Monday, October 8, 0001 - Article by: Lender411 Member
Happy New Year everyone! A lot of my business comes from previous clients who have the trust and confidence in me to refer me. A good percentage of these referrals come from real estate agents. Some of these agents have trusted me month-after-month for years. I am very appreciative of these relationships. As a result, I work very closely each day with real estate agents, on both sides of the transaction. The buyer's agent is usually the person who refers me but I also make it a point to call the listing agent very early in the transaction to introduce myself and provide him/her with my contact information. As a result, I usually get at least one call weekly from both agents in the transaction. Now there are some agents and clients who never call. They trust us to do our job. They know we will handle the challenges as they come and that we will communicate these challenges when it's necessary. They wait for updates from us. However, that is pretty rare. My first real estate coach, when I was a sales agent, told us that you should call and check on your client's loan status at least twice a week. When I got in the mortgage business, I really felt that if you had a good, experienced lender, twice weekly was a little much. I believe weekly makes a lot of sense. I have worked along side many lenders and here is an example of how the status calls normally go. This may not apply to all of you but I am sure most of yours are fairly similar. WEEK ONE CALL: "Mr. Lender, can I get a loan status on Joe and Mary Buyer?" LENDER ANSWER: "Loan is going well. Appraisal has been ordered. The loan is pre-approved. Shouldn't be any problems. Have a great day!!" WEEK TWO CALL: "Mr. Lender, can I get a loan status on Joe and Mary Buyer?" LENDER ANSWER: "Loan is going well. Appraisal is in. Value is there. Shouldn't be any problems. Have a great day!" WEEK THREE CALL: "Mr. Lender, can I get a loan status on Joe and Mary Buyer?" LENDER ANSWER: "Loan is almost done in underwriting. All looks good. I look forward to closing next week! Shouldn't be any problems. Have a great day!" We close the loan and all is good in the world. Obviously if the loan faces challenges, the conversations don't quite go like this and are much more detailed. In my entire career, I am very proud to say, I have had less than five loans declined after I did the loan application and determined we could do the loan. However, most of those occurred this year with rapidly-changing loan guidelines that changed after application. This is not to boast. Many experienced direct lenders and retail bankers out there can make similar claims. However, as a result of the "uncertainty" in the lending market today, these generic answers, provided by me and the other lenders, are really no longer acceptable. Transactions are too few and far between. Too many deals are being rejected by underwriters at the 11th hour. There is too much riding on each of these deals today for your lender to be casual in his response. Even if he believes his answer to be true, today, to best serve your client, you really need to know the actual loan status. Look at the agent example questions above. They are the same each week in the process. "Mr. Lender, can I get a loan status on Joe and Mary Buyer?" I believe the reason why you, as agents and borrowers, are asking the same broad question is you are a bit unsure about the actual questions you should really be asking. And why wouldn't you be? You aren't a lender. You don't know our job aside from that we get you money and you expect us to do it to the best of our ability. However, when you call your lender and ask "can I get a loan status?" wouldn't you prefer that the answer had meaning and substance? I am going to give you the checklist of questions you should really be asking when you make this loan status call. These questions assume a 30 day escrow and checking in with the lender once weekly. If your escrow is shorter, or you are having this done on a rush, obviously you need to adjust the timelines for these questions. QUESTION #1 (week one): "HAVE YOU RECEIVED THE CONTRACT AND ALL OF THE ADDENDUMS?" As lenders, if we don't have the contract and all of the addendums, we will likely face numerous challenges and delays. Without it, in many cases, we cannot determine loan amounts or loan programs for qualification. We will also have difficulty ordering the appraisal as most appraisers require it before they will set your appointment. If we don't have all of the addendums we simply cannot process the loan correctly and there may be something in those addendums, like closing costs incentives, or other items, that could potentially alter the loan program and pre-approval you have gotten. FHA loans, which we will all be doing a lot more of in 2008, also have some special requirements and forms, especially if you are using a down payment assistance program. It's important to get on these early in the transaction. QUESTION #2 (week one): "HAVE YOU GOTTEN THE PRELIMINARY TITLE REPORT FROM THE TITLE COMPANY AND/OR A TITLE COMMITMENT?" If we don't have clear title, we obviously will face challenges in lending. It's important that we get a look at this report as soon as possible in the transaction to ensure we will be able to get you your loan in a timely manner. We also