The lending roller coaster is just starting to roll
Most real estate professionals have to deal with an occasional unexpected consequence involving lenders… but not a string of them like this revelation.
A client of mine decided to be a generous friend. He’s not a wealthy man in the strictest sense of the word, but that doesn’t stop him from trying to help his fellow man – or woman, in this case.
Some of you might know a little about him, as he is Jack in my interview with noted investment real estate broker Jeff Brown on my website.
Jack has a friend who has been living in a drafty house owned by a slumlord. Although she didn’t live in a slum – the owner was treating the building as if it was. She was paying as much as $300 or more each month to heat her little place, as the cold wind blew through it like Swiss cheese.
While looking at other investment opportunities for Jack, he asked me to find a condo that he could buy for this friend – thus allowing her to get out of this awful place she was living in.
Remember – no good deed goes unpunished
My favorite mortgage broker found the perfect program with Countrywide – an 80/20 loan for non-owner occupancy… and I found a perfect condo that Jack’s friend really liked – and with a price that worked.
Our offer, though aggressive, was accepted. So far – so good.
Enter the lead aggregator LendingTree. Jack logged onto their website to look at doing a refi on his home. What Jack did NOT know is that LendingTree would give his info to a dozen lenders who would all pull Jack’s credit (not pulled once and shared with member lenders like you might believe).
So what difference does this make?
Plenty. While Jack was rearranging his finances and paying off debts – he was draining his cash reserves down. The refi was going to bring cash back into the picture for the rehab of his next real estate acquisition.
The trouble is that when all those LendingTree lenders pulled his credit – his credit score dropped as a result of the inquiries.
So Countrywide decided a week before closing that they were not going to do a 100% loan with him anymore – now they wanted 5% down.
Even though he was strapped for cash, he could manage this… and would soon pull cash out through his refi with Quicken Loans – the LendingTree partner he decided to work with.
Meanwhile, our mortgage broker was trying to convince Countrywide to do the right thing and close this transaction, as they could plainly see that it was only inquiries that dropped his credit score. Countrywide would hear nothing of it. (Of course, now we know that Countrywide was trying NOT to do 100% loans – they just hadn’t made it official)
For the next week, our mortgage broker was trying to lock-in the 95% loan with Countrywide – with absolutely no luck. She couldn’t even get them to call her back. Finally – the day before closing – Countrywide told her that they will no longer honor the 95% loan and will only do a 90% loan with my “A” paper client. Hmm – no wonder she couldn’t lock the loan.
Needless to say, she pulled the loan – Countrywide had crossed the line
Enter Bear Stearns Mortgage. Their local Account Exec had been in our mortgage broker’s office many times over the previous several months – trying to earn their business. They had a 95% product that would work for us, and we all figured that if there ever was a loan that Bear Stearns would work diligently to close with the highest customer satisfaction – it would be ours. After all – ours was a trial loan.
We could not have been MORE wrong
The complete file was sent to Bear Stearns with our normal expectation of waiting 24 hours for it to get through underwriting. Since we only have a one-week unilateral extension on our contract – time is of the essence.
On the second day, our calls to Bear Stearns went unanswered. This caused us a great deal of discomfort, as we are used to lenders with more customer service.
Instead of a phone call, our broker received an email indicating that our file was 4th in line. What on Earth does THAT mean? Apparently, that means you need to wait a few more days. Looking back, it would have been nice to know that – then.
Unbeknownst to us, the seller of our condo had a few prior contracts that fell apart due to financing problems – and our inability to close this transaction on the agreed-upon date was making life tough for the seller’s agent.
Meanwhile, Quicken loans delivered a loan package to Jack that didn’t resemble the terms that he was quoted in the very least. They stuffed him like a Thanksgiving turkey with higher fees than any loan I have ever seen. Even his appraisal was sky-high at nearly twice the price it should have been, in my opinion.
Naturally, I advised him to rescind his contract
Back to Bear Stearns – who missed our closing date – and now placed us in jeopardy of losing the condo, as the seller had no further obligation to us. Fortunately, we had been in constant communication with the seller’s agent (as well as provided her with constant contact to our mortgage broker) so she knew we were working diligently at getting this deal done.
We extended our agreement across the weekend to close it on Monday. But on Monday morning… the closing attorney had not received the package. As usual, our calls to Bear Stearns went unanswered.
Finally, Bear Stearns called to inform us that they had been in a meeting all morning, but they’ll get the package out to the closing attorney – pronto. [rant on] In a meeting all morning? Hold your freaking meetings on the weekend! Hold them after-hours![rant off]
“We’ll get your package out right away” – Just another lie
This dedicated Bear Stearns employee promptly dumped our file on another employee’s desk and left for the day. (She supposedly had a doctor’s appointment. Rrrr-right. At this point, I wouldn’t believe them if they told me the sky is blue.)
