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Time Wasters and Heart Breakers: The End of Loans That Blow Up?

What percentage of buyers did you get into contract last year that blew up in your face because the loan fell apart?

With the actual ratio of applications to loan closings running at about 50%, that means all of us in the real estate business spent a lot of time last year SPINNING OUR WHEELS.

Me included. Talk about an inefficient way to run a business. Seriously.

And I can't even imagine how bummed a Realtor must be after having done your due diligence with your buyer, got a pre-approval, filled the tank with $4.00 gas, showed 10 houses instead of attending your best friend's anniversary party, then lost the deal 30 days later when the lender said, "Thanks, but no thanks". (Not to forget sellers that had already packed their bags and hired movers).

Double, triple, ugly ouch!

THINGS ARE CHANGING!

I am actually pleased to let you know that most of this appears to be coming to a screeching halt. Why?

Because (finally!) lenders are mad as hell and they're fighting back.

All it took was a little refi boomlet to get them to figure what we Realtors and mortgage brokers already knew: Hello? We don't have the time OR the resources to work on deals that are going to eventually fall apart. Let's weed 'em out at the start.

Lenders were so overwhelmed in January that they were forced to offer incentives to mortgage brokers to lock loans for 45 days instead of the standard 30 days.

Mortgage brokers called foul when all of us who locked our loans for 30 days had to extend our locks to keep our 4% rates. (In case you don't already know, lock extensions are paid for by mortgage brokers and only sometimes can this cost be passed on to a borrower).

WHY BANKS GOT MAD!

Banks have realized the tremendous WASTE OF TIME it is to have loans fall apart because buyers:

Bailout at the last minute because they found a lower rate
Walk away because the appraisal was too low to make the loan work
Get tired of waiting and shop around for a different mortgage company
Refuse to accept the imperfections that the inspections reveal
Walk away because of title issues revealed several weeks into the loan approval process

WHY THE NEW RULES WILL END LAST MINUTE SURPRISES

Banks are starting to impose some new rules that should help us all eliminate much of the wasted time and effort that was such a part of 2008.

The bank will not underwrite the file until the appraisal is completed. WOW! That's huge and I will write a post soon about the ramifications of this.
The bank will not underwrite the file until the title report is in.
The bank will not underwrite the file unless all of the income documentation is there. This should eliminate most loan conditions
Banks have begun to penalize mortgage brokers who "pull loans" (loan in progress at Bank A. Bank B has a lower rate than rate locked with Bank A. Mortgage broker takes the loan away from Bank A, gives it to Bank B)

The UPSIDE? The odds of loans going belly up should plummet. Your mortgage partner and you will know very soon into the transaction whether or not the loan will FLY.

The DOWNSIDE? Could be a lot of buyers will be the proud owners of an appraisal on a property that they won't be buying.

Written by Janet Guilbault, Mortgage Lending Expert Based Out of the San Francisco Bay Area

Posted by Janet Guilbault California Mortgage Banker/Broker on 01/28/2009 06:03 AM

Comments (72)

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72 Comments on Time Wasters and Heart Breakers: The End of Loans That Blow Up?

JAN

Janet: That's great insight. I appreciate it. I still believe pull-though will be relatively low this year but that's due to declining home values. A smart mortgage person will check comps. through his/her appraiser/realtor before even proceeding. These days, it's all about our time and how we use it. Great post!

Paul: I think pull through will be vastly improved! The bank will never get the loan until the appraisal works.

Having said that, I am trying to eliminate working on files that go nowhere. I do believe that due to really tight guidelines, we will need to handle at least twice as many files as will eventially close.

The only question in my mind is how long do we handle the files that are doomed to failure? Hopefully a nano second.

This must be inside the mortgage business stuff.

The thought of a 50% failure rate leave me speechless.

I am totally confused since I didn't think loans were underwritten until after the appraisal. Do you mean that the underwriter's won't look at it until the appraisal is completed?

JAN

Melina's comment is right on target with a contract that one of my buyers has "in underwriting" now. It was sent to underwriting last week, on Wednesday I believe or that's what the loan officer told the buyer, but we don't yet have an appraisal. In fact, the appraisal is overdue and past the deadline for the appraisal contingency in the contract.

Thanks Wells Fargo. This is one loan officer that will not get any referrals from me although I sent her a refinance early last week, DANG. The buyer selected the loan officer based on the recommendation of a friend.

I believe I'm inspired to write a post. Not that it will do any good now, but it will be cathartic.

I think having everything in the file makes it go smoother. But it just makes the banks more in the drivers seat. More waiting over all.

Janet, Thanks for the update. The banks are getting smarter? That alone is good news!

Janet - great insight and a great update ! Those are some interesting updates and changes, especially the appraisal. Certainly makes sense... we spent a decent amount of time spinning wheels last year too so anything to make the process smoother makes sense !

Thanks for the update! I actually didn't have any deals fall apart in 2008 due to loan issues, although several were delayed... and delayed... and delayed some more which almost killed a few. I feel very lucky after reading your post!

I really feel for you guys in the lending business. I have a very good friend who is a lender and she's at the end of her rope with the industry - triple the work and 1/3 of the pay, but the worst part is that she's ALWAYS the bad guy to her clients and her REALTORS. So much beyond her control, yet she has to take responsibility for it.

Hang in there and keep us posted!

Janet,

Thanks for the blog. It has cleared up alot for me! I am one of the realtors that has spent a long time doing my due diligence, gas, etc... to find out the loan may fall through! OUCH

Glad to hear the banks are getting smarter!

There is still a lot of problems here...pre-approvals that were all bull. They should never let someone be approved. I want a full loan commitment..I don't want surprises at the end and then get a let down.

Not to be there bearer of bads news, but... Freddie Mac and Fannie Mae will implement a revised Home Valuation Code of Conduct beginning May 1, 2009. In an attempt to increase the reliability of appraisals, the revised code builds on existing seller-servicer guidelines and will apply to lenders that sell single-family mortgage loans to Fannie Mae and Freddie Mac.

