Excellent post.  As difficult as it may be for the Seller or Listing agents to accept, having a deal CLOSE is the whole point!  And if they're that concerned, they can accept backup offers in the meantime.  Thanks

Chris: Thanks for the support. Although Realtors have begun to understand these concepts, (because they also have had deals fall apart) the point of the post is THINGS HAVE CHANGED. To think that a mortgage broker or even a lender approval will guarantee a funded loan is not wise at this point.

Realtors should keep this in mind, especially prior to spending money on the property during the escrow period.

Rather sorry state of affairs we find ourselves in.  Yet, I guess this is the bed that we have chosen to sleep in!

Thanks for "clarifying" this. ;-)

Janet this is an excellent post, one that every agent should read and understand.  Pre-approval letters have always been somewhat sketchy to me, but in this market they are downright worthless.  Someone the other day recommended that all contracts have language inserted that would compensate for appraisal review. Soimething like:  "45 day escrow, unless Appraisal Review is requested by bank. 

It's that significant.

Since both Goldman Sacs and Merrill Lynch have both stated that we have officially entered recession, it's only going to get worse. 

Kate...I did not know that GS and ML had stated we are in a recession. What did they use as a basis for this?

Yes it is that significant. Does not matter that much on a refi because you tell the borrower it will take longer.

But with a contract ticking, and money being spent on the property for inspections and the like, the approval process is more kin to a ticking time bomb. Can it be closed before everything explodes?

Matthew: Yes, this is somewhat of a downer post. Sorry for that! I find this state of affairs sobering too

And I remember when a man's (or woman's) word meant something. To me, if a citizen goes to a lender, and the lender agrees to loan the money based on a certain set of criteria, and halfway through the process the lender decides to change the criteria, that is just dirty pool.

How is that ethical? 

So true Janet. As a listing Broker I tell my sellers we are not closed and anything can happen until your check clears the bank. It used to be we were comfortable giving keys at the closing table if everything was signed and we were just waiting on a funding number. Not any more. As you stated, SHOW ME THE MONEY!!!

It isn't about "eithical" it is about covering their butts. They are taking huge losses. It would be like changing your mind about jumping off the bridge. You may have told someone you would do it, but when they guy before you that jumped just got killed? You'd rather survive.

Janet, they used the jobs report that came out last week as a basis for the statements.    I read both comments on MSN Money last night. 

BB: You are smart to have that attitude. But I was wondering if you insist to the buyers that they get  some kind of lender approval before they take the house off the market?

Kate...thanks, I'll check it out.

Sometimes I don't like hearing the truth! Great post.

Janet: Amen!  I have been telling all of my clients that there are no guarantees in this market!  NONE!

Janet - It ain't over til the ink is dry and the wire hits.

The star looks good on you my dear.

Janet, this is an EXCELLENT post, and so worthy of the feature!  I have this discussion with my preferred lender every few days, and with my sellers almost every day.  You've written this in a way that many should be able to understand.  Thanks for a great post!

I never consider a deal done until I see the numbers on my check.  Lenders truly hold all the cards in real estate transactions.  I LOVE the picture - it says it all!

I never consider a deal done until I see the numbers on my check.  Lenders truly hold all the cards in real estate transactions. LOVE the picture - it says it all!

Great post Janet. Glad this got featured. Even banks like World Savings which are the most conservative on the collateral aspect of a deal are starting to see dings in their portfolio in California. I guess the extra 5-10% they built-in to their deals with low-ball appraisals wasn't enough.

Good post. Sellers and buyers need to be aware that it's not a done deal until it closes.

This is so true.  The guidelines for different loan programs seem to be changing on almost a daily basis.  Lenders need to keep on their toes to keep up with everything that is going on and are busy trying to get the latest information out to their clients.

Good post, Janet.  It reminds me of the Golden Rule:  Those who have the gold, make the rules...

With the daily changes happening the best we can do is try to educate the buyers and sellers the best we can. I try to advise them not to put off closings too long as the loan might not be around. It is a roller coaster ride!

Janet...

As far as I am concerned it ain't closed until I get my percentage from Blog Boy (Broker Bryant) :)

TLW...ROAR!  

We'll still push for a contingency removal. But as others have mentioned, it ain't a done deal until we get our money and we all know that!

In the state of Georgia, the new 2008 contracts eliminated the financing contingency....You can unilaterally extend the contract for 7 days due to loan problems but after that, the sellers can take the buyer's ernest money.  So we don't have a choice to have pre-approval letters  and advise all buyers to go to reputable lenders who don't pull that stuff...I like lenders who either say yes or no and they mean it either way...

