Extending Buyers a Helping Hand (& Leg & Arm)
(One more) pop quiz: what's the biggest source of fraud in today's housing market?
A. Inflated appraisals
B. Seller downpayment "gifts" to their Buyers
C. Borrowers falsifying data -- including income --on their mortgage applications
D. Shaky mortgages bundled into securitized debt and re-sold to investors
Answer: B.
Think of it as "seller-paid points on steroids."
Paying points -- the Seller contributing up to 3% towards the Buyer's closing costs -- is a common feature of today's buyer's market; as long as the lender knows about it, it's perfectly legitimate.
Unfortunately, it appears that many home Buyers need more help than that -- and at least some Sellers, eager to consummate a transaction, are obliging.
The catch is that lenders forbade such "gifts," for a couple reasons: notwithstanding appearances, such Buyers have little or no "skin" in the game; Seller gifts can mask Buyer credit risks; and such gifts effectively inflate the value of the home being sold, which serves as the bank's collateral if the Buyer defaults.
To crack down on the practice, lenders are stepping up their documentation requirements, big-time.
Thanks to Steve Mohabir, City Lakes' resident mortgage expert, for providing background on this post.
Showing posts with label final underwriting. Show all posts
Showing posts with label final underwriting. Show all posts
Thursday, March 11, 2010
Wednesday, January 6, 2010
Foreclosure Snags & Delays
Dotting the Dots in the I's
The latest delay in a foreclosure deal where I'm representing the Buyer?
The pre-approval letter from their lender lacked the lender's signature.
The bank might as well have objected to the font type and size in my client's offer.
What's especially annoying is that the bank-owner was sitting on my client's offer a full two weeks before they decided they needed a signed pre-approval letter. (For the record, the required signature took about two hours to procure.)
Unfortunately, such slow motion, bureaucratic snags are typical in foreclosure deals.
Deal-by-Checklist
Holding up a deal for want of a would-be lender's signature is silly, because the Bank could easily have called the lender to verify the Buyer's financial bona fides (which is what I do when I represent Sellers). It's doubly silly because everyone knows that pre-approval letters don't mean anything.
They're not binding on the prospective Buyer, who's not obligated to use the lender that generated the pre-approval letter. And they're not binding on the lender, who's yet to perform the bulk of their due diligence.
All that really counts is whether the Buyer's loan gets final underwriting approval from a still-solvent bank, which in turn depends on how strong the Buyer is financially, and whether the home appraises.
But you don't get to any of those until there's a signed-off deal.
Which we're still waiting on.
Squeaky Clean Offers
That's why my routine advice to Buyers interested in a foreclosed home is to make their offer as simple and clean as possible, to minimize the potential for ridiculous, time-eating snags like this one.
(And no, I don't think anyone from the bank is reading this blog.)
P.S.: if there's an upside to any of the perfunctory, deal-by-checklist protocol the foreclosure banks all seem to be following, it's the "entry barriers" they present to any subsequent Buyers. In other words, flushing Buyer #1's offer means starting the whole, laborious process over with Buyer #2 (or #3 or #4 or #5 . . . ).
Call it the foreclosure equivalent of "dancing with the one who brung 'ya."
The latest delay in a foreclosure deal where I'm representing the Buyer?
The pre-approval letter from their lender lacked the lender's signature.
The bank might as well have objected to the font type and size in my client's offer.
What's especially annoying is that the bank-owner was sitting on my client's offer a full two weeks before they decided they needed a signed pre-approval letter. (For the record, the required signature took about two hours to procure.)
Unfortunately, such slow motion, bureaucratic snags are typical in foreclosure deals.
Deal-by-Checklist
Holding up a deal for want of a would-be lender's signature is silly, because the Bank could easily have called the lender to verify the Buyer's financial bona fides (which is what I do when I represent Sellers). It's doubly silly because everyone knows that pre-approval letters don't mean anything.
They're not binding on the prospective Buyer, who's not obligated to use the lender that generated the pre-approval letter. And they're not binding on the lender, who's yet to perform the bulk of their due diligence.
All that really counts is whether the Buyer's loan gets final underwriting approval from a still-solvent bank, which in turn depends on how strong the Buyer is financially, and whether the home appraises.
But you don't get to any of those until there's a signed-off deal.
Which we're still waiting on.
Squeaky Clean Offers
That's why my routine advice to Buyers interested in a foreclosed home is to make their offer as simple and clean as possible, to minimize the potential for ridiculous, time-eating snags like this one.
(And no, I don't think anyone from the bank is reading this blog.)
P.S.: if there's an upside to any of the perfunctory, deal-by-checklist protocol the foreclosure banks all seem to be following, it's the "entry barriers" they present to any subsequent Buyers. In other words, flushing Buyer #1's offer means starting the whole, laborious process over with Buyer #2 (or #3 or #4 or #5 . . . ).
Call it the foreclosure equivalent of "dancing with the one who brung 'ya."
Subscribe to:
Posts (Atom)
Posts