The next employee, who was obviously NOT interested in doing someone else’s work, added a condition to the package. The condition? We had to get Bear Stearns added to the master insurance policy for the condo complex. What a crock!
Our calls to the complex’s insurance agent were never returned
So the next day, I headed over to this insurance agent’s office. After all – we needed to clear this condition… and if the mountain won’t come to Mohammed… Mohammed will have to go to the mountain.
Interestingly enough, the doors of the insurance agent’s office were dead-bolted. For some reason, I was neither surprised nor fazed by this. At this point, it was par for this course.
So I walked around the block and up the alley and went in the back door of said insurance agent’s office. Needless to say, the ladies working in that office were very surprised to see me. And imagine that – they started to take our request a little more serious.
They claimed that they didn’t return my mortgage broker’s calls because adding a lender to the master policy was not their responsibility. The insurance agent (who was nowhere to be found) was supposed to handle this… but at this point – I’m not taking any more excuses from anyone. I am truly over this “Eez not my yob” mentality.
Apparently, since the contact information for the condo complex was so out-of-date, it was obvious no other lender had ever required that the insurance agent add them to the master policy… and we did have to get the approval of the condo association to do this.
Before the end of the day, we were able to clear this bogus condition
Now the ball was back in Bear Stearns court. What will they do next to botch this deal? Up until now, they have demonstrated their deepest desire to make sure we would NEVER use them again… but were they ready to finally close this?
If that’s what you think – then think again
[edit] I almost forgot – since the date of closing moved beyond the 5th of the month, we were no longer able to do a short pay – meaning that Jack needed to bring more money to closing for the prepaid interest for the month of closing. Since the amount he needed was larger than his verified funds, our mortgage broker cut her fees to the bone to make the deal work. Unfortunately, Bear Stearns didn’t review the updated Good Faith Estimate, and assumed the buyer no longer had the funds to close AND THEREFORE DIDN’T SEND THE PACKAGE TO THE CLOSING ATTORNEY. When we were finally able to talk to someone over at Bear Stearns, they told us that they figured the deal was dead. No phone call… no email… nothing. These guys were doing everything they could to NOT close this loan.[/edit]
No… even when Bear Stearns is told that the seller lives several hours away in Savannah, and that the buyer must drive a couple of hours from their home, they just couldn’t help themselves. We scheduled our closing in the afternoon – just hoping that given several hours to choke their coffee down, they might be able to deliver our packages to the closing attorney in time… but we were wrong.
They managed to get one package to the attorney… but not the other. We all sat around the attorney’s office just to see if Bear Stearns would screw us one more time – and they did. They claimed that they couldn’t release the second package because of some problem with the APR test… and they couldn’t manually override the system.
Obviously, a closing date is simply a suggestion to Bear Stearns
So we all waited for the next day to arrive… in hopes that a package might show up. Although we didn’t want to set a closing time without a closing package, we had to do so with the participants traveling so far. We set the time and hoped for the best.
At this point, I didn’t think there could be anything else that Bear Stearns could possibly do to anger me any more that they already had. They had consistently lied to us, and did everything they could to NOT provide us with customer service. But yet again – I was wrong.
Bear Stearns decided to throw a pre-payment penalty into the deal
Normally, we would have walked out of the closing over some underhanded crap like this – but Jack’s tenant needed a place to live, and the seller was counting on us to perform. So we went through with it against our better judgment.
I guess that the pre-payment penalty was tossed in to sweeten the deal with the lender who bought the loan from Bear Stearns. That’s right, Bear Stearns wasted no time selling the paper to someone else. After all, the buyer is an “A” paper borrower with excellent credit.
Let’s not forget about Quicken loans – as that plot has been thickening
Before Jack rescinded the refi, he tried to reach his loan officer with Quicken loans to no avail. “He’s betting that you won’t rescind if you don’t talk to him,” I told him. “He’s not going to call you back.”
And I was right. He never did call Jack back. And Jack signed the rescission and faxed it to the closing attorney just within the rescission period.
Quicken did call Jack the next day – but it was the loan officer’s boss… not the loan officer, himself. Jack says that Quicken has now agreed to give him the loan they promised him in the first place. How nice. They now agree NOT to screw him.
There are many lessons to learn here
First, in such tumultuous lending times… keeping a financing contingency in your contract might be a good way to keep from losing your earnest money because of your lender.
Second, even when you have excellent credit – and you are dealing with a big lender like Countrywide – you can’t be sure they are going to perform. They can change the rules on you with impunity.
