Thank you, Andrew P. for your comment, “The Importance of Being an Expert” posted in reply to “First Steps to Building Your Referral-based Business”. Indeed, being the “friendly expert” for your clients is conducive to a thriving referral business. In my view, anything less than excellence leads down the road to obsolescence.
Germane to the topic of expert advice is that which you give your clients regarding loans and lending in general. One subject of discussion covered during our weekly sales meeting this morning concerned the implosion nationwide of a number of lending institutions which have been focusing their businesses in large part on the subprime lending market. Although conventional funders are not immune, it appears there is an increase in the slamming of business doors as mortgage investors buckle under a rise in foreclosures nationwide. For those of you interested in knowing more about the state of specific funding entities, www.mortgageimploding.com is a good resource for information on current developments.
From an agent’s perspective, the matter is simple. If you’re representing a buyer, then it’s incumbent upon you to communicate with the buyer’s lender to establish your client’s ability to borrow. As a matter of practice, especially if I am working with a buyer whose loan is being processed through a lender I’m not familiar with, I recommend a second opinion, typically by a mortgage consultant I trust or with whom I’ve worked in the past. More often than not, my clients will pursue their funding through my referral, simply because they’re being asked the right questions and trust is being established. Loan rates can be shopped until the end of time. What I want to know is will that lender deliver a package in a timely fashion so the loan will fund per the contractual closing date? I want to be as certain as possible that any pre-approval letter and representation to finance purchase I am providing to a seller on behalf of my client is going to stand up throughout the transaction. Certainly, unforeseen obstacles appear, but due diligence is your best friend.
When representing a seller, talk to the buyer’s loan representative. Though unlikely to provide you with any confidential information, they should be forthcoming with enough generalities to give you confidence as to whether or not the buyer is in a position to close. Look for telltale signs such as an unresponsiveness or evasiveness on either the part of the buyer’s agent or lender. Use the financing contingency contractual tools available to you such as a request for updated loan approval. Be vigilant in how you negotiate the purchase and sale financing timelines to protect your seller and keep the buyer in the game. Consider other elements of the financing such as the amount of earnest money relative to purchase price, percentage of down payment or whether or not the buyer is requesting seller’s contribution to settlement costs in their offer. I’ve closed numerous transactions with buyers who have zero-down loans, low earnest money and are requesting settlement costs. These are great tools for a client with solid credit but little cash on hand. No, it’s when you move into the greyer area of low credit scores and poor liquidity that the risks increase, thus so should your vigilance.
I should conclude by saying that sub-prime loans can be a great tool for a client with low credit scores, but the ability, willingness and discipline to do what it takes to get into a home. Just be aware that, though the spirit may be willing, the lender might not.