These changes will prevent lenders from having any direct contact with an appraiser. This will limit our ability to get an estimated value on the home prior to having an actual appraisal ordered. I have already started requiring the appraisal to be completed prior to locking in a rate and program for refinances.

The personal choice to work with a buyer that has not given all of their documentation to their lender is a decision that has to be made. I can see maybe the first appt. you take them out to develop the relationship, but then I get on all my buyers to submit all of their documentation so if they don't qualify based off those isues we find out early rather three weeks later and countless hours wasted.

Janet, I've got to say that I issues with this "new" concept. A number of them.

1st, your post proposes that the reason that 50% of the loans are not getting completed is because of the buyer. Buyers rarely bail out over flip reasons. The only exception from you list being the home inspection report, but that is a whole other issue in and of itself. Buyers don't bail because the appraisal comes in too low or there are title issues, the lender does.

2nd, a major reason that loans don't go through IS the LENDER, not the buyer. Lenders refuse to commit to giving a loan right up to the day of closing. I've seen 800 credit scores denied for no real reason (all too often, the lender's answer is simply, the loan can not be done at this time).

3rd, paying for an appraisal upfront isn't a bad thing. The majority of appraisers are requiring it here, simply because of the fact that many loans aren't closings, so there is no "received at closing" check. BUT, not underwriting before an appraisal is done is a bad thing. As a buyer, I want some sort of answer as to MY ability to get a loan with your company BEFORE I start spending money. A true, pre-approval letter requires some underwriting.

Also, if lenders aren't willing to underwrite before a title report is done, then they should be willing to pay for that report. There is simply no way for a buyer to have any knowledge, in most cases, of any title errors. Requiring a buyer to be responsible for that fee even BEFORE the lender will commit to a loan is just plain dumb.

You want the ramifications? Tell me, how do you feel a buyer is going to react when their agent tells them, "Sure, I'll show you houses, but you have to be aware that for any home that may want to buy, you're going to have to pay an appraiser to ensure it's value, and you're going to have to pay an attorney to make sure the title is good BEFORE you can get a loan."

I love reading your posts as your blog seems the best and easiest way to keep posted on the changes in the mortgage industry. :-)

Lately I've seen mire id the lenders dump potential buyer as opposed to buyers dumping the lenders. Tough luck huh?

Good morning Janet :o)

At the beginning of last year, I had a few loans fall apart just before closing. But within the last half of the year, every loan got approved for my buyers - even with some extra document requirements. Maybe we are preparing buyers better, or maybe Loan Officers are trying harder to keep the deals together by educating earlier or getting things like appraisals earlier.

... either way, I think you're right, things are changing a little ...for the better :o)

Roger's comment makes us think. I believe that in the last 20 years, I've had one contract fail to close due to title problems. I've had delayed closings because of title problems, but the seller has always either paid their tax liens, found money to pay the second, third, etc., or found the "release" for the old loan showing still open. Title problems are not usually a problem.

Before the last 20 years, I was just learning so nothing counted. I figure it takes 10 years to learn this business.

What I'm thinking about is how good it is to be an appraiser today! My former clients who would love to refi their homes purchased a year or two ago keep asking me about my opinion on value of their houses before jumping into expenses related to re-fi. Owners who put 20 % down couple years ago more likely will not benefit from lower rates, as PMI will appear due to low appraisals. What advice can I give? Pay $300-$400 to appraiser and see how much you lose?

You are absolutely right - although the idea of getting all docs together before underwriting seems to be sound, appraisal issue is controversial. Thanks for keeping us posted!

are these your suggesetions for rules (i like them) or are these actual rules being currently put in place at many banks

Readers, subscribers: I actually came into my home office this morning thinking of deleting this post for a couple of reasons. One obvious one is that it appeared I had confused 2 very astute minds: Lenn and Melina. I figured this post just might be too much mortgage talk for my Realtor readers (and yet this will impact you! So it seemed important!) or it might have been explained a different way by me so as not to confuse.

I now see from the comments and the star I will not be deleting.

So let me answer Roger first, who has brought some controversy into this subject:

I would agree that a very small percentage of loans that don't close are because buyers walk. But an huge amount of loans do not close because of issues with the property!!!!!!
I agree that lenders are as persnickety as hell and are taking forever to make the decision. Plenty of 800 scored borrowers can't get loans. These new rules are designed to save time so that lenders give answers sooner and not later.
Mortgage broker can still send a pre-approval letter without buyer purchasing an apprasial. Mortgage broker cannot give file to a lender without an appraisal. But what most of us had decided to do to help our Realtors is get the full lender approval, conditions satisfied, before the deal ever even went into contract! Once in contract, the appraisal was ordered.

In Calif, title reports do not need to be paid for upfront. I agree that it may be hard telling a buyer that he has to pay for the appraisal on a house he may not get. I really don't think this will even work, to tell you the truth.

This will place much more importance on pre-approvals. It might even force Realtors or sellers to pay for the appraisal. The lenders attitude is this: What's wrong with the buyer having some "skin in the game?"

Lenn: You must realize this figure takes into account many refinances when borrowers apply and then do not get the appraised price that had hoped for.

Just like Realtors have clients who list their houses refusing to be realistic, we also have many who try to refinance, in a state of denial about the value of their house.

Melina: Usually, underwriting the file (making the approval decsion on the buyer) was done first (before appraisal) Not because the bank insisted, but because the mortgage broker did not want the borrower (or herself!!!) stuck paying for an appraisal if the borrower was denied.

In spite of this, we mortgage brokers often got stuck paying for appraisals at $400 a pop (I know a co-worker who wrote off $4500 in appraisals he paid for in 2008)

Now the banks could care less about any suffering we mortgage brokers go through...BUT all of a sudden they woke up and realized all the time they were wasting by underwriting files FIRST, only to have them fall our from a LOW APPRAISAL or because once they saw the appraisal they didn't like something about the property.