Slacker, fly by night lenders are going to have some irate people all over them if they drop the ball right before closing anymore. 

 But Hey those are the lenders that started this whole sub-prime mortgage delimna that we are facing today!!

In the state of Georgia, the new 2008 contracts eliminated the financing contingency....You can unilaterally extend the contract for 7 days due to loan problems but after that, the sellers can take the buyer's ernest money.  So we don't have a choice to have pre-approval letters  and advise all buyers to go to reputable lenders who don't pull that stuff...I like lenders who either say yes or no and they mean it either way...

Slacker, fly by night lenders are going to have some irate people all over them if they drop the ball right before closing anymore. 

 But Hey those are the lenders that started this whole sub-prime mortgage delimna that we are facing today!!

Good post Janet.  This business is like the wind. 

Seems to me it is the greed of the lenders that contributed to the current situation,

If you could fog a mirror you could get a loan.

Maybe now we can get back to traditional solid lening. Good credit, down payment, reserves etc

It is a fact of life. Unless the money is in your hands, you have nothing to buy with.

To the comment above which appears anonymous. I am sorry, but I do not like the word greed. All businesses go where there is money to be made. That is the way a free economy works. The products were available, people wanted real estate, and so people signed up for loans and got real estate. I fail to see how greed came into play there.

Unfortunately, many good borrowers and perfectly legitimate loan programs have been painted with the same hysterical brush and now are finding it difficult to get financed.

Once again, there has been an over-reaction. But I agree with you that guidelines were too loose before, and that is how we got where we are today.

Katie: Some of us might say business is like gone with the wind.

Janet, thanks for putting the truth out there! The only constant right now in our business is change. I agree with you that rate doesn't matter, LTV or CLTV is all that matters sometimes and that continues to change as well. I guess if we can move with the changes, we'll survive!

To the commenter about Georgia's new law: That is interesting and thank you for sharing this. How has this impacted the amount of money put down for a deposit? I ask only because personally, I would be hesitant ...knowing what I know....to make a large earnest money deposit based on the incompletion of the loan being a reason I could lose that money.

TLW: You mean it ain't over until Bertha sings?

Good Post!  One of the attorneys that I use for closings has always kept the contingency on a sale until it closes and I have always thought of that as a good way to protect the client.  I've always said that it isn't closed until it's been funded.

My post was the one that mentioned greed. When a mortgage co loans to someone with a poor history of payments, no down and huge prepayment clauses they have to know a large % will go bad. I call that greed. No reflection on the hard working originator, I'm talking about the actual lenders and investors.

Great post, Janet!  It AIN'T over, 'til it's OVER and my Buyer has his KEYS!!  That's why I keep a select FEW lenders on my very SHORT list!!!

I have been writing offers leaving the loan contingency in effect till the loan funds.  In the past it was a "red flag" to the listing agents, now it is definitely more common.  Good post, Thanks.

Great post. We are now paying for the abuses of the past. Lenders will regain their confidence and loosen up after a while. Well deserved star.

You're definitely stepping on toes. I understand that lenders are running scared, but I like the security of seeing things in black and white. If someone says they're going to do something, I expect them to do exactly what they said. I a lender back-peddles on me, I'll be sure to avoid them in the future. I had one bad experience with Wells Fargo, many years ago and I have never done business with them again.

Hi Janet - interesting thinking to have the loan commitment date be the same as the closing date.  I haven't seen that in my area as yet, so I'm glad to have read about it here first instead of receiving an offer with that in it and not knowing why someone would do that.

Education here on AR is priceless - reading about this is proof of that!
Ann

Lisa: The inspiration for this post was one of my own transactions. Lender actually refused to fund AFTER docs had been signed and money was all in title. Without going into details, I will just say that the reason they decided not to lend was because they decided at the last minute they would not take the risk of a 95% loan. Yes, I had it locked, but it did not matter. They made up a bogus reason and simply refused to fund.

And of course, I would never do business with them again, and alerted the other mortgage brokers in the office. But it is pretty sobering to think that a lender can simply change their mind and walk away after they have approved a loan, and had they buyer sign docs!!!!!!

In fact, it sucks.

PS Realtor was an absolute gentleman, and we are placing the loan elsewhere.

Great Post! How True!

It can be scary right down to the closing. I've had them blow up right before signatures. There is nothing you can do.

The Fed can keep lowering the rate til the cows come home but until people get over the jitters, this market will not change. At some point, someone is going to have to take the chance.  If it's not the banks then people are going to turn else where. Sopranos?

