Joe Buyer and The Lending Treehouse of Horror: Part 1
Rhonda Porter on 07 1, 2007
I haven’t been around much at Rain City Guide over this past week or two. I was up to my elbows “rescuing” a home buyer with their [photopress:Simp_TREEHOUSE_300cmykflat.jpg,full,alignright]mortgage. This is their story.
“Joe Buyer” lives in California with his wife and young daughter who have decided to move to Washington. In early April, they began shopping for lenders and elect to use a big internet lender where they have four different banks compete with offers of low rates. His lender wound up being in Florida. In the middle of May, he has an accepted offer on his family’s next home. He has a great rate from shopping and a new home…what could possibly go wrong?
Joe first contacted me in early June. After working with the lender for 45 days, he was beginning to have doubts. His purchase and sale agreement was written in mid-May with a mid-June closing; 30 days should be no problem to facilitate this transaction. They are halfway through the transaction and he does not have loan approval from the lender. Here is a bit of Joe’s email to me:
“…the loan officer believed the final approval would have come Thursday or Friday last week, and we’re now past that. I’ve called her a few times, and haven’t gotten through, which is usually easy, but she wrote an email shortly after seeing my caller ID…. Timing-things like this make me wonder if they are having a problem, and that she doesn’t want to talk before it’s resolved. Nothing new has been presented for the actual underwriting, except that the tax forms got signed since they were originally e-filed.
Without you spending a ton of time on it, I’d really like to know…if there is an issue here, I’m more than happy to walk away. But as you suggest, it would be dumb of me to abandon this lender, delay the closing, and then end up having another problem with another lender. If this loan will close without major modifications, I agree that I’m better off staying with this lender….”
Joe Buyer is here on a Visa and is self employed for the past seven years with excellent credit. His business is internet based and will transfer from California to Washington seamlessly. My first concern was that with Washington’s fairly new licensing requirements for Loan Originators working for Mortgage Brokers, that perhaps the Florida lender had not met the licensing requirements. Joe was sure this was not the case and maybe they had just switched underwriters for some reason.
Based on the Good Faith Estimate from early April with the internet lender, his loan is 5% down utilizing an 80/15/5 with a 30 year fixed rate “Jumbo” mortgage priced at 6.75% with no discount or origination points. Instead of showing itemized fees, the internet lender shows a “bundled closing fee” in the amount of $1025 in section 800 of the GFE. The title and escrow fees are wrong which are typical when working with an out of state lender. The second mortgage is a 30/15 at 7.975% with no discount or origination fees. The estimate did not factor in reserves, so it falsely appears there will be less cash due at closing (unless Joe was waiving his reserve account, which he was not). I prepare a GFE based on current rates in early June. At that time, I was able to offer Joe Buyer the same terms. However, when you factor in the reserves (taxes and insurance), my estimate appears to look less competitive as the payment appears higher and you need more funds for closing.
With two weeks left to close the transaction, Joe Buyer elects to stay with his current lender. Assuming the lender will perform, this could be the right thing to do.
“OK, I’ve crunched the numbers, and it’s essentially the same loan, which is totally OK (about $25 difference in monthly payment, I haven’t examined the closing costs). So I think the smart thing to do right now is to wait and see the current lender, and if anything dramatic happens, I can be more confident that there are alternatives.”
Joe contacts the lender and gives them an ultimatum that he must have an approved loan by the end of the day or he will pull his transaction to work with another lender. The next day, I receive this email from Joe:
“I wanted to keep you posted…the loan has been with the processor all day, who has apparently been looking for something to put a finger on. The processor was suddenly of the impression that my [debt to income] ratios were off by over 10%, so she wanted to turn the loan into a stated-income, which I refused. I had to explain to them how DTI ratios work…. Bizarre, but true. The loan officer was surprised at this miscalculation…. So [we] should now be clear for underwriting… the loan officer believes it should be fine from now on, and has provided dates to the buyer’s agent for title/escrow.
I honestly feel that the loan could pass muster as is, but I’m still prepared to be surprised. The final and absolute loan approval should be there within 48 hours. I think they understand that I’m serious about switching lenders if there’s too much trouble, and I think I could convince the seller to extend as well.