Very interesting information Janet. I appreciate your taking the time to pass this information along!!!

Jennifer: Triple the work and one third the pay! LOL... Your sympathy is appreciated and rare from a Realtor, so I will accept it and allow myself to wallow in it for a few minutes. I will say Realtors have their own set of struggles, however, and that I feel for your side as well.

As for being the bad guy, well, if you can't stomach being the bearer of bad news, you have long since fled this business, Jennifer. We are a thick skinned bunch and if you don't have at least a few people mad at you for "circumstances beyond your control", then you probably aren't doing too much business. LOL again.

This refi boom has given us a boost, but I was amazed to read how many Realtors resented it when a refi boom shifted mortgage broker attention away from buyers and Realtors! (Over on the Why Do Realtors Trash Marketing From Mortgage Brokers post)

How enlightening. Something to blog about?

Lenn: Now I am a little confused about your second comment. Are you writing this loan officer off because the appraisal was not ordered in a timely manner?

Or because the bank is taking so long to approve the loan?

Or because you suspect thye loan officer was not truthful with your buyer?

I will wait to relply until I understand.

PS I have often had Realtors mad at me waiting to order the appraisal. But I really don't want our mutual client stuck for paying for it if there is even a tiny chance the bank will not approve the loan....turn time for appraisals here is only a couple of days)

Barb: I am not sure about smarter. They just cannot handle the flood of refinances and buyers (from lower rates) and instead of just hiring people, they figured out what would save time.

Russ: I must disagree. There will not be more waiting. There will be less waiting UNLESS the mortgage broker fails to quickly get all of the paperwork required and turn the file over to the lender. What really eats up days in the process is the bank asking for further documentation, waiting for borrower to come up with it, then looking at the file all over again.

C & S: I too spent a lot of time last year on loans that just wouldn't fly. Never before have banks been so picky, and changed rules so fast. It was pretty much a disaster, and why so many people left the mortgage business.

Rules are changing again this year....I am committed to keeping my readers informed. However 2 things are driving those changes:

Every application is viewed as a potential foreclosure to the banks
Lower rates have overwhelmed the system

Neal: I agree! I had done exactly that. Giving Realtors full loan committments. HOWEVER: Most banks don't want to agree to approve a buyer unless the appraisal is acceptable. So somewhere, somebody now has to pay to get an appraisal BEFORE the loan committment will happen.

Thanks for the insight hopefully they are learning and things will begin to move along a little smoother.

As a listing agent for many REO in 2008, we saw a huge number of deals fall through for financing. A few went south because of cold feet, but mostly, buyers just couldn't get qualified. It's one thing to have to get an extension, it's another to have no hope of ever getting the loan closed. Getting pre-qualification/pre-approval from the lender/broker to me is a joke and just ties up my listings for 30-45 day (or more). I'm looking for a loan commitment and preferably from a direct lender.

We continue to search for better ways to "bullet proof" our deals and this sounds like a step in the right direction.

Hap Parsons

The Parsons Group, LLC

www.tpgrealtors.com

Manassas, VA

"I figure it takes 10 years to learn this business." is what Lenn Harley wrote. Frankly, she may be right. I'm two short years away from that mark and I'm quite sure the learning won't stop there.

Janet - The dialogue that your post inspires is quite impressive. For that, you make those of us at Cakewalk Mortgage, Inc very proud:)

If I may and I shall, I will address these "New Rules":

The bank will not underwrite the file until the appraisal is completed. WOW! That's huge and I will write a post soon about the ramifications of this. (A lot of banks started doing this awhile back. Though, I'm not positive that ALL banks are doing the same thing, especially when you take 'exceptions to the guidelines' into account. I'm all for full files from the get-go, but there are almost always... exceptions to this rule.)
The bank will not underwrite the file until the title report is in. (Really? I haven't seen this much as a broker or banker. Title issues have been a rarity for a loan not going through... at least in my experience. The majority of the time I've seen the file underwritten and stipped for Title Work, if it is missing. None the less, I don't see this much because we usually experience fast turn-around times on Title Work. Then again, I don't doubt you make a legit point... I'll shoot you an email before the end of the week)
The bank will not underwrite the file unless all of the income documentation is there. This should eliminate most loan conditions. (Personally, I don't hand-out a pre-approval these days unless I have all of the documentation. I've done that for awhile now. I will continue doing that until the day comes that I'm no longer in this business. A 1003 & Credit Report are wonderful, but I will opt to hand any underwriter a pretty little picture of a file in full. In my view, it saves everyone time and money. I've learned this because in the past I've wasted both)
Banks have begun to penalize mortgage brokers who "pull loans" (loan in progress at Bank A. Bank B has a lower rate than rate locked with Bank A. Mortgage broker takes the loan away from Bank A, gives it to Bank B) ... This is something I don't see written about much but I've heard it on the "inside" quite frequently, though not as much now. I understand the theory behind this practice, yet any mortgage broker practicing this regularly... threw a bullet into their foot. I was always taught & told to rarely do this, conceding that this is a relationship-business through and through. I agreed and still do. It's one thing shopping investors, quite another to dangle carrots in front of the mouths that feed you.

Sorry for the long comment, Janet... I suppose you inspired me too:)

For those of you who want to learn more about the information in Karl's comment, there is a featured post here on ActiveRain written by Susan Templeton about this subject.

This does not impact all loans, but it is significant news.

I am certain of one thing: appraisals will be in the new this year, because so much focus is on the value of properties....lenders have been burned here...badly from rapidly declining prices. They are closing the door on as much risk here as they can.

I love your last line...that's classic! It seems crazy that you now have to put $350 into a property that you might not even buy these days. Maybe it's a good time to get that appraiser's license!

