A lot of us have started to go nuts as lenders are getting more and more nitsy, driving our beloved clients crazy with last second requests for documentation and other paperwork issues that seem to come to a head about two days before settlement.
This morning, I had a talk with a lender who has been making loans as long as I've been selling houses, and we were laughing about how it's getting to be just like the good old days! So now, I'm coaching all of my buyers on what to expect during the process. By preparing them for all of the stuff that is totally annoying people right now, I'm hoping that if they expect the nitsy, it won't annoy them as much. Here are some of the things I'll have them be on the lookout for:
- For a while, the lenders were all pretty casual about pest inspections. Well, now it there is a single carcass of a single once alive termite on the property, there will have to be some evidence that the little guy did not die of natural causes like old age. This means evidence of prior treatment, either in the form of paperwork documenting when the treatment was done or a new treatment. Same with repairs of termite damage. You'll probably need someone to certify that it was done by a licensed termite repair contractor, or you will have to bring in a licensed termite repair contractor to say it was done properly.
- They are looking at condominium documents more carefully, with an eye to saying no to people buying in buildings that look like the owners' association might be in trouble. In projects with a lot of short sales and foreclosures, this could further compound the problems they are having with owners who cannot pay either their mortgages or monthly association fees.
- If you put any money into your checking account that was not your regular pay check, you will have to account for it. So if you are self-employed, keep good records of your clients' payments. Same if you are on commission. I just had some buyers need to get a letter from grandma saying the $1000 check they deposited was, in fact, a wedding present.
- If you are getting a large gift from your parents, you may have to document that they did not borrow the money to give to you. You'll also probably have other lender's guidelines about the amount as a percentage of your down payment.
- It is taking a lot more time to get the papers through the lender's system - getting the loans through underwriting and then getting documentation to the title companies. It's like they are trying to do the work with fewer people, which means the fewer people are going to put your papers in higher and higher piles that take longer to get to.
- And they keep thinking up new things faster than we can add them to our What to Expect list!
We used to have to deal with these situations all the time before about the mid-1990's. All lenders were a pain, but it didn't seem like a pain at the time because we were totally used to it.
And yeah, they expect to get picky, picky, picky! And trust me, it will still be easier than when I was a new agent and had to walk through the snow for miles to hand deliver the extra documentation!
I think the banks need to be a little more worried about what isn't going into the account instead of where the extra is coming from.
Pat..What did we call it ??? Life before fax machines...I have Great Loan Officers telling me they are gong to retire...If they do I will surely DIE ...I count on them to get the job done..but they tell me things are getting so tough and no one is listening....good post..Thank you
HELPFULHANNAH
Well I don't know about the good old days... I've just been doing this job for 17 years and I've NEVER seen anything like the list of documents underwriting wants. In fact, nor have the loan officers. Recently underwriting would not accept a declaration of pension letter from my client, they wanted a letter stating he would continue to receive his pension for the next three years. WHAT? It's not like it was a 3 year loan, what about the 27 years after that? It's craziness out there and I think it will get much worse before it gets better. Now I do tell my buyers to expect the LO to ask for lots of stuff, but this one was a new one on me and on the LO.
Pat - And, we need to coach our buyers to not only understand the process but to take a deep breath when they are called upon for MORE documentation. It's the norm. I have had loan processors say the need one more thing TEN times.
Pat- Oh so true. Since I am a planner this last minute stuff drives me crazy. But alas, like you, I have started telling my Buyers that things will seem a little nutsy during the process and to just do it, get it, send it. That is if you wantta close. :0)
i love the reference to the termite dying of natural causes. I will be chuckling all day. The rest, not so much.
Pat ---- this is really a great list ---you are so right --- if agents educate buyers ahead of time, things go so much more smoothly.
Pat, Great bullet points. We do the same thing with our buyers - that way they know what to expect, what to not do and there aren't any surprises.
