I haven’t posted much over the past few days because I have been bombarded with fire drills to help save loans for borrowers whose lenders either went belly up or because the lender is no longer offering certain loan programs. The mortgage market is in a tough time right now as Wall Street has cut off funding for many mortgage lenders and mortgage investors are demanding higher quality loans. Unfortunately, until they get their heads around the problem (or out of their asses) they are also throwing out the baby with the bath water.
Even the most credit worthy borrowers can find themselves without money the day of closing. The bottomline is consumers need to take a step back and reassess their choice of lenders and focus on reliability, expertise, and access to funds instead of blindly rate shopping at this point in the game. It is now more important than ever to shop for a reliable mortgage broker, not simply a mortgage.
Fortunately, most of the emergency loans that have come into my office I can do with very little increase in promised rates and in some cases even better which illustrates why it is important you understand how to pick lenders who have options in case something does not go as planned.
In order to navigate this market, consumers need to:
Choose Mortgage Brokers, Not Mortgage Banks: Most retail mortgage banks only offer their specific loan products. If their access to funding dries up or underwriting guidelines change, you may be left without financing options. Good mortgage brokers have access to dozens if not hundreds of lenders. If one bank can’t do it, we can find another who will. You need to ask your lender about how many end lenders or investors they work with. More specifically, ask if they have a back up lender in place if the original investor can’t do the loan.
Correspondent Lenders are Better: Correspondent mortgage lenders are basically mortgage brokers on steriods. A correspondent lender can underwrite and fund their own mortgages through their credit lines and sell them off to investors after closing. The reason it is important to work with a correspondent is because if there are problems, we can usually just change who we are going to sell the loan to after closing. This means we can continue to meet established timelines in most cases. Traditional brokers are at the mercy of the turn times of the actual lender, so if you only have two or three days to fix a problem, a regular mortgage broker may not have enough time to get the loan resubmitted to a new lender in order to meet the closing date.
Grill Your Loan Officer: Make sure you are dealing with an established professional who understands underwriting guidelines and what can get done in this market. An established professional means they were referred to you by a trusted co-worker, Realtor or family member who has dealt with the lender previously. It also means they can demonstrate a signifcant book of referral based business (closing at least $10 million/year in deals). You do not want to be dealing with newbies and “call center order takers” in this market who are learning the ropes on your largest financial purchase when you could have tens of thousands of dollars at risk. Make sure your loan officer has at least three years in the business doing purchase loan transactions and “A paper” lending.
Pre-Approvals are a Must: Financing comes first, not house hunting. Absolutely do not make offers and submit earnest money on properties without a solid pre-approval from the mortgage broker you have chosen. Pre-approval means you have submitted credit, income, and asset documentation to the lender and the loan has been formally underwritten. Demand to see the conditional loan approval signed by the underwriter verifying the loan is approved at the terms promised. Finally, under no circumstances should you waive your right to a mortgage contingency in your contract. The mortgage contingency gives you an out and protects your earnest money if for some reason you can’t get financing.
It is Not About Rate: Getting a good deal is important. However, attempting to save .125% and $50 bucks only to have the deal blow up in your face at the closing is not worth it. Being able to sleep at night knowing your deal is secure is a lot more valuable. Reliability and the ability to get it done on time as promised is what is important right now. Rate shoppers beware.
If you are unsure about your financing options or just want a second opinion, do not hesitate to give me a call.
This is the kind of article that has been missing in all the mess of the past two weeks: solid advice backed up by sound reasoning. Your point about correspondent lenders makes sense and I had not thought of it.
Your last point hurts me to agree with, and in a sense is always true, but is important to say loudly and clearly right now. As I wrote a jumbo client this morning, “We may need to maintain some emotional flexibility in this market.” Sometimes going for the solid deal means not shopping the rate.
Jefferson
You are so correct. Sometimes I feel like beating my head against a wall. I just don’t know how many times we have to scream it isn’t about rate, but reliability. The last thing you want to be dealing with right now is Wal-Mart mortgage. It is going to cost a helluva lot more than .125% and a few bucks in closing costs if the loan doesn’t make it to the closing table.