I had two that did not work out and place the entire blame on the loan officers that were handling the laon. Neither was upfront with the client and hoping for something that was not there. They strung the people along when I knew they were full of it. One was an out of town lender which I never like and a loan person who just switched and was impossible to reach during the process.

Both gave lenders a bad name in my book. However neither cleint wanted a good local lender. I did sell the unit to another client of mine. That was 2 out of 42 which was a high for me.

Your title describes my exboyfriends to a tee!!!:)

Jason: I am always thrilled to inspire comments that are posts in and of themselves. The passion and the insight of my readers is astounding. I have a backlog of ideas for writing posts that is worse than the backlog of refinances at our banks (3 riduculous weeks in underwriting...please!!!) But I digress.

Jason is correct! This is not true of all banks. Many of my banks, including our own (we are bankers (direct lenders) as well as brokers at RPM) have decided this is the new rule. It is true that they usually all eventually adopt the same rules.
Don't you think this rule (for title) has come about because of all the issues surrounding forclosures and loan modifications? And because so many people stopped paying property taxes even if they paid their payment?
Agree completely that a pretty file with everything including a nice little letter is just the way we do things over at Cakewalk. Confession? It took me awhile to even understand every little thing they wanted since I was spoiled from stated income loans. Got it now.
I have been dealing with banks for 25 years, and my theory is always that you treat your banks the same way you treat your customers. Without them, you have nothing. So I don't pull loans. But this is getting harder because clients are demanding lower rates even after we lock the loan.

Jason....if only everyone could be the icing as well as you.

Hap: I feel your pain. In fact, whenever I am involved with an REO listing agent, I would describe their attitude as being very close to the one you have in your comment.

I guess my side of it would go something like this:

I know you are dealing with too many a lot of listings.

I know you have are seeing a lot of flakes bargain basement buyers who try to buy your listings.

I see you think we mortgage brokers are time wasters who have no clue a joke.

But gee whiz!

Why does your lender seller wage an all out war to get the financing away from me that confuses the poor buyer and eats up days of the contract?

Why does your lender seller take days to sign the contract, the addendums, and the required paperwork? (Then want to charge the borrower $100 a day for a late closing)

Eric: I never did understand why people want lenders that are not local. I even wrote a post about this!

I do think one of the big SINS of our business is not having the guts just to admit a loan won't fly and tell everyone involved.

That is sometimes really hard to do because you want to impress the Realtor, and in this market don't want to pass over anything that has any chance at all.

The problem, as you mentioned, often backfires because the Realtor just ends up feeling like you did:

I wish you just would have passed in the beginning (giving no credit for even trying)

Is it possible the loan officer is guilty of THIS more than of not being upfront?

Jeff: Like I said in an earlier post..I cannot imagine asking the borrower for this money. It places the burden of the approval back onto the mortgage broker.

Meaning: I must be know that this will be approved or else I am going to stick the poor borrower for $400. Let me tell you, I will be very careful with this one.

Well I am glad to know that they are finally doing something about it. Thaks for the post

Janet, I can't believe that you even considered deleting this post. It is very informative and, frankly, is a need to know report. It does affect Realtors. I think that most experienced agents have a pretty good understanding of mortgage/financing, but I may be giving too much credit, since I am one. Definitely deserving of a featured post (many I question).

I don't think that the Realtor or Seller paying for an appraisal will ever fly. The lender would never approve it. They may get STUCK paying it.

There really is a simple solution to this mess. Start doing it the old-fashioned way. There was actually a time when the bank approved the PERSON first, then the property. If the lenders would do a real pre-approval on the person (ie, based on income, credit, job, etc. we will loan you money up to X amount, SUBJECT TO the particular property), it eliminates a major reason for loans failing in the first place (be it Buyer's Issues or the Lenders' constantly changing requirements). This would be a true loan commitment to the borrower, but not based on the property.

Once this buyer found a property, THEN that property must meet the requirements needed to get a loan for THAT particular home, one of course being that it must appraise. Requiring an appraisal upfront makes sense at that point.

This was common practice 20 years ago. Must we always try to re-invest the wheel?

Janet. Thanks for responding. More info.

1. The lender told the buyer that the appraisal was ordered on the 15th, the date of ratification. She had a copy of the contract.

2. There was a 10 day period to receive appraisal. So, it should have been received by the 25th. The 25th was a Sunday, but our contract is calandar days.

3. My buyer and I started calling for the appraisal on Friday the 23rd. No response to e-mail or phone calls Friday, Saturday or Sunday. Monday, the loan officer told the buyer that she was not permitted to communicate with the appraiser.

4. The home inspection has nothing to do with the appraisal. They are separate functions and have different dates for the contingencies. The loan officer never inquired about the home inspection.

I went over all of the procedures with the buyer and told here that she would be paying for the appraisal and home inspection in advance and if we didn't close she would not get the money back. I also tell my buyers that if we lost this contract because the seller wouldn't go for a lower appraised price, that we'd find another property and if she closes, I would reimburse her for the appraisal and home inspection fee on the first one. That's my understanding with all of my buyers.

I want my buyers to negotiate and process the purchase of expensive real estate from a position of strength. I wouldn't want them to be quibbling or have concerns over a few hundred dollars when I can usually save them thousands on the purchase of a property. Which, in this case, we have a 86% list to sold contract and a buyer with lots of cash.

Dates in a contract are important. Everyone needs to pay attention to them. If a date cannot be met, then the interested parties need to know so we can handle it. Not communicating with the buyer or buyer's agent for 4-5 days, Friday to today doesn't reflect well on the loan officer.

I've already sent her one refinance applicant. Now , . . . . . . . . .

"There was actually a time when the bank approved the PERSON first..." I'm liking this Roger guy. I'm off to read...

