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Why can't your loan close now, the day before closing????

By
Mortgage and Lending with Social Media - Infinity Home Mortgage Company, Inc

question marks

What do you mean you can't get my loan closed now?  You promised !!!!!   Have you ever heard those words as a consumer or a realtor?  I have closed 8 loans just this year that the consumer heard those same words from their previous loan officer. And these words were uttered either the day before closing or the day of closing. In my opinion, that is no excuse unless there was a title issue last minute or the client lost their job or quit 5 days before settlement. But most reasons are other than what was just mentioned.

I read a post the other day written by David Garcia titled 5 Reasons Why Loans Go Awry at the 11th Hour.  It was good. But I semi disagreed with some of the reasons to why loans don't close last minute. I think it was letting many loan officers off easily with typical excuses. Especially now more than ever. Meaning that we could blame it on the ever changing mortgage programs, which I think is one reason why this is becoming more wide spread as of now, in today's market.

 

 

the oops theory

In David's post, he talks about the loan officer assuming that the deal meets guidelines. Explaining that with changing guidelines, that if they aren't on top of these changes, this could be a valid reason.  These I do agree with, but still don't think they are the main issue. David does mention that he thinks the word "loan approval"is used to loosely. Now, I will agree with this more, but we need to understand two things here first. The difference between a pre-qualification and a pre-approval.  Everyone needs to understand this, even loan officers, before a consumer can truly move forward.

Now, with that in mind and because of what has been mentioned above from David's post, there is the 'Oops' factor that so many loan officers use when giving bad news.  What are the basic excuses?

  • Your credit score dropped a few points. Most lenders will allow credit up to 90 days on a re-sale or refinance. As a banker or broker, your credit shouldn't be pulled prior to closing unless it's beyond this time frame.
  • There are a few other excuses such as lack of income, the VOE came back lite (verification of income), etc, etc. But these are even poorer excuses and I will explain this next.

 

 

As I mentioned in my comment to David, below are the true reasons, in my opinion of 16 years in mortgages, to why so many loans go south the last hour, prior to settlement. 

  1. Loan officer is not able to read a credit report - (most of my answers will be directed to the fact that if you did a FHA manual underwrite. Because as a loan officer, we need to act as an underwriter when qualifying. That is how I review my loans prior to giving a pre-qual letter.)
    • just because they have a credit score above 600, doesn't mean that it can always be done
    • if they only have two tradelines with bad credit, we need to show 4 trades.  FHA wants to see 4 tradelines for 12 months or more.
    • not explaining to a consumer that most collections or charge-offs need to be paid off (case by case - but most times, need to be paid off or have a payment history) this depends on the whole scenario. But if it's not a strong loan, this needs to take place.
  2. Income - how many actually know how to read a pay stub or don't when they qualify a client?
    • How about if I get paid twice a month?  That's not 26 weeks, but 24 weeks.
    • What about pay stub deductions?  If there are loans other than a 401-k, they need to be included in the DTI.
    • I just had this happen to a client. Her previous loan officer used her child support. She supplied a piece of paper saying what her payment is and that it started on August 2007. The other person didn't ask for anything else and said that this was okay.  Rut row.... what about proof of a payment history and proving that it is suppose to continue for 3 yrs. She was told that she was approved.  Her ratios even with this $600 payment are 31%/47.2%. With credit scores of 541/553/590.

 

Overall, I could be here forever. What I attribute a lot of this is to bad screening of the consumer and maybe bad processing. But I would put most of the blame on the loan officer. And why are even income and credit some of the main reasons at the end?  Because the loan officer brought the deal in last minute?  Or told the processor that they were helping the client with the credit... but never did or didn't know how to?  But most???  Because they just didn't understand how to read the credit report, what to tell the client to fix, or how to read pay stubs or income taxes.  And now the processor is trying to fix the deal. So they tell the loan officer to tell the client that they might have issues. Here is the problem... the loan officer doesn't do this right away.

 

PS.... and this has nothing to do with local lenders or out of state lenders. That will be talked about in another blog later this week.  It all comes down to properly screening the consumer. The 8 loans that I saved this year from other lenders that denied the loan last minute, 7 of them were out of state. 6 of them had gone to their local lender.

