Problems With Lenders

Having been involved in dozens and dozens of real estate transactions involving lenders, we have observed several repeated glaring probems with lenders community: lack of professionalism, faults of pre-qualifying, poor disclosure practices, etc.

How Does It All Relate To You?

You might be wondering what's that got to do with you. It's a fact that 90+% of all the purchases (in a price range of under $300,000) involve getting traditional financing through mortgage companies. The closing of your sale depends dramatically on what mortgage company, what loan officers, and loan processors work on getting your Buyer financed.

Don't get us wrong. We don't want to bad-mouth the whole industry. There are some good companies out there. However, anything we say is based on our own first hand experience of being a Buyer or a Seller in many transaction we were involved in.

Inevitably, 3 out of every 4 transactions involving some sort of mortgage financing had major problems. Overall, having to do business with traditional lenders alsmost ALWAYS caused us to lose money.

In fact, at the moment these lines are written we have a house under the Contract (we are a Seller). We already lost several hundred dollars because the Buyer did not quailfy on time, we had to extend the closing by 1 extra month, we were already notified that we won't close by the end of that extra month, and we still don't know for sure if it'll close at all.

This is just one out of tens and tens of cases where we lost money because of lenders.

Lack Of Professionalism

Unfortunately, the mortgage financing industry is very prone to employing loan officers and loan processors with low professional qualifications. It is especially true during times when interest rates are below 9%, when a lot of business is fueled not just by purchases, but also by refinances of existing higher rate mortgages.

Lots of new companies and branches are created and filled up with new hires who have no clue of what's involved in processing a mortgage file and getting it ready for underwriting.

Misleading Advertsing

Those new companies are particularly known for their misleading advertising, when they promise things they can't deliver, just to get business in the door.

Your hopeful Buyer writes out $375.00 check for appraisal and credit report and believes he can get financed through this new "special" program, or get a super low rate, only to discover (after 1.5-2 months) that he is dead in the water.

And so is your closing.

Faults WIth Pre-Qualifying

You probably heard that you should get a pre-qualifying letter from Buyers' lender before you sign a Purchase Contract. This is not a bad advice, as long as you understand the letter means NOTHING. It only means that Buyers filled out a paper where they stated their income and debts and (most of the time) the loan officer pulled their credit report, and it did not show any really bad credit.

There's still 1,000 reasons why things can go wrong and that loan can be declined.

Everything Buyer puts on the application will have to be verified in writing and substantiated with a 2 years history. What Buyers thought their income was, may not be what the lender agrees to, same goes for Buyers' debts. Every not so perfect item on the credit report will have to be explained in writing and accepted by underwriting, etc., etc.

We recently had a house under Contract where we were presented with Buyer's loan pre-qualifying letter from a lender. The comments were that we had a super quality Buyer with over 700 credit score (which is very high, indeed) and he should not have any problems with getting a loan. One day short of closing the loan was declined. Our Buyer appeared to be self-employed and only 1 year (out of the 2 required by lender) of his income could be verified to lender's satisfaction.

Poor Disclosure Practices

This one caused thousands of transactions to blow up right at the closing table. Early in the loan application process the lender quotes certain interest rates and other costs of funds (points, origination fees, etc.). By law this should be done on a special disclosure form which both lender and Buyer sign.

At the closing table Buyer discovers that the points, fees, interest rate, other terms have changed, from what he was told or he understood. And it did not change by $500 either.

Recently we were closing on a sale of $125,000 home. At closing Buyer discovered that he was paying 3 points (that's extra $3,750 !) to get the rate he wanted (of which he was not aware). Needless to say he was absolutely furious, and rightfully so.
In some cases we had to pay for some of this extra costs for Buyer just to keep the closing from blowing up.

Some unscrupulous mortgage companies really play this out. They know that both Buyer and Seller want to close a transaction and have already incurred costs related to it. At the last second such lender delivers the loan at higher costs hoping that Buyer and Seller will bite the bullet under pressure. Unfortunately, very often they do, just to close.

As if it's not enough for your sale to depend on whose hands Buyer's loan package ends up in - there're also Problems with Realtors, on both side of the transaction.

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