Janet - These are great points you make, and my guess would be the percentage of fall out varies from one area to the next, but probably still for the same reasons. Most of my fallout occurs during initial "prequalification" interviews, when pointed questions bring out potential areas of concern. Appraised values and results of Home Inspections are always our biggest potential stumbling blocks, but informed buyers expect these. I've heard of those long turnaround times, but have been able to steer clear of the lenders with those kind of backlogs.

It is about time! I mean that things starting changing that is. However, I don't make it a habit to submit files without income, asset, title and appraisals in the file. I am a little surprised anyone out there still is. If I am concerned about receiving loan approval I will submit the file with everything but the appraisal. However, I only do this if I am concerned that my borrower may not get an approval as my underwriting department will treat this as a resubmission and the file will go back to the end of the 15 day underwriting line.

I have had less fall out due to borrowers walking and more fall out due to lenders not accepting the appraisal and guidelines changing from the time I have submitted the file to underwriting and the time the file is actually underwritten.

I am just staying positive with the notion that it will get better. It has to because at about this time we have no where else to go but up!

Janet,

We just signed on a lender who has "common cents(!)". If the rate comes down during the processing of the loan, the borrower may elect to pay $350 to lower that rate. I tell the borrower this at time of application, so the shopping is "out of the equation". This way, we do not "flip" any loans from lender to lender.

Thanks for the post!

Hi Janet,

Well the banks need to do something right? Well hopefully by summer things will be better with the banks and this process!

Thanks

Tom Davis

DE REALTOR (R)

JAN

Great post, Janet! I'm excited about this as I believe it helps us as mortgage professionals to turn in a complete package up front. Less conditions. Less last minute worries. Most likely less fallout as the borrower has done more of "their" part up front.

Anywhere I can get a copy of these rules from an institution or institutions to learn more about them?

Great post!

I know this has hit everyone at some point or another and its good to take a fresh objective look at things sometimes.

Honestly I have not seen that kind of fall out here. Yes because of home inspections and title issues.. but these are unknowns in any market and I have seen that every year of my career... but many of the loans that die 30 days into the transaction are more due to shoddy work up front, or a lack of understanding of the guidelines.

We are living in a full doc world, and I still see LO's try the no doc route. It is not the time to be lazy it is old school.. get the paperwork, fill in the blanks and hand the loan in. NEVER hand something in with out the back up docs, that has NEVER been the way to take a loan.

Ann at Seacoast: I want to thank you for that tip. I plan to implement that! I had not yet figured out how to explain to clients that re-locking at a lower rate is something that costs money.

I find that one of the most difficult aspects of our industry is all the work is done up front without anyone being paid until the deal closes.

This actually means that every person who successfully complete a real estate transaction is subsidizing all of those people who fell out for one reason or another. There are costs involved to all of us and we don't pass any of those costs on the the borrower! We most likely just eat them

Maybe it is time for applicants to have some skin in the game. Your suggestion is a good one. Thank you.

Robert R.: I do think at this point most of us still in the business have evolved to understand this full doc world. Our processors simply will not allow us to turn in shoddy incomplete files.

But my lenders are still inventing new rules to turn down files. You would think there couldn't be something they have not thought of! Example: They are requiring much more documentation on rental homes....wanting to know amount of equity...wanting to see rent deposited in their bank account....verification that rental income is not inflated by checking comps....don't want more than 1 home in the same zip code.

Geez! What happened to just turning in the old rental agreement?

Makes it hard when they have 3 rentals!!!!

Shuki: I think there will be a rearrangement in the way we do things and that these fresh concepts will help.

Hi Mikey: These are rules imposed by lenders to mortgage brokers. I am not sure where I would direct you to go. Let me think about this and come back with a later comment.

JB: I am all for anything that makes the process less of a roller coaster ride. I had enough of that last year. It is also getting way easier just to tell someone "You cannot get a loan. Sorry.

Tom: If the volume of people doing refinances continues, you will definately see a more streamlined approach...which helps us all. Buyers are still not too thrilled...they remember their last loan when the file needed nada except an application and a credit score.

Oh, they didn't even know how easy they had it, did they?

Marie: I pretty much do things the way you do, except now many banks insists on the appraisal up front. You do bring up a very good point which has not been mentioned:

The problem with not submitting EVERYTHING is that the file goes back to the end of the line everytime one more thing is needed. This means if turn times are 3 weeks, you need a 60 day lock (and how many Realtors are writing 60 day contracts out there?

Karen: Lucky you! I guess that all the California lenders are so busy because we have so many adjustable rate mortgages still on the books and people clamouring to get out of those loans!

I am also surprised by how many people are still sitting on equity. Was shocked when a house that sold for $480,000 (and financed by me) got an appraisal for a refi I am doing.

I had based everything on the house being worth $400,000 (declining market mindset)

Appraiser comes back with $550,000!!!!! And said comps would justify $575,000 but he wanted to be conservative.

House was in Walnut Creek.

Hey Janet, Wow I am glad you decided to keep this post what an insight. Didn't realize that there was an extra charge to the banks for re-locking loans. Great info!

Jason: I know...I'm lovin' Roger too.

So Roger:

Let's first remember that lenders are evolving to rise to the challenges of a market that has never existed before! WE can't back back to the old way of doing things!

Never before have lenders had to assume so much RISK when approving a loan. Is it any wonder that banks look at every single loan application with the hugely increased possibility that they might get stuck owning the property?Lenders have been stung by the foreclosure epidemic and it has come back to haunt every single applicant.

This glaring possibility means that much more scrutiny is being placed on the property itself. That, and the fact we are in an era of declining values.

So never forget that 2 approvals are taking place each time a loan application happens: property and borrower.

So now add one thing to the mix: skeleton crews at lenders and an emerging refi boomlet. Doesn't it make sense to not drag the customer through the approval process if the house won't appraise?

Doesn't it make sense for the SELLER to know quickly that the contract will not fly unless a renegotiation takes place?