want it early so that if there is a challenge like a lien for unpaid property taxes, judgments, child support, or more, we can at least join forces with your title company representative to start working on the solutions. QUESTION #3 (week two): "HAVE YOU VERIFIED HIS EMPLOYMENT, HIS INCOME, HIS ASSETS AND HIS RENTAL HISTORY?" Although all loans don't require all of these, these third-party verifications can be the most time-consuming part of the loan process. Not all employers and banks are as accommodating to these requests as we would like them to be. It's important that you make sure this has been accomplished. There is nothing in the loan process, aside from the appraisal, that has the potential of killing your transaction more than a borrower who wasn't truthful about his income, employment, and assets. It's important to get these answers confirmed as soon as possible. QUESTION #4 (week one or two): "HAVE YOU ORDERED THE APPRAISAL?" "IS THE APPRAISAL BACK YET?" "DID IT COME IN AT VALUE?" "IS THE NEIGHBORHOOD IN A DECLINING MARKET?" Appraisal questions seem to be fairly common and a lot of you already ask. However, it's still important for you to ask, especially in today's market. There is a box on the standard appraisal form called the URAR (Uniform Residential Appraisal Report) that asks the appraiser if the market is "stable," "declining" or "increasing." Fannie Mae issued a new guideline on "declining markets" in the middle of December 2007. If the appraiser checks the box on the appraisal report that says the home is in a "declining market," and most of Las Vegas is at this point, the down payment of the selected loan program has to be increased by 5%, even if the appraisal comes in at or over value. You can read about it here, if it interests you: https://www.efanniemae.com/sf/guides/ssg/relatedsellinginfo/pdf/declmktsmaxfinfaq.pdf For example, I am currently doing a loan for a buyer who is buying a bank-owned foreclosure property. The loan program allows for her to go to 100% financing and that's what she originally wanted to do. She bought the home from the bank for $200,000. The appraisal came it at $235,000 but with the "declining market" box checked. I challenged the appraisal but, unfortunately, lost my challenge. Fannie Mae guidelines now require she come in with 5% down, which she is happy to do, but this is definitely going to be a serious challenge for your buyers in 2008, especially those who require 100% financing. Let's say your buyer is doing a stated income loan, which most lenders allow 95% financing on today with good credit, if the buyer buys a home in a neighborhood that is "declining" in value, according to the appraiser, the max loan amount will be 90%. A very large lender recently announced that it is classifying Clark County as "Severely Distressed" meaning they are forecasting our market to continue to decline greater than 15% over the next 12 to 18 months. They are going to make internal adjustments on every loan they do to protect themselves. You need to ask your lender for that appraisal as soon as possible so you can deal with the challenges early. Just because your buyer meets program guidelines today does not mean the property will. Government loans do not have the same appraisal guidelines. This is yet another reason to look at FHA first when assisting borrowers with little to no money down. I will address the new, exciting FHA guidelines and increased loan limits, in this newsletter, once they make their way completely through Congress, which should be this month. QUESTION #5 (week two or three): "HAVE YOU SUBMITTED THE LOAN TO UNDERWRITING?" "HOW LONG DO YOU EXPECT UNDERWRITING TO TAKE?" Depending on your lender in today's market, underwriting can take one day to two weeks or more. In my Countrywide office, where we have three underwriters, it's usually underwritten in a day or two. However, if you are working with a mortgage broker, who has to send it out to bank elsewhere, or out-of-state lender, this can be a lot longer. I just recruited an experienced broker to come join my team. He told me that underwriting times at most of the banks where he used to broker are averaging 6-8 working days before they even release conditions. Then another 2-4 working days to review conditions. This is 8-12 working days on top of processing time. The last loan I did as a correspondent lender, before moving to retail banking, was in underwriting a total of 18 days. In all fairness to your lender, if it's not a "slam-dunk" loan, and not many are today, he really has no idea how long your loan will be in there. The more challenging the loan, the longer you can expect underwriting to take. You should ask him to give you an idea of how long he thinks he will be in underwriting based on his recent experience but don't hold his feet to the fire on that answer. It is mostly out of his control at that point. QUESTION #6 (week two or three): "HAVE YOU GOTTEN THE PRIOR TO DOC CONDITIONS FROM UNDERWRITING?" Once it comes out of underwriting, there will be "prior to doc" conditions that must be met by your buyer. Loan docs will not be drawn until those conditions are met. It's up to you if you want to know what these conditions are but keep in mind, a mortgage loan is a private, financial transaction between the client and his lender. As his agent, if the condition involves