So right now, we’ll simply wait and see.
Thanks for your help.”
Learning that the LO wanted to ”switch” the loan to stated income, made me suspect that she never locked in the loan or could not calculate self employed income on tax returns. Stated income loans carry a higher rate than a ”full doc” loan. If the LO gambles with her clients’ locks, she would have lost big time over this past month. This could have been a ploy for her to try to recoup losses in pricing the rate.
This is just the beginning of my dealings with Joe and his internet lender. Stay tuned for Part 2 when things really heat up with the closing date approaching.
About the Author: Rhonda Porter
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15 Responses to “Joe Buyer and The Lending Treehouse of Horror: Part 1”
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It would be interesting to discover if the income stated on the application by the borrower matched up with the income reported to the IRS.
Rhonda this is a great series and I am looking forward to Part 2. I am, of course, completely with you on this idea that consumers should NOT try to shop for a lender by interest rate alone. There are so many moving parts to a mortgage that a consumer is doing a great dis-service to himself or herself by ONLY shopping the rate.
Or for that matter, selecting a lender ONLY because they are offering a no fee loan.
Do reputation, quality of service, knowledge, competence and ethics mean nothing to consumers when selecting a lender?
Why would you trade a low interest rate for the pain of letting a new loan officer “practice” on you? If that’s the case, where’s the pre-disclosure to the consumer?: “We here are big bank lender use only new, incompetent loan officers in order to keep your interest rate low. Your loan officer may or may not be fully trained.” At least then the consumer now sees more of the risk in selecting this lender and can make a more informed choice.
You know I am of the strong opinion that it is up to the industry itself to come together and solve this problem. This is not a problem for government to solve.
I did this loan full doc! I had a LO call me a few weeks ago (she saw my info in AR) and she asked confessed that she only does stated income loans if her clients are self employed because she doesn’t know how to read tax returns. I agree, some can be complicated and they all vary…but her clients had no idea! I hope she (the LO) took the hit on her commission instead of giving her unknowing clients a ding because she doesn’t know what she’s doing.
She wanted me to train her and (1) I don’t have the time; (2) someone at her company should take of care of making sure that their LOs are educated, qualifed and competent.
I believe the internet LO in this case was both incompetent and gambled the rate. She also had this client feeling like because he was here on a visa, that his rate would be higher!
She’s from a bank in Florida, but also calls herself a Senior Mortgage Broker… I’m not sure if her company would fall under our new LO broker guidelines, or if she can get away with this because she works for a bank?
I just know, I worked my tail off to help these guys…I won’t give away the ending. You’ll have to wait for part two!
You know, this is another good idea for a post: A list of the top ten reasons why clients ought to talk to more than one lender before selecting a mortgage loan originator. Not necessarily apply and get a good faith estimate from more than one but simply to interview the LO. Number 1:
1) When a person is self employed. The interview question would be, “how many self employed borrowers have you placed into loans? How many of those borrowers chose stated income loans based on your recommendation? Do you know how to read self employment tax returns?”
Rarely does a new or newer loan officer or loan originator know how to do this. It is only after receiving advanced training in this area, usually by an underwriter, that an LO approaches minimal competency. Instead, LOs often rely on an underwriter to review tax returns before documented income for the purpose of qualification can be determined.
This is crucial for a self-employed home purchaser who may be under a time constraint within the purchase and sales agreement.
Jillayne, In the case of the LO who contacted me…I think she (and many) LOs would bluff. When I have an unique tax return, I let the client know upfront that I’m pulling in the President of our company to assist. I have no problem asking for help when I need it.
Your idea would make a good post and you’ve got my wheels going!
Investment property would be another good one…
You’re causing a flashback to almost every “internet lender” deal we have ever had. And it’s not a pleasant trip.
Every time a client brings us a transaction with a lender they found on the internet, we cringe. There is invariably a problem, and its always exciting (at least behind the scenes). Sometimes they lose documents over and over, sometimes they can’t get their closing instructions right (5 sets is the current record), and sometimes they can’t seem to get the funds to us on the day of disbursement.