Doesn't it make sense that the real estate agent and the mortgage brokers involved do not spin their wheels if the property value will kill the deal?

Lenn: Although I commented on your situation over on your post, I want to also comment here, because you have gone into more depth, but also because I am very impressed with how you handle telling your buyers about the appraisal.

First, I think the Realtors and the mortgage broker need to establish a time line (even a calendar with dates written in!) that shows all of the contingency dates, and all of the bench marks for the loan process, including a projected closing date. Mortgage broker should provide this to both Realtors and communication should revolve around this. To me, it is like remodeling your kitchen. You don't start doing it without a plan and a timeline with your contractor.

Everyone involved needs to know these deadlines and communicate if there are delays. It is never acceptable not to return calls and not to read a contract in a timely manner if you are the mortgage broker.

Lenn, I think every Realtor should handle appraisals the way you do. Bravo! The sooner every buyer understands that they must PAY for an appraisal up front as a condition of getting the loan, the better off we are as an industry. And the genius of paying for any appraisal they don't use? I love it!

Keeps them bonded to you, and shows your committment.

A net of zero. Lenders we work with are on top of the markets and warn well in advance the possibilities of upcoming changes and what back up route needs to be looked at.........

JAN

Janet - See that...we don't know for sure until that darn appraisal comes in. I spoke too soon, though. Yesterday I had my first low appraised value. A property in Ventura County that came in $100,000+ lower than estimated on a tough property in an area of custom homes where there haven't been many sales. Loan will still work, but I got to go back and quote additional "risk based pricing" due to a higher LTV. I'm so glad I have the trust level I have with my clients!

P.S. I have to thank you for this post, which was fresh in my mind when I opened up that report, and helped me stay more level-headed about it!

K: So glad your loan will still work and that your clients have that trust. Laying the foundation of trust in the beginning is so very important in this market.

That, and staying ahead of the curve for potential issues. Thank goodnes we have this exchange of information. I am glad I was able to help you

JAN

Janet... I guess I am a little confused by your post... and I am with Rob Rauf... in my 16 years, the majority of loans that I see fall out are because the loan officer just was lazy, lied, didn't know what they were doing, took a risk and threw the loan up against the wall hoping that it would stick... BUT, told the buyer and realtor that everything was okay. The number 1 thing a loan officer should do is set the clients expectations and should enforce communication from the get go.

As Robert said, yes, you will have some deals die because of title or appraisal issues, but again, in my 16 years, this is a very low amount. Your post makes it sound like this is a large reason, which means in many cases.."most", not "few".

In regards to busy now and not taking on the difficult loans because loan officers are busy with refinances? Poor management in my opinion... time management. I still work on the hard purchases and will exhaust all resources and creative thinking ideas until there is none... and I make everyone aware of this before they go out and look for a home. If I am unsure, everyone knows. If I know I can do it, even if it's hard, I tell everyone. And the main reason to becoming successful in a great closing ratio is if you aren't sure, you ask your underwriters.

In regards to things and guidelines changing so quickly... I think this is more of an excuse used for loan officers when a deal goes south, that in many cases shouldn't have been originated to begin with. That is what I have seen when doing my research on a client that was turned down last minute. And if not, it was just because the loan officer didn't know what they were doing with credit or income.

In regards to appraisals and appraisal fees... refinances or purchases, 98% of the time I have the borrower pay for this upfront. On a purchase, I put the weight on the realtors involved who should have done their homework and comp checks. On refinances, I have the appraiser pull comps before I order an appraisal, 100% of the time... that alone should cut down in most cases when value was told to be lower than what was needed. It's called doing your homework up front. And if the appraiser won't do this, you find another one.... and any smart appraiser that I use, if they see an issue as they are pulling comps, they will let me know ahead of time. Most appraisers that I know, pull comps before they go to the job anyhow.

In regards to the rate issues, people going some where else. In many states, you are allowed to collect lock-in fees. If you are afraid to scare your client off by collecting this, then that loan officer is not educating the borrower upfront in the ramifications to the lender... and how the whole lock and float thing works. If you are confident in what you do and good at it, you can collect these such fees. I just collected another lock-in fee on a refinance two days ago. And yes, many lenders have come out with guidelines of negotiating lower rates and giving part of the lower rate to the borrower so nobody loses out.

In regards to the lenders and underwriters making it more difficult? It comes down to a basic understanding that the lender is at great risk when buying loans from brokers, especially more now than ever before. With us, being a mid-sized banker, we carry that risk until the investor buys it off of our warehouse line, which is about 15 days after the actual closing. We have to get them the full package for post closing, after we send them the package after closing.

Lastly... in regards to not underwriting before that lender gets title and or the appraisal? We underwrite, full underwrite if we have a full file without the appraisal and or the title report. Or, if we get the appraisal in before the rest of the file is ready for underwriting, the appraisal is still sent to underwriting. All of this is called being proactive. And in regards to deals falling apart.. I will say this again.. I believe the majority of the time is because the loan officer just didn't do their due dilligence. Here is a great example..

Jason Crouch had a deal that was approved by the loan officer..so the loan officer said... even if the loan officer pre-qualified the client, it should have never gone as far as the buyers putting a contract in. Here is why... the buyer was self-employed.... I think for 1 1/2 years. The loan officer never went into details with his questions ... and the biggest mistake? Never reviewed the tax returns before he issues his pre-qual letter or approval. This kind of stuff in my opinion is why more loans don't close at the last minute. Loan officers not knowing the guidelines.. or even a guideline that changed 6 months ago, but then the underwriter says no because of a past change. Yet the loan officer blames it on a change that just took place.

