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MORTGAGE COMPANIES AREN'T NIT-PICKING. THEY DON'T HAVE ANY MONEY.

* * * * HARD CORE REAL ESTATE TALK * * * *

MORTGAGE COMPANY NIT-PICKING? PERHAPS NOT.

THEY REJECTED MY BUYER'S LOAN.
THEY KEEP ASKING FOR MORE DOCS.
THE UNDERWRITER ASKED FOR ANOTHER APPRAISAL.
I CAN'T GET INVESTOR ON THE PHONE.
OUR LOAN LOCK EXPIRED.

All comments we have read recently written by real estate agents, mortgage brokers, loan officers, etc.

Kat Delong refers to a lender as "nit-picking" in approving a buyer with good credit and 40% down. That rally doesn't make any sense, does it?? No???

Sure, it makes sense IF THE LENDER DOESN'T HAVE ANY MONEY!!

If the buyer defaults, he loses his earnest money. If a lender defaults, there's no penalty.

The Financial News write-downometer reached $96 billion with the $17.4 billion write-down Citigroup announced today, more. . . .

J.P. Morgan is expected to announce a further $3.4
Merrill's is expected to range from $15 billion to $22 billion
Bank of America set aside 5.83 billion dollars to cover losses from real estate
Wells Fargo announced after the bell Tuesday it has set aside $1.4 billion to cover a Q4 pretax charge related to increased losses on its portfolio of acquired home equity loans
report today that Countrywide could write off as much as $4 billion during the third quarter
WAMU sets aside 4.3 Billion for 2008 loan losses.

For conforming loans, we know the financial condition of Fannie Mae and Freddie Mac. If the mortgage company can't portfolio your buyer's loan, they have to sell it. WHO IS BUYING????

"Some estimate mortgage write-downs since 2007 total more than $400 billion but that could rise to $945 billion this year, the International Monetary Fund has said" UPI

ARE MORTGAGE LOANS TOO HOT TO HANDLE? Banks and mortgage companies appear to be refocusing their businesses towards credit cards, personal loans, business loans, etc. Mortgage loans have turned into a "hot potato". It appears that banks have reverted to their old philosophy, "We lend money to folks who don't need it".

WILL THE MORTGAGE COMPANY TELL YOU WHY THEY AREN'T APPROVING YOUR BUYER'S LOAN??? Of course not. The loan officer doesn't know what the CFO is doing to increase liquidity. All he knows is that he can't get a definitive answer from underwriting. The loan officer is a trooper and hope springs eternal. He can't get paid if the loan isn't approved, funded and closed.

NIT-PICKING MAY INDICATE MORE THAN JUST REQUESTING MORE DOCUMENTS FROM A BUYER. So, when you think your buyer is being jerked around, he probably is. I'm recommending to our buyers that they pursue more than one loan application. Document, document, document. If your buyer is working the loan matter on their own, they are pretty much "on their own". If your buyer is working with an experienced real estate agent, we can advise a "back-up" loan application.

**WARNING. Processing more than one loan application is fine, but make sure your buyer is following the Contract of Sale with respect to cooperating with the mortgage company. In many contracts, if the buyer has agreed to pursue the loan application with the company who provided the loan pre-approval letter. Buyers can't get a contract and then begin to shop their loan and ignore the original mortgage company. That's bad faith and puts the earnest money at risk.

PROTECT YOUR BUYER'S EARNEST MONEY. If a buyer decides to change mortgage companies, the new pre-approval letter should be provided for the seller's approval. Comtract compliance is important to protect earnest money. Comments to the effect of "it's none of any one's business what mortgage company I use" are not correct. If they buyer expects the seller to take their property off the market while the buyer is getting their loan approved, the seller has the right to make sure financing is possible. If a buyer fails to cooperate with the original mortgage application, shops around and then can't get financing, they should lose their earnest money because they have not acted in good faith and the seller, if the property has been listed as "pending", "under contract", or any variation, the seller is losing selling opportunities.

DON'T BLAME THE LOAN OFFICER. They may not even know why they need more documents for a dream borrower.

Courtesy, Lenn Harley, Broker, Homefinders.com.

Posted by Lenn Harley, Real Estate Broker, Maryland & Virginia on 07/23/2008 08:39 AM

Comments (15)

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15 Comments on MORTGAGE COMPANIES AREN'T NIT-PICKING. THEY DON'T HAVE ANY MONEY.

JUL

2008

Len, I agree that the mortgage system is broken. Lenders have so much junk on the books that they are either afraid or unable to make loans. I disagree with the idea of double apping. It makes more sense to find the companies who can perform (we are out there) and have a history of meeting their obligations and making sure your buyers choose among them. Double apping will only bog down the system and raise prices for everyone, as well as c ost your buyers 2 app fees.

Peter. If buyers are already working with a mortgage copany when they come to me, depending on the mortgage company they have, I routinely ask them to make a concurrent application with a local portfolio lender. It has served my buyers well.