Third, some lenders – like Bear Stearns – will cause a great deal of discomfort for you… including flat-out lying to you. I will NEVER use Bear Stearns again. My mortgage broker will never use Bear Stearns again. Consider yourself warned.
Fourth, using a lead aggregator like LendingTree can drop your credit score enough to harm you. Although those inquiries shouldn’t have made a difference, you see what happened to Jack – and the same thing could happen to you… or worse.
Fifth, as you can see – even when the LendingTree partner gives you the great deal… they can try to screw you before it’s all over. Quicken Loans should be ashamed of what they tried to do to Jack – and I sincerely hope that although they promised to give him the deal they originally promised, he will decide against using them.
Of course, you should not overlook that the agents involved in the transaction must have a relationship of communication that allows them to proceed with trust. If we were not in constant contact with the seller’s agent, she would have recommended that her client put the condo back on the market – or renegotiate the price or terms.
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Dan Green says:
Wow. That was some rant.
I can feel your pain and have been there myself. There is no worse feeling than being a conduit for information and the information received is faulty.
It makes everyone involved look foolish.
Sometimes, underwriters/investors forget that we are all “grown-ups” and so they don’t want to share bad news with us. Heaven forbid, we get upset!
Like you, Doug, I’d rather know the whole story and then adjust my expectations, and the expectations of my clients, accordingly.
So long as we have information, we can make rationale decisions.
The funny part is, had your investor just TOLD you that it would have been an extra week, or that they couldn’t do the loan as-is, or whatever — you guys would have probably just rolled with it and found a way to close that made sense for everyone.
Instead, they chose to keep you in the dark informationally and that leads to unrest.
Or, maybe I missed the point altogether?
March 13, 2007 — 12:16 pm
Greg Swann says:
Logan Hall at SallieMae Home Loans, who can write into any state: “A lot of the 80-20-stuff has gone by the wayside, but we have some substitute products. Also with PMI being tax deductible, the combo loans aren’t as necessary.”
March 13, 2007 — 1:39 pm
Jeff Brown says:
Doug – Thought I already commented here, but apparently it didn’t take.
You an tell when a lender’s lying when their lips are moving. In almost four decades I’ve only met enough trustworthy lenders to account for one hand’s fingers. 🙂
As a group they’re more worthless than most real estate agents, and I don’t say that lightly. As they dash the dreams of investors and home buyers, it’s only the mud on the wall that didn’t stick as far as they’re concerned.
That said, the lenders I’ve used over the years have been honest individuals with an old school sense of integrity.
I’ve recently added Brian Brady to the good guys group as he gives me that old school sense of looking you in the eye while being both honest and productive.
Your well written post only shows nothing has changed since I first began working.
This latest shake-out might be the catalyst for lenders like Countrywide and Bear Stearns to pull their heads out and begin treating their customers as if their survival depended upon it.
March 14, 2007 — 3:43 pm
Mark says:
Interesting article, although I must say, the rules on credit scoring to my knowledge are this: your credit can be checked an unlimited amount of times in a 2 week period for the same purpose and only count as one check and therefore one hit on the credit, so all of those lenders pulling credit should not have affected him. Furthermore, I worked with lending tree before, and all the lenders asked before they pulled credit. Looks like all along it really was just the not wanting to do 100%.
March 14, 2007 — 8:35 pm
Doug Quance says:
>Dan – you definitely caught the salient points… but communication of your failure to provide service is not much better than the failure, itself. It would have, however, lowered the bar of expectation.
>Greg – true, the 80/20’s aren’t as necessary… but the PMI on some of the products for subprime can be horrendous.
>Jeff – I’m glad to see that Brian Brady is working out to be not only opinionated – but effective, as well.
I hope the industry gets some traction, soon. The problems in it are shaking the economy to the bone.
>Mark – We thought the same thing… but obviously that’s not the case. My client contacted Fair Isaac & Co. to try to get them to adjust it, but they said that he needed to contact the individual lenders – like that would help.
My client and I were under the same impression as you. Part of the reason for this post was to point out this flaw in the system… and this is not an isolated incident. I have read of others who lost their ability to qualify for a particular loan ENTIRELY because their credit was pulled too may times.
I do believe that Countrywide didn’t want to do the 100% all along, however.
March 15, 2007 — 4:45 am
Rick says:
And I thought I had only experiences similar to this myself?? I had a lender “Provident” that Ok’d my personal home loan purchase only to come back and ask for an additional 3 things AFTER I signed loan documents and just before funding…I pulled the plug on that nonsense!
This was with 800+ FICO’s….Hello!
December 17, 2008 — 4:55 pm