Rant on How Loans Should Be

[Lynn McGeein]

Ok, real estate agent rant after drama once again on closing a loan.   How loans should be:  Approve a loan with a specific buyer(s), seriously put them through all paces including tax transcripts, employer verification, account verifications for any downpayments, gifts, whatever they need for approving at their target price, all documents needed to give them total clearance for x amount for PI before they ever walk into a home looking to buy (with no change in income or debts, of course).  Let them know TI must be less than a certain amount to qualify,  and there you go.  No surprises to sellers when 3 days before closing the buyer's tax transcrips haven't come through or their statement shows a cash deposit that can't be accounted for or, surprise, they are on the dead-beat dad list in some state that would have been found out if final approval had taken place before they saw a home.  Take care of all the BS before they ever think about putting a contract on a property.  Then only thing they and agents must deal with is taxes, insurance, and appraised value of property.  Done.     

[Chris Mason]

Originally posted by @Lynn McGeein:

Ok, real estate agent rant after drama once again on closing a loan.   How loans should be:  Approve a loan with a specific buyer(s), seriously put them through all paces including tax transcripts, employer verification, account verifications for any downpayments, gifts, whatever they need for approving at their target price, all documents needed to give them total clearance for x amount for PI before they ever walk into a home looking to buy (with no change in income or debts, of course).  Let them know TI must be less than a certain amount to qualify,  and there you go.  No surprises to sellers when 3 days before closing the buyer's tax transcrips haven't come through or their statement shows a cash deposit that can't be accounted for or, surprise, they are on the dead-beat dad list in some state that would have been found out if final approval had taken place before they saw a home.  Take care of all the BS before they ever think about putting a contract on a property.  Then only thing they and agents must deal with is taxes, insurance, and appraised value of property.  Done.     

 Hi Lynn,

That's actually some great feedback for the mortgage industry. Let me share what it looks like from my side.

We have to balance making the consumer happy at the preapproval stage, with what you suggest. Probably only about 15% of well qualified retail homebuyers have the bandwidth to understand the advantages of what you propose. And for those folks, I actually do exactly what you suggest, including having an underwriter assigned that will be the same underwriter until it funds. You will know when you've got such a buyer of mine because they will be writing an offer with no financing contingency. And you will receive a phone call from me within 15 minutes of the buyer's agent hitting the "send" button on that offer email with me BCC'd.

For the 55% that are retail homebuyers lacking bandwidth to understand the advantages of what you propose, when I start asking for that stuff, they just stop returning my calls/emails... and walk into WF or call a 1-800 number, and get one of their stated income & stated asset preapprovals, and off house-hunting they go with their fake preapprovals/prequals. So that person will now be one of your nightmare buyers, more nightmarish for you because I'm not doing the loan, and I just lost a customer. They will jump through all the hoops, but ONLY when a specific light at the end of the tunnel (the house) is identified. So that 55% that can probably get a loan, but I can't get all that paperwork (tax transcripts, employer to confirm employment, them to commit to NOT moving any more money around, them to cancel all their vacation plans, etc) up-front to confirm or I'll be chasing them off... well, like I said, they can probably get a loan, if anyone can do it I can anyways, and you will know these ones because they will still be writing offers with a loan contingency in place. 

The other 30% are REI that are doing so much crazy nonsense that there's no point in trying to anticipate what madness they are going to spring on me, or are marginally qualified retail buyers, so they need their loan contingency in place no matter what. REI that don't need rental income to qualify and aren't going to spring anything crazy on me, are up in that top 15% category at the top of this post -- they still get the follow up phone call from me to you the listing agent, but the financing contingency stays in place. This bottom 30% technically qualify, right now, but there's a decent chance there will be a missed credit card payment, a surprise down payment gift for an investment property (not allowed), or who knows what.

And on top of that, probably only about 20% of real estate agents have the mental capacity to understand the advantages of the approach you suggest, as well (and this 20% isn't the top producing 20%, it's all over the place). This minority of agents will sell the extra hoops being requested to the homebuyer, so when my preapproval needs list is 5 times as long as anyone else's, the homebuyer knew it was coming and isn't surprised. The rest, the overwhelming majority of agents, all they know is "I referred Sally to Chris, Sally said she didn't like Chris because he was asking for too much paperwork, and then Sally went with a 1-800 number lender... FML that's the worst outcome possible, I am never sending a homebuyer to Chris again!" - OK, so I lost a customer AND that agent is never sending anyone my way again. A lot of the top producing agents, the ones we like to chase, are all about volume and speed. They want same-day preapprovals, standard. Guess what? We can do that, but it ain't coming with tax transcripts and a verification of employment from the borrower's HR department, and after I write that preapproval letter there's no way I'm getting any additional paperwork from that homebuyer until under contract. Thus is as the top producing agents wish, thus is as we deliver. 

If you're one of those 20% of agents who have the capacity to understand why it's worth a homebuyer jumping through the extra hoops up-front, work with a local lender that'll do it for you. Your sellers and you cannot require that a buyer actually get a loan from a specific lender, but your sellers are free to instruct you to throw away all offers that do not contain a preapproval letter from a specific lender without ever presenting them (just like your sellers can say "if they aren't putting at least 10% down and offering at asking, don't even bother showing me the offer" and you can/should honor that), and you are free to put those instructions from your seller, to you, on the MLS. As long as no money changes hands between you and the lender (which should never happen anyways), my understanding is that you are following the law. Thus is as you wish, thus as you may receive. 

OK, those are my thoughts from my side of the industry. Your turn.