Tommy Nelms, Austin Mortgage Consultant, provided the following information to me via email today. I asked if I could share it in this blog and he said ok.
Here goes …
I wanted to keep you in the loop of the important changes in the mortgage industry. We have seen changes in the market this week. I have been originating loans since 1995 and have not seen this before. This might be a rather lengthy email but this will benefit you and your clients whether you are a listing agent or buyer’s agent. You need to have knowledge and ask the right questions to protect your client. I am definitely the “glass is half full” kind of guy, but you need to know the reality of the current situation in the mortgage industry.
Please keep in mind that ALL full doc, Fannie Mae or Freddie Mac loans have not and probably will not be affected. If someone is submitting pay stubs, bank statements, tax returns and W-2’s for financing, then you are very safe. This email is strictly for high loan-to-value loans that consist of stated income, no-ratio, or no-doc loans.
There have been many investors this week either closing down their doors or making drastic changes to their loan programs. If you have a buyer who is under contract and is obtaining these niche loans and the loan is in underwriting, you are probably safe.
However, these loans will not go past their lock date and there will be no extensions made. It is crucial that your buyer get the necessary information to the lender in a timely manner or they may not have a loan at the end of the day. The reason lenders are doing this is because of the sub-prime market and Wall Street.
First, the subprime market is nothing new except that we are seeing lenders not able to sustain the losses over the last couple of months and their stock value dropping by more than 50%. Also, investors on Wall Street are not touching these loans because of the low performance. Many lenders that were servicing these loans were being financially backed by investors in Wall Street and hedge funds. However, no one is investing or buying these products anymore. This has affected over 75% of lenders. If you are dealing with an outside lender please make sure you are communicating with them and they are staying on top of the market.
Listing Agents and Sellers
If you are a listing agent or seller, know what to look for. First, if a client comes to your listing you definitely would prefer to have an approval letter not just a qualification letter. The difference is the approval letter means that the client is fully approved subject to finding a property. A qualification letter states that the buyer appears to be qualified based on the information provided, but has not passed underwriter’s approval.
Check any new offers for how many days the buyer has to get financing. Make sure your seller is protected and you do not have too many days for the buyer to back out at the last second. If the contract reads 7-10 days for financing approval, that is a realistic time frame. If you are accepting a high loan to value, low down-payment offer, ask how the loan is being structured and what the buyer’s credit scores are. You might not be able to get this information, but it never hurts to ask. Ask the buyer’s agent if it is a Stated Income, No-Ratio or No-Doc loan and if income or assets is being verified.
Buyer Agents and Buyers
If you are a buyers agent, you may want to do the exact opposite to protect your buyer. On the financing addendum put as many days as you can to make sure the buyer will get financing and there are no issues in underwriting. Communicate to your client that loan approval is needed before looking at houses. Communicate with the lender and do not be afraid to ask questions.
Here are some examples: Is the file out of underwriting? Have you pulled credit? What conditions if any do we need to clear with underwriting and what hurdles do you see? What is the current turnaround for underwriting, clearing conditions and closing department? This will set up realistic expectations with you, the seller and title company.
I do believe the current environment is an over reaction to the market and eventually the market will correct itself, but this is the current day situation. Again, I definitely don’t want to sound negative, but please be aware of the changes.
I hope you find this email useful and timely and please do not hesitate to give me a call if you have any questions. As your lender, I want to make sure you know I am staying on top of the market and doing my best to communicate to our clients. This is a great opportunity to let the client know that they have the best team working for them and are true real estate professionals.