Should I say holding or holding hostage? A few weeks ago I posted a blog concerning the risk a Realtor takes when working with a mortgage lender that they do not know or trust Note to Realtors: The Lender Holds Your Paycheck. The essence of my message was that it is imperative that Realtors know or trust the mortgage lender tasked with funding their clients purchase on time, with the terms promised; in order to avoid a closing day surprise including the potential loss of your well earned commission at no fault of your own.
I have two fresh examples of how this has played out for a builder and a Realtor that I work with in our market. The only good news is that we were not involved; although we may have to dust off our white hats and ride in to save the day. It is important to note that the daily changes in the Alt-A and sub-prime markets have made the risk of this occurring to you greater than anytime in recent memory.
Example 1: We are the preferred lender for a wonderful builder who provides an incentive for his buyers to utilize our services because he knows that we will close his buyers on time. From time to time against our wishes and our builder's best advice, a buyer may elect to use "their own lender" to fund their purchase. Last Friday we received an urgent phone call from our builder who was at the closing table and had just been informed that New Century Financial Corp. was not going to honor the loan approval and would not be issuing a wire to fund the closing. The loan had been brokered to New Century Financial Corp. by a mortgage broker active in our market who was known to the buyer, but not the builder.
The obvious question is how can a national mortgage banker like New Century Financial Corp. refuse to fund a loan that was approved on the date of closing? By the way, the title company had already received loan documents and issued the HUD. New Century Financial Corp. had been on the ropes for a couple of weeks by then and I can only speculate the mortgage broker wasn't paying attention to the choppy waters ahead in the sub-prime market. In this market the lender has to be a true professional who studies the marketplace and is current on daily changes.
Here is a link to a story on Market Watch concerning New Century Financial Corp.
In this case the Realtors check is being held hostage because the builder is willing to extend the contract as the file is being transferred to another lender and although late the transaction will be funded.
Example 2: One of my favorite Realtors has been working with a young couple who insisted on using "their own lender" because this "great lender" had worked with one of their relatives. It didn't take long for my Realtor partner to become anxious as her phone calls went unreturned, request for a payment estimates and loan scenarios went unanswered and the communication was generally poor. On two occasions my Realtor asked me to provide a second opinion with good faith estimates in an effort to cross-sell us to her buyer, which did not occur as the buyer had faith in the other lender.
My Realtor made several unsuccessful attempts for contact the lender on the loan conditions deadline date only to learn at 4:45 in the afternoon from an assistant that the mortgage originator was on vacation and that the loan had been turned down in underwriting. In Colorado the buyer is at risk to loose their earnest deposit unless the selling agent receives notification in writing the buyer cannot obtain loan approval by the conditions deadline; therefore, my Realtor's client is at risk.
In this case the Realtors check is being held because the seller may not be willing to extend the contract and the buyer's earnest may be withheld as well. By the way, the lender is still on vacation.
My goal is to make you nervous enough that you will refuse to take a passive approach to who your next buyer trust with the mortgage. If you have a lender partner, help the buyer understand the value he or she brings to the transaction.
If your buyer insists that they use "their lender," scrutinize the lender as if they hold your paycheck because in the end they do.
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