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SALE PENDING (And Praying For Lending)

By
Mortgage and Lending with Platinum Home Mortgage Company NMLS #238304

 Today, when a Realtor asks a mortgage broker this: "How long should the loan contingency be?", a mortgage broker just might say: "We can remove the contingency the day the loan closes."

Why? Because until the lender FUNDS the loan, there is danger of it falling apart.

In advance, I apologize to all of the listing agents out there who are rightfully uncomfortable with this concept. I realize it is a benefit to your seller to know that the buyer can get a loan before they agree to take the house off the market.

But it is what it is. Lenders are jittery. They are overly conservative. They are running scared.

A little thing called GUIDELINES in the mortgage world has far more significance right now than any FICO score or interest rate. Think of guidelines as a line drawn in the sand that if stepped over, will kill the deal.

Guidelines are the rules that lenders make that determine IF a loan will fit inside their approval box. These rules are applicable to BOTH the borrower AND the property.

The only problem is, even if you stay behind the line, up comes the water, washes the line away, and when the new one is drawn, well....you guessed it.

YOU ARE WAY OVER THE LINE according to a NEW set of guidelines.

The truth is, lenders hold all the cards. If they decide they DO NOT want to loan the money, no approval is iron clad. And even the most pristine of borrowers can suddenly have their approval washed away from an appraisal review.

For the last 6 months, I often find myself at the closing table thinking, "I could not replicate this loan again".  Guidelines change so quickly that what WAS acceptable 30 days ago, is now "outside of guidelines".

Racing against ever changing guidelines and lender closures has become routine. Has this had an impact on the way we do business? ABSOLUTELY. The whole concept of a pre-approval, especially prior to determining the property to be purchased, is about as iron clad as a wet cocktail napkin.

Here in California, lenders continue to crave equity justified by declining values of properties (if a lender does a 90% loan and the house drops 10% in value, they now hold a 100% loan). To compensate, they "ding" the loan for an additional 5-10% downpayment. When starter houses cost $600k, you can clearly see how a buyer might NOT be able to have another $30,000 in downpayment.

They might as well have a stamp on every application that says SHOW ME THE MONEY.

Which is why I believe that RATES can literally PLUNGE, but what does a 5% rate matter if the borrower is unable to fit inside the lender guidelines and qualify for the loan?

 

 

 

Dan Forbes
Bradenton, FL
Janet, So right.  I could wallpaper my office with preapproval letters on deals that failed to close this year.
Jan 10, 2008 10:27 PM
Virginia Halter
RE/MAX Signature Properties - Harrisburg, NC
ABR, CDPE, CRS, GREEN, SFR, SRES
Great post.  We have to have it funded.  Not "on the way."  It is so nerve wracking but what can you do?  nothing!  
Jan 10, 2008 10:48 PM
Bryant Tutas
Tutas Towne Realty, Inc and Garden Views Realty, LLC - Winter Garden, FL
Selling Florida one home at a time

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:)      

Jan 10, 2008 11:33 PM
"The Lovely Wife" The One And Only TLW.
President-Tutas Towne Realty, Inc. - Kissimmee, FL

LOL Janet...

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

TLW...ROAR!  

Jan 10, 2008 11:45 PM
R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

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. 

Jan 11, 2008 03:49 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

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.

Jan 11, 2008 05:31 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

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?

Jan 11, 2008 05:38 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

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.

Jan 11, 2008 05:45 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

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

Jan 11, 2008 05:48 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender
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.
Jan 11, 2008 05:55 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender
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.
Jan 11, 2008 05:59 AM
Tom Engelhardt
First Choice Mortgage - Ocala, FL
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.
Jan 11, 2008 06:01 AM
Kevin McGrath
Long & Foster Real Estate Companies- Fredericksburg/Spotsylvania - Fredericksburg, VA
Long & Foster Real Estate Companies

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. 

Jan 11, 2008 06:06 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

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.

Jan 11, 2008 07:02 AM
Mohamed Mekhimar - Accredited Buyers Rep , E-Pro - Richmond Virginia Real Estate
RE/MAX Commonwealth - Richmond, VA
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!
Jan 11, 2008 07:39 AM
Richard Lecinski
Long Realty Company - Oro Valley, AZ

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

 

Jan 11, 2008 07:51 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

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!

Jan 11, 2008 01:28 PM
Sharon Simms
Coastal Properties Group International - Christie's International - Saint Petersburg, FL
St. Petersburg FL - CRS CIPS CLHMS RSPS
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.
Jan 14, 2008 12:18 AM
Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender
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
Jan 14, 2008 01:58 AM
Ron Avneri
Seattle, WA
Financial Professional

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.

Jan 14, 2008 02:41 AM