Active Rain November 9, 2011

Thanks for Your Pre Approval. I Made One Call and it is Worthless

The Horse's Mouth. And Nostril. In the current economic climate where deals die so often that we sometimes have to “sell” a listing twice or three times just to get to the closing table, more due diligence and evaluation of buyer qualifications is a serious mandate. Twice in the past month I have seen instances where a pre approval was not worth the paper it was printed on, and that punctuates the need to evaluate buyers with more scrutiny. They don’t always like that; but they need to understand the times we live in. 

The Dubious Down Payment. We are in the midst of a White Plains short sale that was approved in early August and now on its 3rd extension because the buyer’s down payment source was the refinance of his current residence. This was not disclosed until we needed the first extension. If the pre approval does not take into account liquid available funds and is predicated on an undisclosed other loan, it is worthless. That will never happen to me again. I will always ask the lender to disclose the source of down payment funds. 

The Out of State Mom and Pop Shop. If I call Mortgage Shack to verify some things on the preapproval and I get voicemail all day Monday and a return call from the loan officer that night with the distinct impression that this is a part time operation out of his basement, my seller may not have much confidence in your qualifications- even if you may in fact be a great borrower. Get a more credible source to vouch for you. It doesn’t have to a be Big Box Bank of Beelzebub. A local community bank, direct lender or credit union work fine. 

The Unresponsive Loan Officer. On a rehabilitation project in Mount Vernon, a buyer for my listing is facing losing their deposit because their lender approved them for the wrong loan. They needed a specific type of rehabilitation mortgage, known as a 203k, and were instead underwritten for a different type of 203k. Their inept, unresponsive and arrogant loan officer was a red flag not long afterward. Not only does this buyer face loss, my seller client has to undergo either a costly wait or a costly return to the open market. Never again. If a loan officer won’t respond with specifics to me as a colleague on a collaborative transaction, it will disqualify the buyer. 

The Un-thorough Loan Officer. Easy one. This was also an eager bidder on a listing of ours in southern Westchester County. I asked the loan officer one question: Did you run your conventional loan applicant through your conventional loan underwriting software, known in our area as Desktop Underwriter, or DU in fancy circles. The answer was no, which translates that he has a prospect making offers who is not truly vetted as well as they could be. DU is the industry standard. It is not the extra mile, It is the minimum before a buyer should be making offers. 

The Ill-Conceived Plan. We are given an offer with a pre approval. The offer is conditioned on the sale of the buyer’s current property, in which a buyer has been found. It isn’t under contract. It isn’t even listed. A relative is going to refinance their place to buy the prospective buyer’s place, who will then buy our place. But only in one spouse’s name. But they have a preapproval based on this awkward row of dominoes, none of which is disclosed on the preapproval. And this is the guy tho didn’t run them through Desktop Underwriter (above). Pass. 

The closing tableIn this economy, we are seeing more and more creative ways to get around the new reality of strict underwriting from the lenders. Parents have lost money in the market and can’t gift down payments to their children. Compensating factors no longer count. Debt ratios are more strict. Buyer agents are just glad to have a warm body to drive around. Separating the prospects from the suspects is crucial. And in Westchester, where property costs are higher than average and deals take longer to close, you can lose 3 months or more, and tens of thousands of dollars if you make a mistake choosing your buyer. 

The takeaway for the buyers in Westchester and the surrounding areas is this: A listing agent doing their job is going to go through your qualifications with a fine tooth comb to avoid a catastrophe. A pre approval can’t just be based on a credit report and verbal assurances. We now have to verify down payment funds, employment, credit, know that you have been underwritten to truly assure our sellers that it is OK to tie the house under contract with you. To the lay person this may seem thorough; it is moreso than years past, but it is absolutely necessary to ensure a trip to the closing table with a minimum of drama.