Pat, you left out one thing.... Walk thru the snow, BAREFOOT AND UPHILL...
And this is a great post! I am always expecting the unexpected these days.
Hi Pat... I know it make for a more cumbersome process, but the reality is that this "snap back" is necessary because thjings got far too loose. I think given time they will again become less rigorous, but hopefully not back to the loosey goosey practices of recent years that have gotten us into the current mess we are in.
Pat - yep, we sure are seeing a much more complicated process with changes all the time. Educating uyers is critical but they also need to know that other things may come up that we do not even expect due to some new requirement. The ones at the last minute drive me nuts. I'm glad to hear the spot approvals on FHA loans are still possible until the end of January. I have at least 1 buyer this will affect.
Jeff
Hey Pat! This is so true. I've been seeing the strangest mortgage commitments these days. The last one I saw wanted an explanation of a few different deposits for really odd and small values.
a few years ago my dog could have gotten a loan; now its tuff for great buyers to get a mortgage!
Pat, Coop board packages have prepared me for the nit pickiest bank requirements. Once a buyer was approved by the coop board the last step was scheduling a closing date convenient for all the lawyers. Usually I already have the documents the lenders are asking for at the last minute. We have affidavit forms for everything.
This post just reminded me I need to light a fire under two bankers tomorrow. The process doesn't just automatically happen anymore. We need to keep following up every step of the way.
The lenders are out of control. We recently had two minor repairs to a well (increase size of extension) and septic - (repair the pipe between 2 tanks) .. otherwise both systems were working "perfectly". The lender insisted on a well certification and a septic certification both of which DO NOT EXIST in the state of NH.
One thing I tell new buyer clients is this: "If it has a piece of paper attached to it, save it and send it to your lender." Paper trail, paper trail, paper trail. Best to be proactive and send it along to the lender, just in case, than to have underwriting held up because they asked for it, then you had to send it.
I like Kris' advice above my comment - save everything!!! With several of my transactions the last few weeks you get to that point where everything is just right and they pull one out of left field. So outta left field none of us have heard of it before. Oh wel, sign 'o the times.....
What is old is new again. Seems Real Estate is not the only thing that goes in cycles. Yes there will be additional details, documentation and inspections required affecting older homes more than newer ones -- loved the termite dying of old age remark!
Pat, I've been noticing the same thing. It's almost like the "good ol' days" in mortgage lending - even to the point of lenders losing everything you send them, at least once.
Isn't it funny how common sense eludes the lenders? First, they loan money to completely unqualified people. Then, when that doesn't work out so well, the pendulum swings the other way and they get unreasonably paranoid and sabotage completely qualified people's efforts to buy. And when people can't buy, nobody wins.
Hi Pat~ Great Post!! And sooooo relevant in the market today!! We may not see a baseline in lending standards until the unemployment rates get better! Still a TON of volatility out there! All the best!!
Pat---and barefoot and pregnant besides:) One of my kids just go hammered in a short sale---the banks can for sure be picky, picky
Patricia-It seems like they have swung from one extreme to the other with their requirements. I hope we can find a happy medium. It's very frustrated to get documented to death towards the end of the deal. I always try to prepare buyers for this. Luckily, I have built a good relationship with a lender who anticipates most of this stuff up front.
You are right-- we are seeing some new requirements as well.
Yes, the good ole days have returned! Are we going to be better off? Maybe some will be saved from the heartache of losing a house they should not have purchased!
Patricia: As a lender, I can tell you that your preferred lender is absolutely right. There is no real defense for the present dilemma ... it is all happening as a knee-jerk reaction (should I say over-reaction?) to the mortgage crisis mess heard so much about and suffered by us all. As pointed out in a comment above, it's the old "pendulum swinging from one extreme to the other" that we're experiencing. Until it finds that happy middle of the road, we will all be jumping through hoops when underwriters demand the extras they need. There is no swaying them and you either comply or forfeit the transaction.
