Nevada City Virtual Tour

Monday, July 14, 2014

Loan delays and Problems Closing Discussed

Here are the borrower's issues that typically arise

1)   Lack of disclosure: 

Buyers need to tell Loan Officers anything / everything that remotely affects the financing of the home. 

I fix “broken deals”. But I can’t fix issues that aren’t disclosed.  

For example : Just because an issue is not (initially) listed on a buyer’s credit report, it does not mean it won’t raise its ugly head at the very end of underwriting.

Any issues that involve past government contact, (i.e. tax liens, unpaid student loans, pending litigation, or criminal fines) often go undisclosed (particularly where there is a “remarriage”) and one (or both) of partners wish to hide their past from the new spouse.  

Often these items are so far in the past they (conveniently) “forget” to disclose. These items ALWAYS show up at the very last POSSIBLE moment via a government data base (i.e. "Cavirs").  

Unfortunately “Cavirs” is the VERY LAST STEP of the “Quality Control” process (after loan docs are drawn, signed and returned to the doc dept.).  

This lack of disclosure will certainly “sour” an UnderWriter feeling about a file and may cause them to decline a marginal loan application just “because they can”.

2) Lack of preparation/ cooperation. 

The best indicator cooperation is them going thru the process of getting fully (pre) approved BEFORE they run you around looking at homes. 

This involves them completing a loan application and assembling the items listed on a buyer’s checklist.  

Only then will you be able to judge how much energy you're willing to invest with each buyer.  

3)  Buyer’s go out and apply for credit or make large purchases. 

All drastically lower FICO scores, and raises debt ratios. 

4) Transferring money around without a “clear paper trail”. 

Post 9-11 the government has used currency laws to pry into our bank accounts. No paper trail = NO Close of Escrow.  

If the borrower is receiving gift funds, OPTIMALLY it is best to have the $$ in the receiver’s account approx. 60- 90 days before loan submission.
Doing so eliminates the need for a gift letter (and the giver’s subsequent documentation).   

The problem with gifts is: givers must provide a proof / source of funds (bank statements).

Often the giver (last minute) resents / refuses to provide their banking info. It's a deal killer. 

5) Liquidation of 401k or IRA accounts. 

Borrowers need to begin the liquidation process approx. 2 -3 weeks before the close of escrow.  

6) Illegible or Unsigned Documents 

From an illegible purchase contract to “blacked out account numbers” on bank statements (yes…I’ve seen it all) borrowers and sometimes agents submit unreadable documents.  

7) Servicer’s are backed up. 

Our industry is “boom or bust”. Most support companies are loath to hire and train new employees.  

Hence the chain of information required to approve the transaction is delayed at every level (i.e. escrow documents, title reports and appraisal turn times and yes …loan processing as well).

8) Many loan officers simply prefer processing “refi” transactions. 

Purchase transactions are more tedious and require much more attention to detail than refi's. 

As a result your (purchase) transaction gets pushed to the “back burner”.   

Obviously I don’t need to tell you this, I’m sure it’s already happened.

9) Appraisal values come in low. 

With multiple offers on each property it’s tempting for sellers to choose the highest offer (vs. the most realistic ). 

To keep the escrow from cancelling the seller may need to carry a second TD.  

New laws in 2013   make "Seller Carrys" extremely difficult and any silent seconds are (essentially) bank fraud. 

Let me digress briefly. Dodd-Frank legislation requires all appraisals to be conducted by an independent appraisal (arm’s length) service. 

The intention (among others) is to eliminate real estate bubbles caused by bloated appraisals and easy lending rules. 

Appraisals are to REFLECT current home prices (based only on previously) solds vs. LEADING home prices (based on future/anticipated close of COE).  

There is no appeal process because lenders have absolutely no contact with the appraiser. If the value comes in low, we have real problems. 

The only other alternatives are to lower the price or order a 2nd appraisal. 

If the loan is FHA or VA, the appraised value is “set in stone” for at least the near future (no second appraisal is allowed). 

Make sure your Listing Agent is there to 'help' 'explain' the best features / value and supply even more comps to prove the value.

10) Verification of (previous) employment. 

Many buyers working for large corporations must be verified thru an automated system.

It requires them to go on-line, get a “one time pin number” (only good for 24 hours) and give it to us, who must then hit that 24 hr. window period.  

If the borrower has a job change, this process may have to be repeated if we’re to count overtime, bonus or commission to qualify.   

Some companies only verify “gross wages” in which case we need to have all the past 2 years of pay stubs to count the additional income. 

11) Buyer has bought a new home. 

New home builders operate on their own schedule can often (combined with labor shortage and weather conditions) thwart the best laid plans. 

12) Your buyer has "auto pay" accounts.

I'm speaking from experience (vs. having any statistical analysis), often they close bank accounts connected to  credit card payments AND FORGET to redo them with the new accounts and then "wham" 30-60 day lates begin showing up like drunk relatives at Christmas time. 

13) A critical person in the transaction goes on vacation/ family/ medical leave / etc. (all of which are simply a part of life). 

The most key person is your escrow person(s), loan processors followed by the "Listing Agent" any of which (if not physically present) will inevitably lead to delays.

In Closing 

These are just the most common issues. There are others. 

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