Example: Buyer was pre-approved with BofA and a week prior to settlement, we found out that the loan officer "forgot" to lock in the loan. They wanted another 3/4 point on an $800K loan to lock. We closed with Chase and my buyer saved a bundle.

Example: Internet lender sent a GFE with 1 pt. The HUD-1 two weeks later showed 1 "origination" and 1.5 discount. Back up lender gave same loan with 1/2 pt.

Example: Internet lender failed to provide "written loan committment" required by contract. We went with the second lender and the buyer avoided default. Contingencies in the contract are important.

As for paying two application fees?? We don't pay application fees. If a buyer is going to pay two appraisal fees, fine, I'll pay the second one. If the buyer has already paid an application fee with the lender they came with and they change lenders, the benefits of the second lender are going to far outweigh the cost of an application fee.

Plenty of money out there but eveyone is going to be very, very careful. While it has turned into a buyers market it has also turned into a lenders market. The big boys drove out all of the competition and now they are all that are left. This will leave us with less and less programs and higher rates.

Tony

Lenn, the current assault of credit card offers (and fine print HUGE fees) makes it clear that the priorities have changed- maybe when everyone gets mired in bankruptcy over the "generous" extension (to non homeowners) of credit, they'll re-focus on lending practices that make sense. Or, find themselves with a line of people wanting to withdraw whatever change is in their bank accounts before the doors close.

Laurie. Boy, isn't it the truth. I get 3-4 a week. They've gamed the system so that they get your credit reports without you even knowing. They also lobbied the Congress to make bankruptcy almost useless for consumer debt.

Lenn,

The Fannie Mae/ Freddie Mac dust must settle and settle quickly...your logic in assessing the problem is right on!!! Our industry cannot be viable with portfolio lenders only...and did I hear yesterday that Wachovia was stopping all wholesale...another negative indicator. perhaps! Thanks, Fran

We will all have to relearn the process as the mortgage companies reevaluate the approval process.

Len, I think we are saying the same thing. There are still too many bait and switch offers out there. You are directing your clients to someone you trust. That's different than double apping as a regular practice.

Yikes, Lenn. It is true that the public at large, media and even many folks in our industry are solely focused on the supply/demand imbalance as it relates to actual Real Estate. Lots of listings, fewer buyers. The subtext is a lack of supply in financing options to bolster that demand (for qualified, viable buyers that is). Ours is not merely a consumer confidence problem. The institutional confidence level (I'll include Wall Street investors here as well) is the larger issue at present. As always, great peeling away of the surface layer here to get to the underlying disease.

Fran. I heard about Wachovia. They aren't the first and won't be the last. I believe that the direct lenders and wholesellers will do their best to keep loans "in house". Brokers are in for a tough time.

Terry. Sure. But, if they have no liquidity, it won't matter. Oh wait, they can sell the loan. Ha! Sell the loan to whom??? Who can follow the changing landscape at Fannie and Freddie these days???? They simply are walking around pushing a grocery cart full of bad loans that they can't unload on Wall Street and don't have any money to buy any more. Geez. What a mess.

Paul. Thanks. The entire industry, buyers, sellers, agents, lenders, investors is so complicated, we can only deal with one layer at a time. It's sort of like eating an artichoke.

Great advice Lenn, as always... and when the buyer switches lenders after contract ratification and won't listen to their agent then what?! I have my fingers crossed on this one.

James. The contract is clear in MD. The buyer can pursue "alternate financing". However, if they get to settlement and haven't cooperated with the lender that got them the contract and the new guy doesn't approve them, they lose their earnest money.

The financing contingency doesn't work because they haven't cooperated with the lender that was there when they got the contract.

I've had this come up several times. It's all in the contract of sale.

Lenn

Lenn, was it machine gun Kelly who was aske why he robbed banks and replied, "that's where the keep the money" He would have to find a job today wouldn't he?

Jim. That is so funny. I sitting here laughing out loud.

Lenn - Based on Kat's post, it is not clear what the issues are. She points out that the buyer has good credit and 40% down. Based on that, it sounds like the buyer is excellent. I use to be able to get a person with a 620 FICO the same rate as someone who had an 810 FICO. Those times are gone now (as you know). In the post I replied to her that it may not be the lender, it could be the LO. True, times are hard for SOME lenders right now, but not all of them are having these issues. Many lenders (for example Provident) are still able to run business as usual because they did not have garbage files to begin with. Their expectations were set high well before the mortgage mess. If a broker is use to working with a handful of lenders, they know what to expect before it comes up. The lender may be delaying the closing because the LO did not provide the proper paperwork or there are issues that the LO does not know how to resolve. I have seen it many times and heard several horror stories.

This does not mean I am picking on LOs, because I am one of them. My point was that it easy to point a finger at a lender since they are under the spot light already. A good customer on the outer shell does not really mean they are good when an underwriter looks a little further. The LO must anticipate obstacles to the best of their ability in order to be prepared.

Thanks for the post!

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