Until sanity returns, all within our mortgage industry and our referral partners need to educate home buyers and home owners regarding these processing and closing pitfalls and prepare them for the inevitable requests for more documentation/proof. The more accepting they are of this cold hard fact ... the better ... and the less upset and frustrated they will be during the process. It will also make for fewer misunderstandings. poor relationships, and bitterness at transaction completion.
Thanks for educating everyone regarding this ... and doing your part.
Gene
Pat - I called to check this morning on a loan for a short sale closing that has been dragging on since June. Young, first time buyer with down payment money left to her by her grandmother. Terrific job, no debt, appraisal has actually increased by $11,000 since we started. BUT - the loan has not been approved because she doesn't have ENOUGH credit cards!
Who's running the asylum??!?!?!?!
As a loan officer...I cannot tell you how frustrating the underwriters can be. One thing I have implemented is to move more business away from the larger banks. Thank you for helping your buyers to understand what they are up against. I am sure that it gives them a little bit more patience. :-)
When a client applies for a loan, having a very clear checklist of what the lender wants is key. Every detail should be spelled out,with certain items in bold type that clients usually miss, such as include all pages of the bank statement, even the one with nothing important on it.
To add to your blog, inspectors too are becoming more picky as well. Thanks for the post.
Pat, great blog. I didn't know it was this way before. That helps me out a lot because I was thinking how absolutely crazy this is getting and would it ever get better. You have now calmed my fears.
At the rate we're going, pretty soon you'll see mortgage underwriters requiring that every "i" is dotted in the proper place and every "t" is crossed properly. If all is okay, then expect that mortgage applications will be delayed because of "stray" marks on any of the forms as underwriters try to understand the meaning behind the hieroglyphics. If all is okay, then expect some form of closing condition to be withheld until 3.729 seconds before the customer signs the loan docs, then cause a delay of 3 days before you can go back to settlement. It seems they don't want a loan to close in case something goes wrong and they get hauled in on the carpet to justify their approval. Just my opinion....
the new/old world.
we need your help. the buyers need to understand that there isn't necessarily anything wrong with their loan request just that the lenders are a little nutty.
the rule is that we will overdocument the file.
the golden rule is that we have no common sense whatsoever, we will prove it to everyone during the process.
but a good loan officer will still be able to get the deal done.
Sarah Eubanks has it right: "... move more business away from the larger banks." BINGO! Do business at home with hometown banks. These big banks are too big for their own britches, and the situation is only beginning to warm up.
Pat - Great post. It is a different lending world today. It's almost like doctors who order a bunch of tests just to insure that they are not sued. Today underwriters are going to extremes so that their decision never comes back to haunt them. The pendelum has totally swung in the other direction.
The irony of this situation is that most lenders are flipping properties to Fannie/Freddie, who basically represent the government. So in some sense its our own taxpayer money that is funding these loans.
Yes we are at the far end of the lending standards and this is a long way from where we were. I think that we will start to swing back to the middle but it looks like it might be a while still.
Jay hit it right on the head. As a lender I can tell you it will only get worse. One lender just asked my client for a letter of explanation on an inquiry on the credit report--the inquiry was from that lender! Just idiotic these days. The new GFE set to go into effect on Jan 1 will cause even more confusion with your buyers. Sadly, your buyers will also see their choices diminish drastically when it comes to lenders. I anticipate a number of brokerage houses shuttering their doors (or becoming a banker like my company is) because Yield Spread Premium must now be credited to the borrower. This will give banks a HUGE advantage when comparing loan programs. The big banks have and will continue to get stronger--bad news for all of us.
Patricia
I am going on my 40 th year in the business as a lender. I am glad from many of your responses here that Realtors understand that we lenders and brokers are frustrated over this too.
Even what I term " Gold Plated " clients are getting some rather unusual conditions.