Great post!  I don't know what it's like in other states or even in other cities.  But in Houston, TX MLS area, typically the seller is expected to be out the day of closing.  I think with the mortgage crisis and the difficulties with closing loans, that needs to change.  I don't recommend sellers to even start packing until the deal is funded.  I don't list a lot of properties, but the few that I have listed and have had to deal with buyer's agents, they seem to think it's a done deal when they write the offer and send over the worth-less preapproval letter. 

Well... all that to say that I am glad others feel the same way I do about pre-approvals and pre-quals and the pending sales.

In New Hampshire, overall, I think once commitment date comes, we are pretty certain that the loan will close in most cases.  It seems like other areas of the country may be more risky.

Good post. Yes, you are right, nothing is done until its really done. Wishful thinking does not count.

Hi Janet! I get it but it seems like there has to be a better way for lenders to ascertain up front if they are going to fund. Also, it helps a lot to have a mortgage broker who tells you the truth, all along the way. There is nothing worse than sensing that a deal is falling apart, while the mortgage broker has a poker face . . . somehow we have to get on the same page (buyer, mortgage broker and lender).

Janet, thank you for bringing this out in the open.  Purchase contracts keep coming in with dates to remove contingencies.  In this market with changing guidelines, it is almost impossible to meet those contractual dates.  Changing guidelines mean changing requirements to meet conditions.  Unless the client is "golden", you really do not know if a transaction will close until the loan funds.  In the mean time, one spends  a lot of time explaining to both the realtor and the client what still has to be done to meet conditions and why we may not be able to meet that date.   What I find somewhat funny is when you may have mulitiple but similiar transactions in your pipeline but each being held to different guidelines.  Changing guideliens are becoming more conservative almost on a weekly basis.  My current recomendation is:  If your loan agent tells you to try to get a transaction in or a rate locked by a certain date, do it.   

Janet, So right.  I could wallpaper my office with preapproval letters on deals that failed to close this year.

Great post.  We have to have it funded.  Not "on the way."  It is so nerve wracking but what can you do?  nothing!  

Janet, It's very rare, in my market,  to get full blown lender approval prior to taking a home of the market. About the best we can do is an approval letter or maybe a DU approval. It's like pulling teeth to get anything closed.

I had a closing about a week ago that was an FHA with Ameridream(100% deal). We received closing docs and everyone signed. In fact the funds had already been wired to the title company. The funding number was delayed 4 days while the lender did another appraisal review before releasing the funds.

These are very frustrating times. Buy hey we just have to do our best and make sure all parties to the transaction are aware of the possibility of these issues. Educate and disclose. Then do it again:)      

LOL Janet...

I was going to say that but I was not sure whether or not you knew who Blogging Bertha was :)

TLW...ROAR!  

Janet:  I ditto many of the comment above...You're right on the mark!  I currently have a deal in underwriting that has been there for three weeks!  I submit my loans by going over a check list and seeing that everything is there and that it says what it should say.  

Using this process I used to get about 1/2 of my deals through underwriting with less than a couple of conditions.  Now they not only come back with conditions, they keep coming back with more conditions and more conditions....with the one that has been in underwriting for 3 weeks now, I'm embarrassed to call the folks...I do, but there is mud on my face....I'm sure that they think that I'm an idiot, but what can I do.  

That loan was complete when I submitted it.  Now, we're off in lala land!

Bob Mitchell

ValueList Real Estate Services, Inc. 

Bob M: Last loan I did had 39 conditions. 39! I know we are all getting used to full doc loans, but its like they are begging you to just give up and go away.

They asked me to write a letter of explanation about something that was fully documented in their file.

I called and said, "I'll write the letter, but honestly, I can think of what needs an explanation. You already have documented proof of what you are asking me to explain!"

They actually agreed that was over the top and waived the condition. And yes, you do feel foolish telling your client how you are struggling...especially when they have a perfect buyer they have decided to rake over the coals.

TLW: Okay. I have not been living under a rock. Of course I know and love blogging Bertha.

BB: I sympathize. And I also find that buyers take it personally when this happens. They do not understand it is about something so much bigger than them.

Virginia: Funding is the magic word these days. Nothing else matters.

Dan: Seriously? Thank you for that input. I have had plenty of near misses, but have closed every loan that had a pre-approval on it. (Knock on wood). I have never dealt with subprime credit, however, after deciding it was not my cup of tea while in the car business. That is what makes this whole thing so amazing. Here I am struggling with primo pristine borrowers! What is that about?

AJ: Thank you so much for this comment that is supportive of my conclusions. It is easy to think you are the only one out there...then you say you are having the same things going on at your desk, and I feel so much better. I felt Realtors needed to know what is happening here in the trenches.

