They May Change the Game at the Last Minute. By Dan Polimino.

By
Real Estate Agent with Keller Williams Realty DTC
http://actvra.in/syF

A house is listed with me and my business partner Gary Lohrman. It’s under contract; everything is moving along smoothly, we are past inspection, appraisal, and all the big contingencies. We are just a few days away from closing when the buyer’s agent calls to say that there is a problem. At the last minute, the lender has decided that 20% down is not going to be enough and they will not close the loan unless the buyer comes up with 30% down. Now mind you, these buyers have a pre-approval letter from the lender, have acted in good faith, and provided all documentation that the lender has asked for. They are well qualified with high credit scores and good jobs but without reason or cause, the underwriter decides to change the game at the last minute. Let’s take a look at the bind that everyone now finds himself or herself in: 

•   The Sellers are just a few days away from selling their home and moving on with their lives. Now they are faced with the possibility of having to put their home back on the market again to do it all over. Not to mention their property has been off the market with no showings for 30 days.

•   The buyers have packed up their stuff, are ready to move, have paid for inspections and appraisal, plus additional out of pocket expense. They are also under contract and may be in jeopardy of losing their earnest money.

•   The Realtors have done their job and worked hard for the last 30 days or more and are now faced with not getting paid. 

The question is, “Why were these people qualified for this loan by the lender with 20% down (by the way 20% down is usually a safe bet and not a high risk loan) just 25 days ago and now a few days before closing, the lender wants 30% down?” The lender is holding everyone hostage with a game called “pay up or you won’t close.” The answer is that the underwriter who signs off on the file sees something they don’t like and they think that an extra 10% percent down will resolve the risk. Truth is, the extra 10% in no way diminishes the risk. This is an underwriter trying to protect his or her hide in the event that the loan defaults. 

I wouldn’t be writing about this if it just happened once, but it happened three times, all in a span of 45 days in November and December. It happened on three different properties, with three different lenders and three different buyers/sellers. It could happen to you, so beware. To find if we resolved the issue and if these deals closed, email me at dan@coloradodreamhouse.com 

Dan Polimino is an Owner/Broker with Keller Williams Realty DTC. He can be reached at dan@coloradodreamhouse.com  and www.coloradodreamhouse.com/denverpost 

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Ambassador
1,110,130
Michelle Carr-Crowe-Selling Silicon Valley Homes in Top Schools San Jose, Cupertino, Saratoga, Palo Alto-Just Call 408-252-8900
Just Call 408-252-8900 Lynbrook Homes Cupertino KW - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

Daniel, it was H*** closing deals in Nov./Dec. this year. I'm curious as to how this turns out.

February 07, 2012 02:55 AM #1
Ambassador
1,110,130
Michelle Carr-Crowe-Selling Silicon Valley Homes in Top Schools San Jose, Cupertino, Saratoga, Palo Alto-Just Call 408-252-8900
Just Call 408-252-8900 Lynbrook Homes Cupertino KW - San Jose, CA
Family Helping Families Buy & Sell Homes 40+ Years

What justification did they use? The only one I could see in common is if it's a dramatically declining market they are making an allowance for. (Or maybe they saw these people had extra money and wanted it?)

February 07, 2012 02:57 AM #2
Rainer
102,265
Jessica Holtzman
Keller Williams Realty, Inc. - Mount Laurel Township, NJ
Real Estate Agent in Southern New Jersey, CDPE

Hi, Great Post!  I had a similar situation.  All along the lender from Superior Mortgage was telling us everything was find with the buyer, that they had everything and no signs of problems.  Then, just days before settlement, "issues" started happening.  We were able to find a second mortgage company (thankfully) and closed a few days after settlement was supposed to take place.  What a mess.  

February 07, 2012 08:35 AM #3
Rainmaker
124,783
Chris Thomas
The Mortgage Experts at America's Mortgage, a Division of Cherry Creek Mortgage Co. - Denver, CO

Dan, you need to get a better lender.  The underwriter did not change the rules at the last minute.  Instead, the loan originator (the sales person) did not pre-approve the borrower correctly.  Here's how it's supposed to be done:
1) The loan is run through the Fannie Mae or Freddie Mac online underwrititng software.  This will determine whether the loan meets the Fannie or Freddie guidelines.
2) The originator has to manually check the underwriting overlays for the particular lender they intend to use.  This will determine whether the loan meets the individual lender guidelines.
3) The lender has to manually check the mortgage insurance guidelines.  This will determine whether the loan meets the mortgage insurance guidelines.  This step is not necessary if the loan is an FHA loan, a VA loan, or a conventional loan that does not require mortgage insurance (20% or more down).
If all of these steps are not done, there is a very real chance that your deal will fall apart, and the originator (the loan sales person) may just lie about the reason and say the underwriter changed the rules.
Need real pre-approvals?  Give me a call.
Chris Thomas 303-345-3683

February 07, 2012 11:19 AM #4
Anonymous
Anonymous
Thom Hayes

Hey I'm sorry the last comments spaced out like that, It wasn't formated to be.

February 07, 2012 02:57 PM #6
Rainmaker
298,478
Colorado Dream House Team
Keller Williams Realty DTC - Greenwood Village, CO
Real People. Real Professionals. Real Estate

The answer to my newspaper column is yes we ended up closing all three deals. Remember these were three different buyers, with three different lenders on three different houses. We were the listing agents so we did not have control over what the buyers did, but we did have a great spirit of cooperation with all the parties involved to get these homes closed.

 

We ended up moving all of the loans to different lenders that would do the deal with just 20% down. In some cases the loan/underwriting process needed to start over including a new appraisal. Those deals moved the closing date out three extra weeks. The one other deal was done by another lender without a new appraisal and was closed in under two weeks.

 

The moral of the story is you better have strong connections in the lending game. In our case we were able to pick up the phone and move the files to lenders that could get the deal done in the shortest amount of time.

 

To answer the question about their justification...they had none. They just wanted the extra money. Denver is one of the top real estate markets in the country right now. Our homes prcies are rising not declining. We have a record low inventory.

 

In reponse to your points Chris it's good advice but it did not apply in this case. Again it was three different loan orginators. All did an excellent job with the pre-approval process. These deals were all jumbo loans with purchase prices over 1 million so Fannie and Freddie did not apply.

 

Thank you and have a great week.

 
February 07, 2012 06:19 PM #7
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