It's hard enough these days just to comply with all the new regulations such as HVCC and the new disclosure requirements. We really have to be on our guard. My main focus right now is to try my best to screen a file as though I were the underwriter which I have always done to a degree.
Thanks again to those Realtors who support your local mortgage broker. As a former banker as well, some of my still banker friends flip out every once in a while over their own underwriters.
Let's hope that common sense once again returns to the forefront. My guess;however, is it might take a while.
Great post.
BTW..You are in DC...not that it's any easier for you, but I really think our politicians need to hear just how ridiculous it's getting out there.
Thanks again.
Great post...i started selling in 2002 so I was from the generation if you had a pulse you could get 5 loans and then had to prove assests...congrats on well deserved feature.
Related to "The big banks have and will continue to get stronger", please see this post, and my comments to that post. Is this really unfolding before our eyes?
I love your Blog as a loan officer in Oregon I agree with everything in it. Jena
Patricia - Almost all of my buyer clients have had last minutes requests from their lenders this year and I too started to prepare them, but unfortunately some where still annoyed.
Back to basics, except the basics are magnified! Working with a good lender is so important and educating our clients of the process must be mandatory, but there is always going to be the "last minute" hoop jumping someone has to take!
One thing for sure. Lenders have uncovered that long lost "black hole".
The job of an underwriter is tough too. If the loan defaults and there's an investigation, that person could essentially lose your job if they forgot to condition for something. They're at risk everyday of getting fired for having too many defaults, making mistakes etc. Plus, if the loan can't be sold in the secondary market the underwriter will likely be scrutinized. That's why it's so important to work as a team and make it as painless as possible.
Pat
I reminisce about those old days often lately
I realize that lenders need to be more careful than they were in the past 5 years, but some of the things underwriting is asking for are just plain silly. Maybe they just want to see how badly the buyer wants the home, or sometimes the things they ask for are so outlandish that I'm convinced they went to lunch together and bet each other what they could make they buyer produce in the way of whacky documentation. If you think the lenders are asking for strange things, you should see what they want (over and over) on a short sale.
Hi Pat !
I just had a lender require an 'electric panel inspection' - with photos ?!?!
That was a first for me !
Oh, this is timely. I just lost a deal yesterday due to a last minute change in the lending rules by FHA for 203K loans...which blindsided, me, my client, the loan officer, and even my back-up folks. What other hurdles are the banks going to hurl at us, and what other potholes are going to crop up from the good ole FHA? Hmmmm....
The lenders have definitely switched from the old, looser guidelines we've gotten used to though I've been through this same crazy round before in the "old days".
We publish an online ezine called MortgageCurrentcy.com -- which interprets the rules and regs for Fannie, Freddie, FHA, VA, USDA and last month there were 17 of them that JUST affected loan underwriting.
The problem is that you get about 30 days notice that the rule will be changing--but recently, (and it's not happened in the past) we get a rule change that's effective IMMEDIATELY--which is usually the date of the memo--which usually was a week ago!
Preparing bot the buyer and seller is the key!
Karen Deis
Yes Pat, lenders are getting very picky much more so than in the past.
Preparing clients for what is to come and the possibilities is always a good move. I always tell them that somewhere along the line there will be a bump(if not a few) and to expect it and that we will get through it. Lenders are harder now than before but it is still doable if you remember you are in it for the long haul.
Oh the force of the mighty pendulum! When, oh when, will it ever settle down?
And lenders are requiring more for appraisals as well. I recently completed an appraisal where the value went up from the time of purchase...because the buyers renovated the home after purchasing it from a short sale situation.
The new lender for the refi did not believe any properties in Florida could go up in value in the last 24 months! No matter what I did - 6 closed sales, 3 listings, 2 pendings, trend analysis, commentary, photos, etc......somehow the underwriter or reviewer just has the power to cut the value to what THEY felt comfortable with.
Sounds like they didn't want to make the loan. You know.....sometimes values DO go up in a declining market.....it's called a rehab!
