Authors and their public relations people are always sending me unsolicited books, hoping that I will review them. It's one thing to find time to read a book and it's entirely another to find time to review it. But every so often I will thumb through a book looking for little gems of knowledge. I found some of those gems in Mortgage Confidential, by David Reed. Because you know what? As real estate professionals, we don't know everything even though we might want to think we do.
Did you know that when you lock a loan rate, your mortgage broker could be gambling with your lock by not locking it? I had no idea. This is not a new book, so perhaps the changes in the mortgage industry last year with the new RESPA laws put a stop to this practice, but according to David Reed, not every mortgage broker locks a loan rate when the borrower asks. He says some MLOs wait a few days to see which way rates move. If rates go down, the MLO pockets the difference and locks the rate.
Reed also tends to favor mortgage bankers over mortgage brokers because he claims that only mortgage bankers have full control over a transaction. That part is absolutely true. Although, he does defend mortgage brokers by saying those with high production / volume numbers can sometimes get priority in underwriting. Fortunately, my clients get priority with Dan Tharp at Vitek Mortgage for two reasons. #1 because I'm a top producer at Lyon Real Estate (and Lyon enjoys an affiliated business relationship with Vitek) and, #2, Vitek is a mortgage banker, not a mortgage broker.
In my world, as a Sacramento short sale agent, underwriting is crucial to the closing process. The time spent in underwriting can make or break a short sale. There are occasions in a short sale when the bank might call to discuss an advance closing date. I received two Bank of America short sale approval letters on Thursday, both of which I knew were coming. The first negotiator asked me early February if we could close on March 11. I called the buyer's agent and asked him. He, undoubtedly, called his MLO who told him yes. I suggested that the buyer start the loan so when we received the short sale approval letter, we would be close to the closing date and could meet it.
Yesterday, I called that mortgage broker. He pleaded with me to try to get an extension from Bank of America. What the? See, this is why I don't use or recommend XYZ Mortgage Company, and I told him so. He probably did not like to hear the truth. Well, I didn't want to hear that the borrower was coming into their offices to bring the MLO more documentation that should have been submitted weeks ago, or that this particular MLO can't get an appraisal turnaround in 3 days.
Before you hire a mortgage broker or mortgage banker, ask about performance, guarantees and underwriting. Look for an on-time delivery record. Especially if you're buying a short sale. And pick up a copy of Mortgage Confidential.
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Certified HAFA Specialist
My Sacramento Real Estate Listings
Elizabeth Weintraub is an author, home buying columnist for The New York Times-owned About.com, a Land Park resident, and a Land Park real estate agent who specializes in older, classic homes in Land Park, Curtis Park, Midtown and East Sacramento. Weintraub is also a Sacramento Short Sale agent who lists and successfully sells short sales throughout the four-county Sacramento area. Call Elizabeth Weintraub at 916.233.6759. Put 35 years of real estate experience to work for you. Broker-Associate at Lyon Real Estate. DRE License # 00697006.
The Short Sale Savior, by Elizabeth Weintraub, available at Amazon.com.
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The views expressed herein are Weintraub's personal views and do not reflect the views of Lyon Real Estate.
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Elizabeth, I know I do not know everything. This is proven to me every day as I continue to learn new things. I do know that a buyer’s lender can kill a short sale. That is why I require all buyers on my short sale listings to get loan approval through a trusted lender. Far too many short sales go back on the market because the buyer’s loan approval was not worth the paper it was written on. We can help prevent this by making sure buyers are qualified upfront.
My favorite lender is a LO at a bank. And she moved from a Mortgage Broker to a bank about 5 or so years ago and I was so happy when she made the move. She did the last Short Sale where it was my buyer (not my listing) and while it was iffy here and there, it had NOTHING to do with my buyer or her loan process.
"Although, he does defend mortgage brokers by saying those with high production / volume numbers can sometimes get priority in underwriting."
This is so true about large mortgage brokerages, like Cobalt. Because of our company production level, we get premium pricing (which I pass onto my borrowers) and preferred underwriting (faster turntimes & direct contact with our underwriters). It is so true that buyers need to be so much more diligent these days when selecting their MLO/lender.
It boggles my mind that more borrowers don't ask about closing ratios and pull-thru rates. I wish they would. I strongly suspect that if more borrowers did, the big, national, retail banks would not fare so well compared to mortgage bankers and brokers. Short sales are complicated and challenging transactions to begin with and definitely need an MLO/lender who not only has the experience of knowing how to work with them but one who also has the authority to do what it takes to get things done when they're supposed to be.
Most of the unlicensed bank clerks (those that work at the big, national, retail banks) don't have the authority to manage the process from beginning to end. Most of those folks are order takers and once the app has been taken, it goes to a regional processing center and the order taker no longer has control over the file. They simply become clerks who relay messages from the processing center and they get paid whether the loan closes or not.
Licensed MLO from mortgage bankers and brokers are responsible for managing that file until it closes and they don't get paid until it does. Depending on the mortgage banker or broker policies, there are so many QC steps along the way to make sure the loan gets approved and funded in accordance to rules, regulations and compliance requirements. Because of the increased rules, regulations and compliance requirements, it takes longer to fund a loan than it used to and as such, it becomes the MLO's duty and responsibility to set realistic expectations with the other parties in the transactions.
This is why short sales become so challenging because quite often, once the approval letter comes in, the bank seller quite often wants to close immediately, usually in a matter of a few days. This is just simply unrealistic and why I have so many issues with short sales. While I can't speak for the MLO/lender in your scenario, I will say that if it were me and you were the ss listing agent and told by borrower to start the loan process, you bet your @$$, I would be all over that.
While we will not fund a loan, under any circumstances, without a short sale approval letter, we can most certainly start the process without one and and get everything done we need to do so that the last PTD condition is the short sale approval letter. Once we get the letter, all we have to do is order the docs and fund. I've done that before but only after my borrower granting me authorization to do so.
Sorry for the long comment; I should have just done my own post but the tone of your post just rubbed me the wrong way and, once again, I felt compelled to defend me (a mortgage broker), my profession and my business.
Elizabeth, it seems like more often than not that Buyer's Lenders are halting short sale closings particularly for reasons you discuss or the appraisal. It's a racket and it's drivin out of fear I'm sure....the fear of declining values
Great input Elizabeth! It seems to me like the underwriting is the key to the timing. Is there any lender that doesn't ask for more paperwork from the buyer during that process because the underwriter has asked for it. Seems like there could be more of a standard in that area. Thanks so much for sharing!
Hi Kathleen: I had a short sale in underwriting at Wells Fargo for 5 weeks. Count 'em. Five long weeks. The negotiator just said to call him when and if loan docs ever showed up at title. I had my doubts about that one, but it did eventually close. However, the buyer paid through the nose on the per diem charged by CITI. It cost her almost $800 more because of that delay.
Hi Tammy: A really good LO / MLO is a fantastic find. When you do, just latch on to that person and hope they never leave the business.
Hi Donne: Well, I knew without a doubt that you would chime in. Glad that you did.
Hi Lynn: I can understand if the buyer doesn't want to pay for an appraisal until the letter arrives, but when the lender tells me it's approved and the letter is just in the queue, it doesn't make sense to delay.
Hi DeeDee: Underwriting is always the key. And yes, often underwriting does ask for more paperwork, but the instance I'm talking about was not yet in underwriting. It had not made it off the MLO's desk. He just didn't request the appropriate paperwork in advance. He waited 2 weeks to figure out he needed more paperwork.