn't been happening for a specific period of time.

4) FURTHERMORE - Let's assume loan officer thought they had an approval at 60% DTI when using the Walmart income of $2,000 and the Kinkos income of $400. When the underwriter did not allow for use of the $400 income from Kinkos the DTI jumped to 67%. If the loan officer then decides on an 80/20 solution program using "stated" income, the DTI ALLOWED is probably 50% (maybe 55%....shucks there's always some lender going 5% higher than everyone else). The loan officer has a NEW PROBLEM.

Even if the loan officer's next move is to do what I described above in #3, state $2,400 in income from Walmart, they may still have a DTI over what an 80/20 will allow. But hey, now that you are using "stated" income, some loan officers MIGHT decide to just put an income number that solves the DTI problem. Next thing you know, the loan application says $3,300 per month income from job at Walmart.

If taking the step explained above in #4, the loan officer has committed mortgage fraud. Furthermore, the homebuyer is going to have to sign that application stating that information is correct. If they do so, they are committing a crime.

Section IX of the Uniform Residential Loan Application, (1), states:

"the information provided in this application is true and correct as of the date set forth opposite my signature and that any intentional or negligent misrepresentation that I have made on this application may result in civil liability....and/or in criminal penalties including, but not limited to, fine or imprisonment"

The borrower(s) and the loan officer sign below.

Did I mention I agree with Ron Withers?

Before I read one more post on this loooooooooong entry I have go to say one thing,

MAN, I AM SOOO GLAD I AM NOT THIS LOAN OFFICER. GEEZ! IT NEVER ENDS FOR THIS GUY!

Ok, I feel better now. :)

ROFLOL!

And now I have my children's pity because I'm making so much noise. :)

Broker Bryant,

So many heads spinning on this, how about yours? I can't resist as I am a bit of a "die hard" when it comes to turning loose of a deal. There is a certain high for me in overcoming the challenges associated with a deal like this.

I have been looking at what may a long shot at best. Chase Rural Dreamaker Opportunity which has some flexibilites for verified and stated income combined along with increased debt ratios. Length of 2nd source income will probably have to be at least 1 year. I am not going into details about all the parameters as it would be a waste of time. If you choose, this has to start anew and be slammed up against the wall immediately.

I believe the 14-month credit history is a major obstacle in itself. Possibly could work if lender can document 3-4 non-traditional credit items with a good 12 month history to supplement CBR file.

This product is kind of a MCM hybrid.

Bryant, with a fully documented loan you can do 100% financing with a 580 middle score...as low as 620 stated income...and get up to 6% contributed.

The problem here is NOT the debt-to-income ratio. It's the loan officer.

Some have mentioned (wisely) that the loan officer only needs to reduce his commission.

There's another solution: Only an amateur would even hand out a pre-approval letter at the beginning of the transaction without knowing the income wouldn't qualify. Waiting until it's supposed to close is unforgiveable. You should have had a full underwriting approval within 17 days at most.

Kick guys like this to the curb...and the companies that hire them?

Thanks Ken, I understand now. I'm just wanting to make sure I know what's going on before they hit me with a solution. My sellers and I will not participate in loan fraud. It's starting to sound like this deal is not going to happen the way it is written. OK another thought: Would it be legal and doable if we redid the deal at $192,000 (appraised value) with the Seller holding a second at 20% and then doing a first at 80% and thereby avoiding the PMI? If the second was interest only at say 6%. Then we could buy down the first and maybe get below 6%. How about an ARM?

BTW guys this is a very interesting and informative thread. I appreciate every one's participation. This is an excellent way for us Realtors to learn more about what it is you do and helps us quite a bit when looking at loan terms and stuff in a purchase contract. Also, being able to ask the right questions when talking to a LO before going under contract is a big advantage when negotiating a deal. So thanks.

Bryant... this can work and is legal... but you still have to qualify for the seller's held 2nd mtg.

If anyone remembers... there are different PMI loans that eliminate PMI and a second underwriter in regards to PMI.... PMI (Private Mortgage Insurance); why you need it and the different types of PMI……

Besides.... does your seller need all of the money now? Something else to think about.