In any case, these are my opinions... and this is not just from doing business in New Jersey... meaning that this is not a local thing. I know this because I have talked to about 15 clients in the last 10 months from California.. another 5 from Arizona... and 3 from WA. I have closed loans from MI, IN, CT, NJ, PA, NY, MD, SC, & FL in this time period also... so that is why I can make a decent judgment call on what I think are the main issues. Again, good discussion here, but I think people are making more assumptions here than what is really taking place. thanks & sorry that this was long.. but I wanted to tocuh base on everything that you talked about..

Jeff Belonger

Janet, very interesting and well written. If only business could be streamlined more quickly and efficiently.

FEB

Jeff, if you're in the mortgage bizz, why are you being so hard on loan officers in your comment? Ouch! I think the hiccups in this process can't be nailed down, as every deal is SO unique.

FEB

Jeff:

the majority of loans that I see fall out are because the loan officer just was lazy, lied, didn't know what they were doing, took a risk and threw the loan up against the wall hoping that it would stick..

Sorry Jeff, I just don't agree with this statement. I look around and see the loan officers still left in the business as hard working and dedicated. They are slugging it each day of behalf of their Realtors and their clients. So no, I don't think loan officers are lazy liars that carelessly submit loans.

I do see loans being lost because of values coming in low....something the loan officer has no control over....even if he checks comps up front. The comps can change by the time the loan is ready to close. This has happened to me!

Poor management in my opinion... time management.

I also do not think loan officers are guilty of poor time management because they have a pipeline full of refinances. What mortgage broker out there has so many loans that he couldn't properly handle both loans from Realtors and loans from refinances? Or who is willing to toss out a Realtor relationship that may have taken years to earn the first loan?

guidelines changing so quickly... I think this is more of an excuse used for loan officers when a deal goes south,

Well maybe if you only have one lender to keep up with, or a very narrow niche (one kind of loan that you do over and over) you could then know that product and that bank well enough that changing guidelines might not impact your ablity to function.

But what I really object to in this is the fact you seem to think a loan officer would need to have an "excuse" ....because they really used poor judgement in the beginning. Are you saying that loan officers aren't professional enough just to admit if they made a mistake in submitting the loan in the first place....and that instead they would lie and blame it on changing guidelines?

Loan officers not knowing the guidelines.. or even a guideline that changed 6 months ago, but then the underwriter says no because of a past change. Yet the loan officer blames it on a change that just took place.

I am sorry Jeff, I know of no loan officer that is so clueless as to not know about a guideline change that happened 6 months ago, and so immature that he would need to lie about a loan that fell apart (no matter what the reason!)

I also feel compelled to ask you this: Why do you have such a low opinion of your fellow mortgage brokers?

FEB

Janet... I'll write a blog on this... but I closed 12 loans in 2008 that other loan officers botched. In the last 16 months, I have had over 30 clients call me that were told something else by a loan officer, that wasn't true. I never once said all loan officers. I said that there are those that will do this. And I can give you 15 other loan officers that will agree with this, because we all talk about this once a week. I am trying to educate the consumer. Yes, loan officers use excuses. Maybe you just don't get the phone call, the "after it didn't close" phone call. Here are two great examples.... I am dealing with a loan right now, a purchase in Florida.. the application was done in Nonmember, around the 15th, with a closing date of 12/20/09. The loan officer then asked for an extension to the end of December. They still couldn't close. You know what his excuse now is? That the FHA loan amounts have dropped... he asked for an extension to 1/15/09. It still hasn't closed. Per the FHA mortgage letter, you needed to have the FHA case number registered by December 31st, to utilize the original maximum loan amounts. With the information just given, this loan officer dropped the ball and blamed the changes that took place after the fact, as his excuse. I reviewed the loan and I can close this in 2 weeks. We just had to use the new maximum loan amount and get the seller to hold a second. 2nd example... I got a call last week from a client that was told my a loan officer that they couldn't lock in on the rate until 5 days before settlement. He did some research online and found some of my info... and thought that it sounded funny and wrong. My whole point... there are loan officers that lie or don't know what they are doing. I never said that I was god, perfect, or that I know everything. But if I am not sure of something, I am going to ask an underwriter. You made this statement...

"I am sorry Jeff, I know of no loan officer that is so clueless as to not know about a guideline change that happened 6 months ago, and so immature that he would need to lie about a loan that fell apart (no matter what the reason!)"

I am not trying to pick an argument here, but maybe you work in an area or world that this doesn't happen in. But I could easily talk to 100 loan officers and they will agree with me. I also originate loans in about 7 states myself, so it exposes me to a lot more clients from around the U.S. I had a client this summer from California that spoke to 3 different loan officers in Cali. She could not get a direct answer from all 3... she found my stuff online and then researched my answers and was very happy that I was able to help her out. I just met a new loan officer in my office today, who has been doing this for over 6 years. We were talking FHA loans... and he told me that he can't believe that it's mandatory that a FHA borrower has to have 2 months in reserves now. I said, what? I think you are mistaken on this... he told me, yes, this is true. I went and asked 2 different underwriters and both said that was a false statement. I then asked this loan officer where he got this information from. He said, from another rep. that came into his previous office. I can tell that you didn't like not one of my comments and actually took a stance against each one. But I actually have proof an every comment that I made in here. It's not based on my opinion. And it's not an opinion of those that are brokers, but what brokers are up against, that many bankers aren't... or the bankers that have solid in-house underwriters that know what they are doing.

Again, I would be glad to explain this to you and I even have stats in NJ to the recent fallout because of new hired underwriters into this market. As far as brokers go.... they are falling out and there is a reason why. I would be glad to give you my insight on this. And I am not the only one that thinks this way either. Sorry, just being truthful here... sometimes people don't like the truth, but I can back it up with examples that do happen.