Trying to find a responsible party is like nailing Jello to the wall. You get passed around from processor to processor, and each time you have to start again from the very beginning. We lose hours and hours, and I lose precious strands or my remaining hair…
In most cases we suffer the pain in private, and our client thinks everything went swimmingly. Such is the life of a title agent.
The good news/bad news is that we don’t see too many of the transactions. The out-of-state lenders tend to use out-of-state Title Agents and Notary Signing Services. We’ve seen a handful of the settlement sheets from those transactions. Not a single participant seems to get it right. Every deal had significant errors in allowable fees and rates. Some don’t even have a single line item right. In one case the deed and the mortgage were never recorded – sitting on someone’s desk in Iowa.
Good deal? For somebody, but probably not the borrower.
Dave, sorry for the flashback! I hope it’s a fluke, but I’ve been dealing with rescuing 3 internet lender-deals over the past week!
I think it’s a numbers game for lenders who have to rely on buying leads (internet, mailing, cold calling, trigger list, etc.)… the internet LO in this case I think only hung on to the buyer for so long because he’s pretty percesistant (he called/emailed me constantly even before we were working together) and because he’s a jumbo loan. The LO had more to loose or gain.
I would love to know if Lending Tree has a system where buyers could register complaints against LOs who did not perform. This one almost cost the buyer his earnest money of $15k and the home they wanted buy…not to mention time and stress.
But for Lending Tree, it’s probably the same numbers game to them with dealing with LOs and mortgage companies who need to buy leads in order to have business.
Hi Rhonda,
our experience and the bulk of the experience of other agents in our broker’s office is that internet lenders tend to close only about 50% of the time. Pretty low numbers in my book. We usually discourage a client from only talking with one lender – instead recommending at least 3 lenders at a minimum. The clients we’ve heard about that have been burnt the most by their mortgage have tended to shop by rate only, and it was in a refi situation, and didn’t ask enough questions to know what the total package would cost them. They got their answer when the rate started rising on a monthly basis at the rate of an 1/4 of a point a month. After 8 months that meant they’d gone up 2 points total and the client was frantic. The worst part for him was that he learned AFTER the fact that the prepayment penalty was 3% in the first year, 2% in the 2nd year, and 1% in the 3rd year. Awful!
I think it’ best when a borrower knows they can see the “whites of the eyes” of the LO. In this case, with the buyer in CA…he was not able to see mine…but at least I’m in the same state as the home he is buying. You just don’t know where you’re going to end up with an internet lender…and I always have to wonder about any LO that has to buy leads for business.
I feel for you! Drama is a part of our job at times and I do not think that individuals who shop for lowest rate realize all the time and energy spent when they come to us with situations like this. That is why working by referral is the best way. When you truly want what is best for your clients you look at the loan as if it is your own. I am glad you were able to help this family. I am waiting for part 2.
Thanks, Susan. This buyer called me at least 10 times a day and I probably have just as many emails… I haven’t heard a pep from him in a while! I feel like I have all of this free time now.
They are a wonderful family. I’ll post Part 2 soon…thanks again.
[...] Joe Buyer and the Lending Treehouse of Horrors: Part 2 July 9, 2007 Last week, I began telling you the tale of Joe Buyer who found his low interest rate on the internet and was having second thoughts when the loan approval was appearing elusive. This story resumes in the second week of June…the week his purchase was scheduled to close. [...]
[...] 1. Eileen Tefft’s, “Joe Buyer and the Lending Treehouse of Horror: Part 1 and Part 2” [...]
[...] 10th, 2007 · 1 Comment I just read a great series of posts by Eileen Tefft, “Joe Buyer and the Lending Treehouse ofHorror: Part 1 and Part 2.” [...]
[...] http://www.raincityguide.com/2007/07/01/joe-buyer-and-the-lending-treehouse-of-horror-part-1/ [...]
[...] I have tried to write about this many times, but I always get so upset that I don’t report the story accurately. This is a great example (be sure to read part 2) of why Realtors cringe when a client comes to them ‘pre-approved’ through any lender whose business name ends in ‘.com’. [...]