The several years of “loose lending” by mortgage lenders helped bring a surge of bad loan programs with borrowers that were either overextended from Day One or should have been unqualified to begin with. This surge has now become a tsunami of foreclosures and short sales, which Jeff Allen and I have lumped together as the term: “Lender Mediated Sales.”
Now that lenders, banks, retirement funds, investment bankers, average investors and everyone else have all been bitten by the fallout from this housecological disaster (like my new word?) we find ourselves trying to change our ways, reduce our foreclosure footprint, and move forward to a more sustainable-housing-market future.
The problem is that while there seem to be a large number of borrowers ready to purchase houses in recent months, it is now these same lending institutions hobbling our housing market.
It starts with short sales: lenders were willing to give 100′s of thousands of dollars to anyone with a heartbeat at a moment’s notice but now take MONTHS to tell you if they’re willing to accept a buyer’s offer on a defaulted borrower’s house… which more times than not is a far better return on their investment than letting it go through foreclosure. The buyers willing to sit on the housing market sidelines for MONTHS while they wait for an answer can wind up the owners of an excellent property at a great price, but few buyers (or their agents) have the stomach for it.
On REO, aka lender owned, homes we see banks still take a week or more to respond to many offers, sometimes haggling over unrealistic sales prices, and so many pages of disclosures and addendums that do everything possible to leave the buyer with an “I just got violated” feeling when they receive the counteroffer from the lender. Some of these bank addendums are so ridiculous that you roll your eyes the whole time you read them.
Many of these lenders do not provide listing agents enough incentive (i.e. money) or oversight for them to do a good job marketing the house (i.e. some interior photos, a new picture when January snow becomes July grass, room dimensions, a phone number with a real live human person, timely responses, an MLS description that says something other than “bank owned,” ACCURATE association fees and tax information, etc.). When buyers have 100′s of houses come up in their search, it is easy to ignore the listings that show nothing, tell nothing and mean nothing.
Assuming that the house is not a short sale or a foreclosure, lenders are still finding ways to get in the way of a good borrower buying a good home. This is the area of the market that I’ve become the most frustrated and cynical about recently. Here are some of my favorite lender fouls lately:
- Mortgage Insurance Company Changes Downpayment Ratios and Doesn’t Tell the Mortgage Company
A BIG mortgage insurance company decided to stop insuring loans with down payment ratios over 90%, but it said that the special state-supported first time home buyer programs (many at 3% down payment) were not affected. A day before closing the mortgage company calls the mortgage insurance company to get the mortgage insurance certificate (which seems way too last minute for my taste) and is told: “sorry, get your borrower to come up with another $14,000 by tomorrow.” Apparently they decided not to give special consideration to the first time buyer programs and never told the mortgage company. - Underwriters Didn’t Look at File Until 24 Hours Prior to Closing
A loan officer had everything in a week prior to closing and the underwriter waited till the day before closing to review the file and came back with a ton of conditions that took days to fix. Heaven forbid that we know these things in time to fix them without a delay in closing. - Loan Packages Showing up Almost a Day Late
File gets underwritten in time and for some reason the loan package sits on the processor’s desk for a day instead of being sent out as it should have. - A Continually Moving Target for Loan Programs
It seems that nearly every day the loan programs are tightening up with more requirements, tighter guidelines, and more downpayment needs. Most conventional loans were still 5% down until just recently… now almost everything is 10% down (due to the tightening mortgage insurance issues) and I think it is quite likely we might see that get even worse given the continuing high number of defaults on bad loans from years ago. The only “sure thing” right now is good ‘ol FHA… 3% down now, 3% down tomorrow, 3% down hopefully forever. While you can sneak by with a 0-down FHA loan, I believe FHA will try to quash those options again this year… which would be fine if FHA could come up with a 1.5% down payment option @ a higher mortgage insurance premium.
You take all of these obstacles in the way of today’s home buyer and it is a wonder that our housing market has been doing as well as it has as of late. These home buyers start out excited and optimistic about their upcoming home purchase and end up exhausted and jilted about the process when it is all over. This week I had two buyers almost ready to give up entirely and walk away from great houses at awesome prices because of all the problems with their financing. These were great human beings and qualified buyers that were being beaten up over things that were not of their doing. I think we’ve come back from the edge of the cliff at this point but it is tough to watch your buyer suffer while you stand powerless to effect any real change on the situation.
Don’t get me wrong, there are still a lot of homes selling right now and many transactions never see these problems, but in my conversations with agents all around town, it seems that almost every transaction takes 2x-3x more work and pays far less than it did 3 years ago. Some may call this paying our penance for the “good times” of prior years or a needed cleansing of a bloated industry. Either way, this current housing market’s impact is becoming more pronounced every day.
Until we can get lenders to get their act together and be timely and consistent for a change, I see the current troubles only prolonging a difficult housing market.
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