personal finances, you may not be able to be told about it. If the condition relates to the privacy of your client's finances, unless you have expressed permission from your client that allows this information to be shared, I wouldn't expect the answer. In addition, I would frown on any lender who would willingly share this information without permission. If he lacks that professionalism, you can be assured that carries through his business and your loan could be in much more difficulty than you think. QUESTION #7 (week three): "HAS THE BORROWER CLEARED ALL OF THE PRIOR TO DOC CONDITIONS?" If he has cleared these conditions, loan docs will soon be on their way to the title company and closing should be very near. QUESTION #8 (week three): "ARE THERE ANY PRIOR TO FUNDING CONDITIONS THAT I NEED TO BE CONCERNED ABOUT?" There are "prior to doc" conditions, which are usually more serious because the underwriter is not willing to let the borrower sign without them. The underwriter does not want to put anyone in the uncomfortable position of signing their loan docs and then failing to get a loan. As a result, the prior to doc conditions are usually the most challenging of the conditions. Sometimes there are also prior to funding conditions. These are usually fairly simple conditions between the lender and the escrow and title companies, but sometimes they can involve the borrower. Although docs will go out and the borrower can sign, the loan cannot fund until these are met. When you sign your loan docs it's always a good idea to ask if there are any pre-funding conditions. IMPORTANT NOTE: I have seen a lot of very aggressive loan officers push underwriters to get loan docs out with difficult prior to funding conditions simply to relieve the pressure they are getting from their clients. That can result in the borrower signing but then waiting days and sometimes weeks for funding. You want to check on this with your lender. QUESTION #9 (week three or four): "HAVE THE LOAN DOCS BEEN SENT TO TITLE/ESCROW?" It's a simple question but for some reason most agents seem to call title and escrow for this answer. I am always surprised when a title/escrow rep calls me and says the agent is calling them to check on loan doc status. We prepare loan docs in the office next to mine. Your lender either prepares the docs in-house, like we do, or they order them from a lender if they are a broker. The source of this information is the lender. You are much better off going direct to the source, and saving time, with this question. Ask your lender, not your escrow officer, if loan docs have gone out. QUESTION #10 (week four): "HAVE YOU HAD A CHANCE TO REVIEW THE SETTLEMENT STATEMENT?" This is a biggie and I highly recommend you call your lender and ask him this on every transaction. By the time your transaction gets to this point, hopefully, your lender has developed a strong, trusting relationship with your client. As part of this we have provided him a Good Faith Estimate and, aside from your net sheet, that's the only thing he has seen that represents his costs in this. As you know, no matter how hard you and I try to be as accurate as possible with our GFE's and Net Sheets, this final settlement statement is going to look slightly different that what we provided. Therefore it's important that we get a look, prior to signing, to be able to analyze the differences, if any, and to be able to communicate these differences clearly and with confidence. In my experience, and I make sure I communicate this very early in the process the borrowers understand these are just estimates. However, when the day arrives they want clarity from you and me on every charge, line by line. In addition, sometimes items in the settlement statement can affect the finality of the loan. I recently did a loan where the seller was contributing the 3% maximum towards closing costs. However, as part of an addendum that was not disclosed to us properly (see Question #1), he was also having his entire special improvement district (SID) fees paid off which amounted to another $12,000 in seller contributions. We had to change his loan program and re-draw his loan docs as result. Obviously there are many other questions you can and should ask your lender. I am not suggesting that you ask all of these each time. However, today, you want to ask pointed questions that require real answers so you really know where your transaction stands. I am always happy to provide updates to the agents on my transactions and I would welcome the 10 questions above at any time. It's important to understand that some of these answers may not be available to your lender right when you call, and may require him getting with his processing team or underwriter, so I highly recommend emailing him instead. Email allows us some to time to research the answer for you and get you a complete and comprehensive answer. In today's tougher lending climate, if you choose to call for a loan status, you want real information. Using the questions I have provided as a guideline, you are less likely to get blind-sided later in the process. Have a great and prosperous month!!! Best regards, Aaron Gordon Home Loan Consultant Direct: 702.283.2333 email@example.com Web: www.aarongordon.net Blog: http://activerain.com/blogs/agordon
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