 

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Copyright © 2008 by Jeff Belonger

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Copyright © 2011 by Jeff Belonger of Infinity Home Mortgage Company, Inc

Comments (22)

Janet Guilbault
Platinum Home Mortgage Company - Walnut Creek, CA
San Francisco Bay Area Direct Mortgage Lender

Jeff: I have been reading credit reports for years and understand those puppies inside out.

But I do find that my lenders differ in the way they calculate income which makes my job maddening.

YES even my FHA lenders!

I bet those clients are thrilled with you for saving those loans. Good job as always.

Sep 04, 2008 06:26 AM
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Jeff - Thank you for sharing David's post.  I'll have to actually read it now to see what started your post.  Good information as always.  I agree with you and think that there were too many LOs that jumped into this when the market was good.  They never took the time to actually LEARN the business because they didn't need to before.  Now more than ever, they need to know all of the details and like you said, review the loan like an underwriter before submitting it to your lender.

Sep 04, 2008 06:58 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

hhhhhmmmm.... all loan officers first... 4 out 4... 

KIM.... what's sad is that I am finding more and more clients that were told that they were qualified or approved and at the last minute, denied... and the reason was because of their credit. I had a client come to me from VA 5 months ago. He L.O. had the deal for 30 days and the day of closing said that they couldn't close them as of yet. She found me 3 days later... that Monday, I took that app. and we closed it within 5 business days. The other LO called her and was angry with her, that she went to someone else, telling her if he can't do it, nobody could.  When he called a few days later, she told him that we could close her loan. He said, no way, your credit sucks. Yes, he told her that...  gee, why was her credit okay 30 days ago?  LOL  SAD... very sad... but it didn't suck, it needed massaging. 

JASON.....   screening clients is beyond huge. And I just read your post, and yes, supporting documentation is huge. Just as I talked about in regards to the child support information and not having the documentation.

JANET.....  I can't imagine lenders being different when it comes to qualifying ways with income... it should be pretty basic and I would point this out to them. That's just my opinion.. but thanks for the compliment and for stopping by.

JOHN.....  my pleasure....  yes, read David's post... it was good, but I feel that the 2 things that I mentioned our most important and most reasons why deals die at the end. But you are right, the loan officer never took the time to learn the business and what to look at...  thanks

 

Sep 04, 2008 07:41 AM
John Cannata
214-728-0449 http://TexasLoanGuy.com - Frisco, TX
Texas Home Mortgage - Purchase or Refinance

Jeff - You mentioned that it was 4 LOs that commented first.  I think that is a compliment and hopefully you see it that way also.  Your blogs are quite informative.  Instead of other LOs trying to bad mouth you or find you to be a threat (very much like some of Corporate America) they like to hear what you have to say... even though some have never met you before (like myself).  Don't get me wrong, sometimes I'll look into something that you say, just to get further clarification for myself.  It only confirms for me that you are professional and knowledgeable about what you do.  Anyway, thought I'd share my point of view on the 4 LOs above.

Sep 04, 2008 07:49 AM
Gerry Suarez Jr.
New American Funding NMLS 6606 - Orlando, FL
FL Mortgage Guru

Great post as usual Jeff. I just sent a note to another FHA lender yesterday commending them because they were clearly a "govie" type lender- very detailed and very accurate.

In our business, especially in government loans, the devil lives and hides in the details. The determination if social security disability is likely to continue for three more years can make or break a loan for example. It's the experience of knowing the pitfalls (and I must admit I still see new ones constantly!) and being able to plan for them that often makes the difference between closing or not.

Gerry Suarez, Jr.

Your HUD Loan Pro!

Sep 04, 2008 07:56 AM
Tim and Pam Cash
Crye-Leike (Sango) - Clarksville, TN
Real Estate Professionals - Clarksville TN

Jeff, yet another great post.  You put alot of the details into your posts which assist me as a Realtor.  Now I know when to throw the flag!

Sep 04, 2008 12:42 PM
Gene Allen
Fathom Realty - Cary, NC
Realty Consultant for Cary Real Estate

It is amazing to me that it still happens but it does, not to my buyers but I have had problems with my listings.

Sep 04, 2008 12:48 PM
William Collins
ERA Queen City Realty - Scotch Plains, NJ
Property and Asset Management

Jeff,

Thanks for the post. I really can't believe that it comes down to an inability to read a credit report and a pay-stub. Perhaps there's an opportunity for continuing ed credits for the challenged.