Haven't you heard the statement before, that some people will tell you what you want to hear? That happens and yes, I feel that 50% of the loan officers in this business don't know what they are doing. And I have spoken to 5 loan officers with 10 years plus experience that agree with me, and these are some sharp cookies. I am not making this statement to take anything away from you. This is a general statement. It's one thing to stick up for loan officers... but to stick up for everyone of them? When this actually happens? And to claim that asking for comps and that values change later? I have experienced that once in 15 months.... Again, your market might be different... but I am not just talking about my market, because not only do I originate loans in 7 states or so, but I speak to other loan officers once a week, per a conference call, that are located in WA, CA, UT, TX, AZ, IL, WI, and the states that I am licensed in... so I am not judging this locally. thanks

@ Corey... sorry if it sounds negative, but not all loan officers are trustworthy, period.... and this can go for any profession. I guess I just hold us to a higher standard. Is that wrong of me?

In regards to your comment, can every hiccup be nailed down? No, but with the process of elimination, and with my experience, I can pin point the real problem at least 70% of the time.

jeff belonger

Please know I did not take your comment personally, Jeff. I am also aware that due to the fact you deal over a larger geographic are than I do, you have a perspective that I do not.

Whenever I write something here, I don't feel the need to explain that it is from my perspective. I will assume the readers know that.

Your comment feels like mortgage bashing to me. Part of being a great professional is promoting your industry. It often feels like you use this platform to tear our industry to shreds. You are correct in stating that I do not like that. From you, or from anyone else.

"yes, I feel that 50% of the loan officers in this business don't know what they are doing."

Wow. I guess everyone who reads this must be thinking " I only have a 50% chance of getting a mortgage broker that knows what they are doing, because here is an actual mortgage guy telling us that."

FEB

Jeff and Janet - I have read the debate here and I am concerned at some of the comments. In every industry there are bad apples. We all know this. There are also simply those with less experience and those that do not know what they do not know. It is our job to reach out to them and question where their information came from and assist them in the direction that will lead to the correct info.

* Jeff I simply disagree that laziness, lying or seeing if a loan can stick is ever the intent of a loan officer. If you are in the industry now it is because you like it, are good at it, and are an individual that wants to continue to get better.

When I joined my current company I had never done an FHA loan. Now I am one of the professionals in my area that others come to for advice. When I do not know I go to the Underwriters in some cases but ther are several loans that I have closed where because I read the 4155 I showed them how we were going to get it done.

I also agree with Janet that your tone can be negative toward loan officers in general. This is discouraging. There is plenty of business for everyone. I never bad mouth another loan officer ever and I always give them the benefit of the doubt.

Realtors that I work with choose me because I am black and white and I support my colleagues to the end.

I stopped blogging here for quite a while because I felt there were too many individuals trying to prove they were better, smarter or more experienced than the next. I thought this was a Real estae Network to promote, useful information, collaboration, networking, education and to be a platform for those in the industry to lift up the profession at a time that we are not the most loved professionals. People are scared to make a wrong choice on a loan, a home, a Realtor or Loan Officer. We have to work together to help ease the apprehension through education and expectation two points I thought you did make clear. My only thought is that we could put a more positive spin on it.

No need to prove you are the Mortgage Man. Your knowledge is in your blogs and the details and I do not challenge that. Share that with others and I really think that you could be a leader in the industry.

Janet I really enjoy how you really speak your mind and tell the readers your feelings, You put yourself out there and I admire that. You too have a lot of good information. Many times I think it is easy to talk about the loans that didnt go or boast about the ones that did so we can invoke the comments and be featured.

I left for a while because it became a blog contest to me rather than industry growth platform. I hope that you both know that I feel you both have a lot to offer the Mortgage Industry and that your words have influence. Use the influence to help other loan officers get better, to boost the industry and to help Real Estate agents understand that we always want the deal to work out.

I was trained in this business to: Say yes!! Get it in the door and we will figure out how to get it done.(this from company owner)

I never did that.... but I know some that did.

Boys and Girls, lets go to our happy place and play a little nicer. Pleaasse! There are a ton of terrific ideas floating around this particular blog and the comments that followed it. In an odd twist of events, there seem to be as many good points here than 'not so' good points. If nothing else, Janet always provides a catalyst for excellent exchanges of ideas with nearly every blog she writes. This one is no different. For what it's worth. my take is this. 1) Change within our industry has never been as rapid as it is today. Loan Officers need to either stay on top of them, or change careers. It's that way in every profession I can think of. Mortgage lending is no different. 2) Appraisals are simply an opinion of value. We all know what opinions are like. With everything that has gone on in the housing market, the conservative perspective is likely the 'right' perspective regardingappraisals. (Can you say declining markets? I knew you could.) That's not right or wrong, it's the facts as they are today. 3) As a home buyer, or a Realtor representing that buyer, I want a loan officer that thought about these things LONG BEFORE they became the big issue they are today. Income is fully documented. Assets, cash or otherwise, are properly documented. Credit is completely analyzed and qualified. The buyer is completely qualified as aprovable with the only contingency being appraisal and title. 'Same as it ever was', as the Talking Heads song went. The appraised value was always a concern. Today more so than ever! A good Banker is a Good Banker. A good Broker, is a Good Broker. As Loan Officers for either, it is only important that we ourselves are knowledgeable, courteous, professional and honest. Let the dialog continue. But puleese, stay in that happy place.

PS - 2 stars in a row!!! Congrats Janet!

FEB

Wow. Anybody that claims that there weren't a good portion of loans blowing up because of changed guidelines, arbitrary reasons, programs going away etc. must not have been any doing business in 2008!

Are there still some uncompetent loan officers out there? Of course. But to imply that anyone who had deals fall through was incompetent, lazy or not experienced enough is out of line. Let's also not forget that all banks/loan officers do not have access to the same programs. So the fact the one person couldn't close a loan but another could doesn't make the one who got the deal done superman. It simply means the consumer was shopping at the wrong place.

And I completely agree with Matt's comment above regarding the blog contest "i'm better than you" attitude of some people here on this platform. If someone has to make so much of an effort to prove themselves at the expense of putting others down, there is usually a reason for it.

Michelle

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