Can you really blame the lenders based on all the red ink they are currently eating, of course partly their own fault. However, when our respected representatives in Washington told us to give anyone who could pass a mirror test a loan, Wall Street picked up on that as a way to pocket billions, and they did!
So lenders have swung the pendulum to the other side and are demanding every piece of paper almost to include your underwear size.
thanks for the post and it makes a lot of sense to alert your buyers to the avalanche of paperwork that will be required to get a loan.
The ironic thing is that no one seemed to care about a 6% commission when houses were selling quickly with stated income/stated asset loans...easy sales. Now that we have to work so hard to get deals closed, everyone wants a piece of my income.
Don't forget they are also telling us how to write our contracts these days--or at least trying to. Even though there is space on ours to ask for items like the refrigerator to remain, we're not allowed to do that anymore. AND THEN, one mortgage originator had the nerve to tell me they don't pay any attention to the contract dates. Another week before last asked me what I meant by final loan approval. And one company asked for some business documents from the selling broker's company that had absolutely nothing to do with the loan processing. All of this is extremely frustrating to me. I can understand that things need to tighten up, but some of this is overkill.
As I read through all these comments, I see a lot of legitimate gripes by agents, and frustrations by lenders. The reality is this ... Mortgage delinquencies set another record nationally in October '09, and 1 in 4 FHA loans is at least 30days behind. It's all about risk, and if banks lose money, they can't afford to make loans moving forward.
Guidelines in the 90's and early 2000's were way too lose, particularly on some of the debt-ratios allowed, and letting people "state" their income all the way to 100% financing. When a borrower has no "skin in the game", they have nothing to lose by walking away, and the risk of becoming upside-down is far greater.
In DECEMBER 2009, FannieMae will be updating their guidelines to reduce the max debt-to-income ratios to 45%, from the current 50%. FHA is starting to tighten too. This will limit many buyers after the first of the year, but is needed to ensure the lending industry survives.
A new Good Faith Estimate form goes into effect January 1, 2010, and this will ELIMINATE YSP for brokers, which means mortgage brokers will NOT be able to do no-fee loans unless they truly plan to work for free. So fees WILL increase on the front-end. You will see many brokerages close, and those that remain will become banks themselves.
I do NOT see a shift to smaller, local banks, as they simply don't have the resources to survive a market downturn or defaults on their own loans. This is why credit-union and portfolio bank guidelines will always be tighter than FHA or loans sold through FannieMae guidelines. Yes, there is a lot of anti-big-bank sentiment, but without them you will have higher rates and tougher rules.
BOTTOM LINE is to work with a Direct Lender who can troubleshoot your files in advance and request everything up front without the back and forth. Most originators started in the business in the last 5-10yrs and "grew up" on easily lending rules, so are still having to find their way through changes.
PREPARE YOURSELF AND YOUR CLIENTS for continued tightening over the next 12mo. There is a proposal to limit Loan Originator compensation to per-unit pay, rather than commission-based. This will ruin the industry as there will be no incentive for a Loan Originator to make any money for the bank, so most lenders will close down, leaving a few government-run outfits.
What would you as Realtors do if Congress said you have to be paid a flat fee per sale, regardless of sales price, or type of transaction? Would you still charge commission for your company, or do it for free to get all the listings since you would have your per-file paycheck anyway? Or what if your commission percentage was capped? I was a highly-successful realtor for many years before becoming a lender, and can tell you there is a TON more time-per-file spent on the lending side, than as a realtor. And we have to do just as much hand-holding through the process. Yet our commissions now are capped by FHA and banks, and it may go further.
Just remember that loan officer, and lenders are real people too, and are facing a lot more challenges keeping up with changes and surviving than many Realtors even realize. Most of my business comes from realtors, and I'm constantly educating them.
Food for thought ...