Sep 04, 2008 12:59 PM
Thesa Chambers
West + Main - Bend, OR
Principal Broker - Licensed in Oregon

Jeff you always amaze me with the info you provide - it all does come down to using a lender that KNOWS their product and the people they must work with... you ROCK

Sep 04, 2008 02:31 PM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

JOHN.....  I was just making an observation....  ;o)    I think more realtors need to read this and to understand it. Most loan officers that are going to comment, are the ones that get it.. at least in my opinion. Thanks for the follow up.

GERRY.....   detailed & accurate, not a free swinger, someone that just sticks them on the wall, hoping that they stick. There is no pride in that. That's another thing that it comes down to, taking pride in what you do.  thanks for the compliment.

TIM & PAM......  thanks, I truly appreciate those compliments. And for more red flags, read this : Mortgages & Real Estate -- Consumers need to be aware of these Red Flags !!!!!  thanks

GENE..... it's not amazing, but sad and scary. But yes, it still happens. I am not looking for perfection, but just honesty and being upfront... knowing the basics and if you don't know, then ask.

WILLIAM.....  there is only so much that you can teach. As I mentioned about, it's pride... wanting to learn and to understand... and not hoping someone else does it for you, hoping that it closes.

 

Sep 04, 2008 02:38 PM
Kent Simpson
Realty One Group Mountain Desert - Tucson, AZ
Real Estate Is About People

I haven't heard anything from my clients about their closings not happening early lately--it has been "why isn't it closing on time?"

One thing I always ask the lender before submitting a contract is "Is this a reasonable closing date for you to have all of the docs ready to go?"  I trust that answer from one professional to another...but now I'm going to add a week.  The big banks are the worst!  Sometimes I wonder whether people get moved from teller straight to loan officer with no training!

Sep 04, 2008 03:36 PM
Bill Gassett
RE/MAX Executive Realty - Hopkinton, MA
Metrowest Massachusetts Real Estate

Jeff it sounds pretty simple and boils down to one factor...Is the loan officer average or great? Just like in Real Estate there are good and bad Realtors. Guess which deals have the most problems in a home sale? The ones with a crappy Realtor!!!

Sep 05, 2008 12:16 AM
Katrina Hernandez
Century 21 Shaw Realty - Tampa, FL

Yep, we have all heard those excuses! I like your blog, it gives me a good understanding of the lender's point of view.  Thanks for your blogs!

Sep 05, 2008 07:46 AM
Chris Brown- Florida Home Loan Specialist | Certified Mortgage Planner
Chris Brown | Certified Mortgage Planners - Orlando, FL
Chris Brown 407.367.2974

Jeff - you are a voice in the wilderness my friend!  Thanks for adding.  I felt the other post was a little light on the wrist slapping as well.  Like it or not, we as lenders do share our part in the blame.  Not ALL, but as an industry, we aren't as pure as the wind driven snow either.

 

Chris the implementer

Sep 06, 2008 02:19 AM
Earl Johnson
Fort Lauderdale, FL

I believe there is a large element of financial advisors that purposely make promises without having all the information with the mentality that they will workout the details later.  One way to avoid this is have an Approval from a Direct Lender. I encourage all buyers to maintain copies of all their documents and have a backup plan if a lending institution falls through.  I encourage all realtors to develop relationships with Lenders they can trust to review a file and provide feedback within 24 hours, so that they can look out for their buyers best interest. I encourage Brokers to have at least 1 Lender they can turn to as a backup plan.  Preparation is the key to all parties being successful.  It is a team approach that usually gets the deal done.

Sep 06, 2008 09:01 AM
Jeff Belonger
Social Media - Infinity Home Mortgage Company, Inc - Cherry Hill, NJ
The FHA Expert - FHA Loans - FHA mortgages - USDA loans - VA Loans

 

THESA....  thanks for those kind words and for your supportas an advid reader.

KENT....  sure, not closing at all is bad... but not closing on time???  there usually shouldn't be any excuses either.  It's preperation, communication and knowledge. That's sad if you have many that don't close on time.

BILL..... that is a major factor...  but even a good loan officer should have no problems.  Meaning, average should be able to close it....  just knowing the basics to me would be average. It's sad all thr way around, no matter how you look at things.

