I got a call last week from a Realtor friend asking my advice. He represented a seller who was under contract and whom had agreed to pay UP TO 2 points at closing plus other closing costs (DOC PREP, UNDERWRITING REVIEW, PROCESSING) to the buyer's mortgage broker.
The transaction was set to close last week, the buyers loan was approved, a Good Faith Estimate had been provided to buyer, and the mortgage broker had sent the file to a lender who had in turn sent a Good Faith Estimate and loan documents to the title company for closing.
The Good Faith Estimate had only 1 point on it. The title company worked up the HUD-1 and sent a copy to all. The seller was going to net only $100, but they were happy to get out from under the payment & get their home sold.
All was well until the mortgage broker saw the HUD-1 and realized they had only figured 3% down payment for the buyer instead of 3.50% (it has only been 10 months since this went into effect) AND more importantly they had only put down 1 POINT in cost to the seller. This was an hour prior to closing.
So, the mortgage broker immediately stopped the closing, called the lender and yelled at them for sending the loan package to the title company, called the title company and yelled at them for preparing the HUD-1 and disclosing it to everyone.
The mortgage broker then prepared a new Good Faith Estimate showing 2 POINTS plus regular Doc Prep and Undewriting fees from the Lender PLUS an $850 PROCESSING fee to the broker. So now, at the 11th hour, they RAISED their fees by $2700 (1 extra point on a $270k loan).
Now the seller needs an extra $2700 they don't have in order to close.
In a situation like this, Federal Law states that the buyer must be redisclosed to an must sign a new Good Faith Estimate at least 72 hours PRIOR to closing.
Remember, though, that the buyer doesn't care what the mortgage broker does because the SELLER had agreed topay all closing costs. So, I am GUESSING that the mortgage broker produced a new Good Faith Estimate & had the buyer BACK DATE it so they could get around the 72 hour timetable.
Being in the business, I am GUESSING that the mortgage broker realized that they were leaving money on the table & they were bound and determined to get it. Even though they had locked the buyer in at only 1 point, the seller was willing to pay 2, so why let them off the hook? They don't care about the seller. It's not THEIR client.
Anyway, the seller was able to get some money from a relative, the listing agent reduced their commission, and the title company and mortgage broker all pitched in to make the transaction close. But, I don't think anyone was happy.
Several things should have happened here that didn't. (1) the listing agent should have requested a Good Faith Estimate from the mortgage broker & used it to prepare a NET OUT for the seller PRIOR to the seller signing a purchase agreement. The listing agent then should attempt to make the mortgage broker HOLD to these fees. (the mortgage broker will have to do this starting January 1st in the U.S.). (2) The mortgage broker should have held to their original Good Faith Estimate (3) the seller should have had a back up plan-just in case (4) the selling agent should have had to disclose to all parties up front that the mortgage broker was RELATED to the selling agent!!
Smell a little fishy yet?
This was an FHA transaction, no less.
I advised the listing agent to complain to (a) the local Realtor association, (2) the Financial Institutions Division, and (3) the NM Real Estate Commission.
Even though mortgage brokers typically have no contact with SELLERS of properties, and the FID usually just takes complaints from buyers (the mortgage broker's PRINCIPAL), this is clearly a case where the actions of a mortgage broker have hurt a member of the public (the SELLER) and they should not get away with it.
The moral of the story is: LISTING AGENTS must make sure the buyers agent refers the buyer to a reputable loan officer. No longer can you just ASSUME this kind of thing won't happen. I am truly ashamed that these kind of people exist in my industry.