When I suggested a seller hold second I wasn't thinking 20% but it they're willing to do it, that would be interesting.

A follow-up question (because I do not know the answer to this one) would be, if the seller does hold the second, realizing the risks involved with trying to foreclose from the 2nd position (just bringing that up, not insinuating anything) can he add a prepay penalty to his portion?

I'm very familiar with the foreclosure world and I haven't seen one, but that doesn't mean that a prepay on a seller hold second isn't being done.

Jeff and Chris, They have already agreed to sell the house at $175,000 with 5% contribution. Oops! My math was wrong. Actually if they held a 10% second the numbers would be about the same if the contract was written at $192,000. I guess that would still leave the PMI issue though. Sorry all these scenarios have fried my brain. Not quite sure why I was thinking a 20% 2nd.

BB,

If CPR doesn't revive this buyer for you I have a potential buyer for you.

Bryant... just rest thy head. I just got an e-mail from Ken... and I wrote back and told him that I wasn't going to reply anymore... lol The reason being is, still some unknowns. And my biggest concern is.... there is somethuing else wrong. 1% over the DTI???? Just not a good answer. As Ron, Ken, myself, and even Jeff Corbett hinted around too. I never lose a deal if I need to lower the rate to make less or no money. I have actually paid over $500 out of my pocket on 2 deals in my lifetime. Not my fault originally.,... but I felt like it was my job to get it down. And overall, I have many others that I reduced my commissions, just to make a deal work. Just as you have mentioned that you have done.

My whole point... sorry, but there has to be much more to it..... Keep us posted... I am off to rest and read some other blogs. Get a chance, check out my new blog.... not sure if the picture is better than the content? ;o)

Just go hard money and be done with it. :)

I'm kidding, but I promise you there won't be any of these issues.

Of course they'll have a huge, scary payment but....

Thanks for the post.

Please keep us updated with your progress.

Thank you for this Awesome Blog !!! All the responses have helped me with my Buyer !!! I am checking into that loan program.... MyCommunityMortgage

Good information here.

DEC

2006

Bryant -

I've read your problem, and some of the comments. Here's the REAL DEAL. I just recently left Wells Fargo for similar reasons. They are a great company, good history, good rep, but too strict for my taste. Wells Fargo is not going to adjust or bend on that DTI issue, UNLESS the HMC uses his underage (.25 off the rate) but is also 25 bps off his commission and/or he/she asks for a rate concession. Now, asking for a lower sales price raises red flags to the seller, is it possible that the buyer can't actually go thru with this? Your best bet (besides lowering the rate, which would lower the DTI) is to see if you can ask the HMC to manipulate the DTI, there HAS to be something. It's hard to imagine that Wells (at the branch level) would let a deal go for 1%.

And note - going 80/20 may not be a bad idea. In many cases 80/20 have lower payments than straight 100% financing. This is your goal, lower the payment, you lower the DTI.

Hope this helps.

Mike

What we have here now is what I call a "Rubics Cube" deal.

Hi BB, very interesting post and comments. I thought I had commented earlier but seems i did not. need to go back and read the last 24 hrs of comments.. they doubled since I last visited.

thanks to BB and the commentators for the lesson. i promise not to pawn this gold nugget.

wow. over 1100 view.. i should start spamming here. :))

So has a solution been identified and brought into play? The suspense is killing me! I'll check back on Sunday to see how this all worked out.

OK as of this morning they are still trying to work it out with Wells Fargo. Not sure how but we'll see.

BTW I want everyone to know that my Seller has been reading this post and the comments. It has given him some hope and I think it has helped him to understand what it is mortgage brokers and Realtors go through to get a deal closed. So again I want to thank everyone for their participation in this conversation.

Bryant,

I want to thank you for the informative post, as well as all the comments. You have truly gone far and beyond the call of duty. Great Job. Thanks again.