KATRINA....  thanks, my pleasure and I am glad that it gives another perspective. I think realtors need to read us and to understand and not just to assume because of their experience level just in real estate. ... or what their loan offcer does.  thanks

CHRIS.....  thanks for agreeing, hence why I mentioned the other post. I truly think most of what happens, happens in the first  hour of the application. If the right questions aren't asked, or it's not explained correctly, or if one can't read credit or compute income, it will fail there.... not later on, when most people use that as an excuse.

GULF ATLANTIC..... I semi disgaree with your statement, about in order to make sure that this doesn't happen, is to have an approval by the direct lender. Again, it starts with the loan officer... the person that speaks to the borrowers.  Don't you know that getting an approval, a real approval could take a week or two? Not to many loan officers get a complete file and 1003 when taking an application. But thanks for your input.

 

Sep 07, 2008 07:28 AM
Tracy Santrock
Santrock Realty Group Inc. , - Cary, NC
Raleigh - Cary Broker

Unfortunately I've got one falling apart now that I predicted would fall apart.  The pre-approval letter was "sketchy" at best. Here we are 5 days before closing..not good.

Sep 08, 2008 03:07 PM
Sharon Richardson
Bowers Insurance Group - Roswell, GA
Insurance Agent

Thanks for your post... I think we as loan officers need to understand that with chaniging times, we need to change how we do business.  Lots of lenders (Taylor Bean and Whitaker) for example allow you to run DU, and actually submit the loan to them with a TBD address, and they will underwrite.  This will allow you to TRULY preapprove your client.  If a guideline changes, the lender usually makes concessions for a few days for the loans that are in the pipleine.  We just have to stay on top of things.  If there is a guideline change with an impending deadline, then we need to communicate that to all parties involved. 

Thanks for the post...

Oct 16, 2008 02:05 PM
Michael J. Gallo
Florida Luxury Realty - New Port Richey, FL
Florida Luxury Realty - Gulf Home Sales Team

Excellent Blog.  I have a few friends who process for other companies and they all complain about the same thing.  It is the LO's job to properly pre screen all applicants.  The issues you mentioned in your blog about the child support and bi weekly pay shoul dhave been addressed early on in the loan.  They definitly sound like late drops to me.

I know of a few loan officers who forget that there are people sitting at home on the edge of their seats waiting for the closing to happen.  These are lives were financing not houses.  This si why I Love My Processor and I call her every morning every afternoon and shoot her an email at night. 

One more thing, if these LO's processed their own loans once in a while they might change their ways.

Jan 06, 2009 07:46 AM
Loan Survivor Real Estate Financing Expert
Purchases, First Time Buyers, Pre-Approvals, Refinance - Birmingham, MI

Great post, but you already knew that from all the feedback:)

Couple thoughts to add:

1.  Communication is very important.  Just killed a deal on Thursday.  Had issued pre-approval letter conditional on receiving 2006 & 2007 tax returns client couldn't provide as they weren't done yet.  Everyone knew going into the deal that this was an issue.  Got the tax returns Tuesday, told everyone no-go Thursday.  Buyer & Realtor weren't happy, but fully understood and appreciated our professionalism.

2.  Realtors are improving at not putting the pressure on loan officers to hurry up and approve a buyer so they can get their offer in, but there are still some desperate Realtors out there playing this game.  I lost a potential referral a few weeks ago due to an impatient Realtor.  They thought I was asking for too much info and convinced the buyer to go with their in-house L.O. instead of me.  The buyer just called me this week to help them out though, as the in-house lender ended up denying them!  I know what the problem is and how to address it, but told them it will take time and they need to walk away from their current deal as I can't get it approved in time.  They agreed and I will also be redirecting them to a more professional Realtor:)

One thing I do that might be of interest for readers:

For the Realtor partners I work with, I will review ANY pre-approval letter they receive, no strings attached.  It can be on their listing or for their buyer.  I call the lender and screen the pre-approval as I know the questions to ask.  Sometimes I let the lender know who I really am, sometimes I try not to make it obvious by saying I'm calling from the Realtor's team (still true) as I won't lie.  About 25% of the time I find something seriously wrong with the pre-approval.  Often it's sheer incompetency by the other lender and leads to me talking to the borrower.  Sometimes I get an additional deal out of it, sometimes there's no way to approve the buyer, so they just go into my database with a plan to fix their issues.  Hopefully they then become a client for the Realtor & I in the future.

Drew

Jan 11, 2009 04:40 AM