Oh, Deborah...I couldn't agree with you more. I have always said that a mortgage broker needs skin like leather because you MUST deliver the news to all involved and sometimes that news is bad. But the worse thing you can do is pretend, avoid, or lie about the situation. People deserve to deal with someone who can stand the heat and the emotions that go along with a real estate transaction, and refrain from taking things personally.

It is what it is and the sooner you move on to solutions, the better.

Bob and Carolin: And my wishful thinking is that this mortgage over-reaction would be over.

Joan: We have had loans go south where committtment letters were in the file. We have had lenders go under when committment letters were in the file. You are right that MOST of the time a loan would close. But unfortunately, not all of the time

Rocio: There has been plenty of controversy around AR about pre-approval letters. All real estate agents seem to distrust the whole concept. I think I wanted Realtors to know that in this market, loans can and do fall apart at the end. Most Realtors are probably saying DUH! But the point is, WHY this is happening, and to prepare sellers for this. I think there should always be a few days after closing for the sellers to leave, personally, but that would be a good topic to throw out. I don't think I have ever seen a blog about that.

Scott: I agree, we are stuck in a loop. Banks are too tight, people can't get loans, home prices decline, banks bet even tighter as a result of this. How do we break the cycle? I don't know. I would love to know what others think. I do not believe lowering the rates will help that much, but I hope I am wrong.

Great Post! If it were just subprime I could understand, but like you stated above, its the prime borrowers too. It took me 3 1/2 weeks for a HELOC at 35%CLTV and 700 score! It helps to work with realtors that understand that you arent to blame.

This has been a great post - but I still struggle with it. Realtors have a Code of Ethics that we follow, and we are somewhat closely watched for what we say and how it might be interpreted by consumers and clients. At least, that is my understanding of it.

When do lenders get to adopt a Code of Ethics? How is it ethical for a lender to say sure, thanks for getting me all of your documentation, your credit score looks good, you have sold you current home/given notice at you apartment, you have a good income, but guess what? At the last minute, in the middle of the game, I may decide to change the criteria upon which I agreed to give you a loan, and to be quite honest, even though you may be extremely angry that I have put you in quite a difficult spot housing wise, there is really nothing you can do about it, so suck it up.

Or am I being too harsh? If I am, tell me so, I can take it. I just don't understand. 

Kev: You are not being too harsh. You have expressed the PAIN that I have felt when this has happened to my client.

 But they are in a survival mode...hey, look at what happened to Countrywide today. And if you have ever noticed, ethics don't rank that high when there is life and death going on. The only ranking goes to the "I need to survive".

These lenders are still reeling from the loose guidelines that got them into this fix. In their mind, they cannot be too careful, and because there is not history for this situation, they keep changing their mind on what will fix it. To outsiders, it appears they are being punitive, but they are trying to survive a miserable situation.

Tom: Second loans are almost gone. Every second loan I completed was such a struggle last year, and now, they are just gone.

The GUIDELINES in the mortgage world has far more significance right now, banks and mortgages companies change them often these days!! it happened with me that guidelines changes in the middle of the transaction and my clients was not approve for the loan any more!

The fact that money is still out there doesn't mean the buyer is out of the woods. Very good article. Thank you.

Rich Lecinski

Long Realty Company

Oro Valley - Tucson Arizona

520-834-4663

www.arizonagreatliving.com

Rich: No buyer is out of the woods because it is about more than just the buyer.

Mo: This just happened to me as well. Lender refused to honor a 95 percent loan even tho loan was locked as such. Perfect borrower. Will never do business with them again, but then...they might be out of business anyway!

Janet - excellent post! really tells it like it is. I understand in California the seller has a few days after the closing before he needs to be out of the property. Here in Florida the keys to an empty house are turned over at the closing. How do we properly protect our sellers from the property not funding and closing if he has to be moved out before the funding is certain? Buyers here do not want the seller to occupy the property after closing.

Sharon...yes, I learned this from an earlier comment, and never realized this. I find it very interesting because this would cause a huge hiccup if deal fell through. I suppose you could write into your contract coe plus 2 which is how they do it here if the house is occupied

This is very true about most of the lenders out there.  I hear stories about funding conditions after everthing is supposed to be approved and ready to go.  Fear not though, there is hope.  Not to push my business, well, why not, that's why we are here right?  I work for Wachovia, formerly World Savings.  We still have portfolio guidelines that have not changed much through the storm.  This is because we lend our own money and don't have to sell the loan to Fannie Mae after it closes.  We are still doing stated income loans for any situation or borrower.  We more importantly have no funding conditions ever.  If you borrower is approved, we are done...  No hidden conditions at the end.