It is not back to the future. We have never really seen this level of paperwork ever. As a loan originator and a real estate agent, I prepare my clients from day one to be ready for everything they cn imagine to be asked for and then some. I just had an FHA loan denied, after it was already approved pending results from 4506 T response from the IRS. It turns out my client had not filed her 2007 Tax returns. She owned no money, we had W2 forms. Not only did they deny, but they would not even put the loan on hold until she filed the tax returns immediatley and sent in another 4506. We had to start all over again. These lender are getting more black and white in how they see everything with less and less exceptions possible. It is only going to get worse.
Even with 40% LTV the underwriters poke and pick at meaningless little things. I guess they are want to make it look like they are doing there job no matter how solid a buyer is. My client had to explain in detail a bonus check for $1,000 that was over and above his normal income.
Hi Patricia, You nailed this one ! Never seen so much scrutiny over the fine print !
Wow thanks for the great post and all the responses. I haven't had many transactions since getting back in the industry this year but this is invaluable information for future clients. Thank you all.
The reason why it is taking so long is because of the guidline changes that recently occurred. Now, lenders must wait a certain amount of time before taking various steps in the process. After each action, there is a waiting period. These changes not only added time to the process but also costs to the borrowers. This is a classic example of another over-correction. In an attempt to protect 1 out of every 200 borrowers, they just made it more difficult and more expensive for everyone else.
At least the stated income mortgage loans are still out there. The self employed borrowers are happy about that.
I've run into the problems you describe also. It helps to be upfront about it with all parts of the team right from the beginning. I've tried to account for the extra time needed to get the mortgage ready for closing by extending the closing date a few weeks when putting the contract together. Every agent representing the seller side questioned and challenged the date, and just were unreasonably pushy and unrealistic. The other frustrating part for me was not having phone calls returned by the bank's agents (people I sent the business to). In truth, they ended up being the ones caught in the middle and the delay and difficulty was purely the underwriters. Sometimes it's hard to believe that we are all in it for the same goal - to get to a closed deal.
I look forward to competition. Healthy competition. I want different lenders with different programs all trying to nail down a segment of the market or going after a niche. I want them doing it with more of their skin in the game so although they are competitive they are not foolish.
What was the song from back to the future, "Gonna go back in time."
Great that you have a 'gonna expect this list' but I wonder about the one where the parents borrowed the down payment gift? Why would a lender care if the parents went out on a limb to help the kids? None of the lenders business, jeez.
Gene: I look forward to lenders hiring people to make the process more smooth.
Seems like it should be straight when it starts and then the fun starts. Know what ya mean!
B
Pat- I was at an inspection this week where the inspector gathered up some bugs and took them with him to check them out in his lab.....................I have never experienced that one before!
I couldn't have said it better. Lenders are now going back to when credit actually mattered. They are looking to see if a borrower has demonstrated the ability to use credit wisely. Back to the future is basically making certain that a home buyer can handle one of, if not the largest financial obligation(s) they will make.
I am happy that you are advising your clients ahead of time as to what they should expect during the loan process. If many more realtors would do the same it would make my life a whole lot easier. In my initial interview I let them know what to expect, but still, I the mortgage loan officer, is backed into the "shoot the messenger" category when dealing with loan applicants. Often I am blamed for the underwriter wanting documentation of your first born down to what you had for dinner last night....just kidding.
Homeownership is an important step. It is owning a dream. Homeownership is an investment in a family's future. A perspective buyer can't just wake up one morning and decide that today they are going to buy a house. Some can, but there are others that don't need to leap forward but take it one step at a time. For most, the first step in the road to homeownership begins with taking a serious look at their credit. Some individuals don't have a clue about a credit score or how it's derived. They don't realize that a collection is a collection, is a collection....no matter how small. I really think that a nine-week course in financial responsibility should be a requirement for every young person graduating high school.
Thanks for the good work. If you need a lender in the Washington, DC area, look me up. I'm ready to help!