/images/33632-31387/man_searching.jpg”> Yesterday, I was trying to find First Time Home Buyer blogs using Technorati … if I were Real Estate 2.x , the title of this article would be Why Technorati Keyword Search Sucks. When I first sta…

I would have caught the issue earlier on if it were my client. That was a situation where an agent was getting “leads” from a bad lender and ended up with many clients in huge messes. He asked me to help out. It was a mess. The lender is no longer in business. I was able to help close two of the four and no one lost their Earnest Money.

The two sub-prime ones the I helped turn into non-subprime were two different lenders, neither the first one.

None of the six cases above were my clients. I was called in when it was near the end, and a huge mess. On the “stood up from the table” one, the lender was freaking out so much, and the buyers were so left in the dark, that the buyers asked me to meet them in a bowling alley so the lender wouldn’t catch them reviewing the HUD 1.

All involved South of Downtown. One was Downtown, with the closing South of Downtown. I don’t seem to run into it as much elsewhere. Lots of minorities and people who didn’t speak English very well. Some people need more protection.

Here’s my anecdote. Went out with a buyer prequalified by a lender. Buyer said her credit score was just under 700 and the rate on her second was 12%. I asked about her debts. Her car was paid for and she had one credit card with an $800 balance and a $50. payment. I called the lender who said she qualified it at subprime.

I met with the lender who further stated it was subprime because the payment represented over 50% of the borrower’s gross income. I asked the borrower why she was looking in a price range that put her into subprime. She said that’s what the lender gave her as the price she could afford. Lender said, I’m not her mother. I want to do it subprime because I make more money that way and it’s an easier file to put together because subprime lenders aren’t as picky. Good credit score equals good enough.

I showed the buyer a place that was low enough in price to move her away from subprime. She loved it and bought it. So all I am saying is ultimately, the buyer’s agent needs to take a peek over the lender side of the fence when representing their buyer clients. Otherwise they are not representing the buyer, they are selling them a house.

That’s OK too as long as the buyer knows they are not being represented as a client, and are being treated as a customer, and the real estate commission is adjusted accordingly, with the buyer’s informed consent to operate on that basis. 

I meet with client and talk about their goals. I tell new borrowers that 28/36 is a pretty good marker for what most new borrowers are comfortable in paying.

The borrower I mentioned in my first comment had only a few credit cards, all paid monthly. He drove a Toyota Camry that was a year away from being paid off. His wife’s car was completely paid off. He had paid down a good chunk of his existing $800,000 mortgage well ahead of schedule. He was putting 30% down on on a 1.4 million dollar home. He had reserves, enough to pay off the Camry if we needed to. Also remember that over half of his income is now deductible against his taxes. Add in his three dependents, and his tax burden is minimal.

If I, and the broker who did his previous mortgage refused to go beyond 28/36, this guy would never be in the position he is now. Buying a 1.4 million dollar home. He made several hundred thousand dollars in equity because twe were smart enough to recognize this borrower’s strengths.

I’m making absolutely no argument that It’s not my job to represent the client. That is absolutely my job. Turning this guy down based on antiquated qualifying practices would of been poor representation.

There are a lot of people who expect the lender and agent to tell them “how much home they ‘can’ buy. Many don’t know much about ratios and are handed a letter saying “you are qualified to purchase a house at $450,000″. The letter doesn’t say what the ratio IS, that the lender used when coming up with the purchase price.

1) If you do pre-qualify someone at a 60% front end, how do you warn them that this is an exceptionally high front end ratio?

2) How much of an allowance on their back end would you allow with a 60% front end?

If you would only go 60% on the front end if they had no change on the back end due to car payments or credit card debt, do you factor in that they might by a car after they close on the house, or buy furniture and applicances on a credit card? Do you assume a long term likely back end addition when there is zero debt? Or do you use 60/60 ratios?

Again, Todd, I fully recognize that it is NOT the lender’s job to represent the buyer. But your response confirms that it better be someone’s job…and I say it is the agent’s job.

Fannie Mae built these automated underwriting systems to measure risk layers. Debt to Income is only one layer. A high debt to income ratio becomes less and less important as disposable income increases. A 60% front ratio is very uncommon, but it can exist, and it can be a low risk loan. Again, I only bring it up because every borrower is different, and generalities about what is good for the majority can be a disservice to the minority.

Can you pull the buyer’s agent aside when you see a 700 credit score and a prepayment penalty? Not the buyer, but the agent, so the agent can make sure all is OK? It can happen if the buyer chose to stretch the ratios into subprime zone. Credit score alone does not determine the accuracy of the loan provisions.