Unless I'm reading the guidelines wrong...I looked up the information for the Kit and It said in the underwriting guidelines that Interested Parties Contribution is 3% on LTV of 90% greater. MyCommunityMortgage

Lauren... just an FYI.... it depends on the investor. Each company can be different depending on who they sell it to.,.... Fannie ..freddie.... each agency has their own different variations. And some lenders even have their own guidelines. Countrywide is big enough and sells a large volume to fannie, they can go and negotiate different terms than say, Wells Fargo...or vice versa. Depending on who thinks who can gain more of a market share. And it goes on and on... hope this helps a little.

DEC

2006

Uh....pssst.....

Just poking my head in here....anyone home?....anyone know what happened?....Did the deal close?....

Broker Bryant...Helloooo...Ken Stampe wants to talk to you. Any one home. Pssst. :) TLW...ROAR!

Hey Ken, we are currently on life support system but are contacting the families involved about pulling the plug. The funeral arrangements will be made of January 2, 2007:)

lol... that's not funny.,.... but you made it sound funny. What happened to this lender that was brokering it out? I guess there had to be a lot more to it than just the 1% over the debt - to - income ratio?

The problem is the payment is coming in $150 higher than the buyer can afford. They have an approval(supposedly) but the buyer has balked at the payment level. So I have suggested a 1% rebate from the selling agent to off set the $150 for 14 months. This would give the buyer time to have their part time job established and give them time to season their credit. The house they are purchasing would have 13% equity in it from the get go. So after 12 months they could either refi or drop PMI to lower the payment. However, the buyer has now reached a critical stage of frustration and may or may not be going through with the deal. So we'll see. The Realtor has not been able to reach them since Friday. She thinks they have gone away for the Holiday. So until she speaks with them we are dead in the water. The seller and I are waiting until Tuesday to pull the plug, if necessary.

"<we are currently on life support system but are contacting the families involved about pulling the plug>"

Hubba! Bubba! I love it when you do that. Wink. Wink. :) TLW...ROAR!

why is the payment coming in at $150 higher. Sorry, just curious and trying to put my creative hat on.... as we talked about in Karen's post. nite

Jeff....you were done trying to solve this the other day....

BBryant, thanks for the update. Your suggestion makes a tremendous amount of sense to me and from your position as a representative of the buyer you have gone way beyond the requirements to be fair, creative and problem-solving. Too bad the loan officer wasn't half as much in the same vein as you have been.

Ken Stampe

Ken..... huh? says who? I just walked away with it, because I couldn't give a true opinion based on little facts. I never said I was done done. I just wasn't going to spend more time on it until we were told more.... or to see if it got done.

Jeff....aha....you weren't "done, done". I see. :) I went back and looked at your e-mail from last week:

"I am done with it... for the rest of the night"

I stand corrected, my apologies...

Ken

DEC

2006

Hey Ken, I'm on the Seller side not the buyer side.

Ya'll play nice now. The payment came in at close to $1,475 PITI the buyers are only comfortable in the $1,300 range. So there lies the issue.

Hey Bryant... what was their payment originally, before this started? HAs it increased since then? I know you have the sellers side, but I am trying to make sense of this. Something still doesn't make sense. And for what it's worth, I know you have relationships with a few loan officers.... but seems to be right up my alley, to be very creative... legally... and getting it done. Some what as you mentioned in Karen Hurst's post, which was a great comment. Some of us just see it as our job to get a deal done. thanks And this is the part of the business like I like doing and unfortunately, this is more than half my deals, because I pick these types up from other brokers on the east coast. Meaning.... I network online and in the last year, I have done about 10 deals that other lenders could not do.... just an FYI...

Hey Jeff, I'm not really sure. They were doing a 100% first initailly at 6.78%. This one didn't fly. They were switched over to an 80/20 at a much higher rate. I think blended it went to 8.5% or 9%. I'm not on the buyer side so don't have all the details.

Bryant - I knew that you represented the seller I just typed "buyer". What happened to those psychic abilities you used to have? Don't read what I type, just read what I MEANT to type.

Ken, I'm getting a little slow in my old age. Plus I just had 4 of my grand kids running around destroying my house and mind for 6 days. I'm just happy to be alive:)

"I'm just happy to be alive:)" Me too. I have have yet to regain my strength. SVW...TLW...ROAR!

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