Comments on: Purchase Implosion: Pre-approval letters worth the ink?

By: Leanne Finlay

Leanne Finlay — Thu, 03 Apr 2008 00:41:04 +0000

In these changing times I think we all agree that a buyer needs to bring a pre-approval letter with their offer to a seller.

And, buyers please pick a competent lender, make sure your letter is professionally written, and has the necessary phone numbers on it to reach your loan rep, especially important are an after hours phone number.

I can’t tell you how many pre-approval letters I’ve seen that give only a business number. If I’m sitting with sellers at 7:00 pm, and would like to talk to your lender rep, I’d sure like a phone number to try to reach them at.

And, if you’re out making an offer, go ahead and call your lender rep so they know that an agent might wish to talk to them.

Making a good first impression is more important than you realize. Don’t fall in the ridiculous trap of thinking “that seller should be darned glad to even get any offer, my letter is good enough!”.

By: Rhonda Porter

Rhonda Porter — Wed, 02 Apr 2008 20:28:57 +0000

Who’s at fault? Thesedays it could be “market conditions”. Unless a borrower has taken actions to change what is reflected on the original loan application or damaged their credit. No one can help if a program is gone or an area is deamed declining.

By: Jimmy Thomas

Jimmy Thomas — Wed, 02 Apr 2008 18:12:55 +0000

Exactly my point-”pre-approve” so the borrower knows what a lender(s) will allow them to afford before they go shopping.
I think in reference to Tim’s original question, who would be at fault, I still don’t have an answer, but if the appropriate due diligence is performed up front then there is less sifting through data to find resolution.
As others have stated a pre-approval letter isn’t worth the paper it’s written on without a financing approval letter from a lender.
Longer upfront time to get a deal done before the P&S stage, but when clients and realtors have both in hand a the negotiating table, I think there is less turmoil overall.

By: Rhonda Porter

Rhonda Porter — Wed, 02 Apr 2008 17:31:43 +0000

Jimmy, a big difference with Freddie/Fannie guidelines is the credit score pricing. It’s quite possible that if you had a borrower who qualified at “x” rate and now their rate is higher because they’re putting less than 30% down (which is a majority of loans) and have a score below 720. What if they have a credit score of 680 and now with the price-hit, they no longer qualify?

BTW I cringe when I have a buyer w/a P&S needing to be approved instead of meeting with me first and then buying. Risky!

By: Jimmy Thomas

Jimmy Thomas — Wed, 02 Apr 2008 17:08:23 +0000

I would add that Lender guidelines do change, but not too drastically on bread and butter programs that an L/O shouldn’t be able to figure it out. 30, 15 year fannie mae and freddie mac guidelines are still pretty much the same.
You won’t see those flying around with unknown condtions too often unless it has something to
do with viability of the borrower. Conforming stated/stated is basically gone so know new unknowns there either.
MI insurance companies have dropped there max value to 97%LTV so a lot of lenders don’t do 100% anymore.
Credit-risk based underwriting has changed a bit as there are more smaller credit score ranges as to help narrow
the lenders risk and pricing is effected by that as well.
There are also problems with “declining-markets” as defined by housing prices dropping in a certain area.
You don’t always get the exact location when pre-approving a buyer, proposed address is usually left as TBD(to be determined).
As an L/O I’m trying to pre-approve the buyer, not an unknown property.
If a potential buyer or realtor with a buyer comes to me with a P&S and then says “approve me” that’s risky.
Cart before the horse use to happen alot, but not too much anymore.
Yes I have lost loans because I wouldn’t send out a pre-approval letter based on a phone call and the next L/O would but I slept ok that night knowing I wasn’t guessing or lying.
Also, when someone writes up an offer in a declining market area, LTV’s change, pricing changes and credit score risk base scenarios change as well, sometimes eliminating the borrower from that property.
It’s not neccesarily saying the borrower doesn’t qualify for that dollar range but not for that property in that area in that dollar range.

By: Rhonda Porter

Rhonda Porter — Tue, 01 Apr 2008 20:24:30 +0000

This is suppose to be a trackback: http://www.mortgageporter.com/reportingfromseattle/2008/04/the-current-val.html

Typepad is weak in sending trackbacks….sorry! Great post, Tim

By: Rhonda Porter

Rhonda Porter — Mon, 31 Mar 2008 22:29:38 +0000

Our preapproval letters state something along the lines of “subject to changing market conditions”. I cringe when I write it, however, it’s a hard fact. Knock on wood, I have not lost a transaction in progress. But as I mentioned earlier, as a LO and as a buyer with less than 20% down or lacking other strengths, you need to be able to dance quickly if your program evaporates.

The key is being very upfront with buyers and letting them know “yes, you’re approved RIGHT NOW for this program [and if needed] let’s look at other options in case we need to switch to plan b.”

I’ve had listing agents contact me (where I’m not the lender) to review preapproval letters or to ask if certain programs are still available–I suppose this is another option for listing agents–run the preapproval by their preferred lender. (I think something along these lines was my first post at RCG!).

By: craig

craig — Mon, 31 Mar 2008 20:53:04 +0000

I think that would be prudent and a worthwhile point of negotiations, Leanne.

By: leanne

leanne — Mon, 31 Mar 2008 20:36:17 +0000

So, Craig, if the listing agent has reservations about the loan approval letter or the lender, it very much makes sense to consider requiring buyer in the very beginning to get pre-approved with a second lender … and possibly to simply require the buyer to use this lender instead. The seller needs to consider the impact of allowing a buyer to use a lender that seems shaky in the beginning …

By: craig

craig — Mon, 31 Mar 2008 20:09:16 +0000

Leanne — every contract imposes a duty of good faith, but the specific contractual obligations are set by the specific contract. Here, with the Form 22A, the buyer’s exact obligations are unclear. Yes, buyer must apply for the loan within ___ days (default 5, I believe) but beyond that what must a buyer do? Apply with another lender if that application is denied? Apply with a third lender? I’m just saying there is no clear answer. Different facts — and different judges — will lead to different results.