Donâ€™t you just hate lenders?
You know what Iâ€™m talkinâ€™ about. You secure a pre-approval letter, find the buyer their dream home, arrange the home inspection, negotiate repair items, remove loan contingencies, arrange the closing (or settlement for the lawyer states), andâ€¦
BRRRING BRRRING !! Your phone rings three days prior to settlement.
â€ťUh, this is Walter Banker from Big Bank in America. We have a problem.â€ť
Husbands are cursing, wives are crying, and children are depressed because there is no mortgage. Sellers, their agents, lawyers, and everyone involved in the transaction are threatening lawsuits. A sad and stressful situation, to say the least.
There are three reasons for this:
a) The clientâ€™s loan originator is a liar.
Seriously. Less experienced or desperate loan originators overpromise and under deliver. They push the edge of the envelope and deliberately make promises they are unclear about.
b) Loan programs suddenly change.
Direct lenders arenâ€™t impervious to such problems. Oh, theyâ€™ll tell you they are but when the dung hits the fan, they blame the change on the PMI company, Fannie Mae, etc. The reality of this tightened credit era is that the loan guidelines can be changed on a whim and all unlocked, unregistered, or UNAPPROVED loans are canceled.
Be extremely wary of the retail lending originator who tells you HER bank is different.
c) The deal has to change because of documentation submitted by the borrower.
Sometimes, your buyer is at fault. Buyers drag their feet, misinterpret what was requested, or just plain conceal information in hopes that the mortgage underwriter never finds out. An immature approach, indeed.
Itâ€™s Mortgage 9-1-1 time and you have to shift into emergency mode.
Here are five things you can do to avoid Mortgage 9-1-1 and survive it when it inevitably hits:
1. Interview the loan originator before the offer.
Here are five important questions to ask an â€śalien lenderâ€ť to discern their professionalism. Originators who tell you that they have never had an â€śawshitâ€ť moment, should be avoided.
We all blow deals; if they havenâ€™t, they donâ€™t have much experience. The professionals have this happen monthly; the trick is in the back-up plans. Even if itâ€™s an in-house mortgage company or well-known bank, the originator should ALWAYS have a back-up plan.
2. Insist on seeing underwriting approval within the loan contingency period;
Buyersâ€™ and sellersâ€™ agents alike. Some banks call this a loan commitment. Some call it a conditional loan approval. Be certain to check the signatory party; you want it to be an underwriter, not a â€śVice Presidentâ€ť.
3. Immediately call in your â€śfire fighterâ€ť.
This is a mortgage broker in whom you have supreme confidence (mortgage brokers have a greater depth of knowledge about lending than our retail bank counterparts; many of us started our careers at direct lenders). This â€śfire fighterâ€ť should immediately interview the originator, processor, and underwriter. It should be someone who understands that advice is desired, not a loan.
I have often advised originators at big banks about their underwriting guidelines. Rather than â€śsteal the dealâ€ť, I explained how the originator and junior underwriter can re-run their automated underwriting system to secure an approval.
4. If the â€śfire fighterâ€ť has to commandeer the loan, determine exactly how much time is needed to get a final loan approvalâ€¦
Add two days, and secure an extension from the seller (through his agent).
Those of us adept at â€śsavingâ€ť deals will generally arrest our loan pipeline to â€śget the deal doneâ€ť. The fire fighter will probably charge a premium for the rush job. Be certain to get a copy of a signed good-faith-estimate (by your buyer) so that there are no surprises at settlement.
5. Then, lay-off your firefighter.
Fire fighters will go into action immediately if they think they have a loan to fund quickly. Get them on a conference call with the seller, the sellerâ€™s agent and you, to lay out the ground rules.
After that? Lay off them.
There is nothing worse than 3-4 calls, daily, from both agents, when the â€śemergency planâ€ť is in effect. Often, weâ€™ll be talking to appraisers, title officers, and underwriters all day long. If the fire fighter calls for information, be direct, be brief, and be appreciative.
Not all loan originators are good fire fighters. A mortgage broker with a keen knowledge of lending programs can size up a deal, in the emergency room, and give you a percentage chance that it gets funded. Much like our counterparts in â€śrealâ€™ emergency services, we thrive on the adrenaline rush, the pressure, and the challenge of making â€śanother manâ€™s dung, our diamondâ€ť.
While I know that many of you will say that youâ€™ve never had this problem (because your lender is amazing), I assure you that EVERYBODY (including me) blows a loan approval.
This â€śemergency planâ€ť should help you get your buyer into the home.