REAL ESTATE REALITY
A Little Background
For more than 17 years, Steve Armstrong held the position of Senior Account Executive for institutional savings and loans in their wholesale residential real estate lending division. Steve was the "go-to" point of contact for 40 of the top mortgage broker offices, representing hundreds of loan agents throughout Northern California. Whether your a buyer or a seller of real estate, as your realtor, Steve's experience in both residential sales (more than 500 new and resale properties sold since 1977) and mortgage lending (over 10,000 funded loans) is an incredible asset to have in your corner. Since most real estate transactions involve a new real estate loan, you can depend on Steve's experience to recognize red-flags within a transaction is invaluable. Steve asks the tough questions BEFORE the offer is accepted, providing the best opportunity for you to close.
How will Steve's expertise in mortgage lending benefit me? As a buyer or seller, you may not think it's important for your realtor to understand "investor guidelines" and/or "secondary market" conditions in the mortgage industry. It's actually very important. Unfortunately, only a very small percentage of realtors have much more than a basic "mortgage 101" understanding of the mortgage industry.
In reality, if the buyer of your home is obtaining a loan to buy your house, as a seller, you are essentially joined at the hip with the buyer. Delays affecting the buyers loan, affect you as well. If the buyers loan is delayed 1 day, 2 days or more, escrow is delayed by the same timeframes, if the loan is denied or turned down, your escrow is delayed indefinitly.
Steve's background and expertise in mortgage lending, increases the likelyhood of a successful and less stressful transaction. Nothing is worse for a seller than for their property to be literally taken off the market while waiting for the buyers to qualify, only to have to put the property back on the market and start over again when the buyers loan is turned-down.
Even more frustrating is knowing it could have potentially been prevented if only the listing agent asked the right questions and was able to spot "red-flags" that negatively affect the buyers ability to qualify for a real estate loan. Steve has the experience to perform such due-dilligence.
So, what REALLY goes on behind the scenes at a mortgage company, bank or institutional lender? This may take some time. If this is beginning to bore you, simply hire Steve to sell your home, he'll handle it from here!
Ok, here we go. First, we must start at the top and discuss the foundation and rules for which most every decision in mortgage lending is based... investor guidelines.
INVESTOR GUIDELINES...are the terms and conditions a loan must meet in order for the lender (mortgage company, mortgage banker, bank etc.) to sell the loans they orginate to secondary market entities such as Fannie-Mae or Freddie-Mac. Virtually, all loans must be underwritten and packaged to be sold immediatley to secondary market entities upon the loan "funding". Upon sale of the loan, the lender receives the loan funding back into their system to lend again on new loans. Lenders earns fee's on each loan and many times added income by retaining servicing-rights of the loan. As you can imagine, a loan that cannot be sold, stays on the books until it's ultimately paid off through sale, refinance or principle paydown, prohibiting these funds from generating income through points and fees many times over during this time.
Loan approval-Most lenders use automated underwriting platforms for loans which will be sold to investors. A decision or "findings" are issued within minutes of the loan processor entering and submitting to the automated system. If the loan is "approved/eligible" the approval will include the conditions of approval which must be met before a loan can close or fund. If the buyer cannot satisfy the lenders conditions and requirments of the investor, the loan won't fund, escrow won't close, the transaction falls through, releases are signed between the buyer and seller and the home goes back on the market.
Prior to the mortgage meltdown, the market was ripe with investors willing to buy "mortgage-backed securities". There was plenty of margin for error if a lender missed a condition or investor guideline. "Iffy" loans were tucked into a huge block of loans and sold off to Wall Street. Larger banking instututions could also keep the loan in their portfolio to "season" and sell at later date. That's no longer the case. Although more portfolio lenders have entered the market recently, they only account for a very small percentage of the overall market.
Since 2008, many who've obtained (or tried to obtain) a mortgage loan probably felt they were "put through the ringer" Asking "why is the lender being so picky" or I can't believe the're asking for that" or "I've already provided that document to them...they wan't it again?" Part of the reason mortgage bankers and institutional lenders are so "picky" is they are absolutely paranoid of funding a loan they can't sell. If a small regional mortgage banker has just one "unsaleable" loan it's a devastating event. To the institutional lender, it can be equally as devastating. Think about it, a institutional lender such as B of A, Wells Fargo or Chase fund literally hundreds of millions (even billions) of dollars in mortgage loans every month. If just 1/2 of 1 percent of those loans don't meet investor guidelines and are unsaleable it would be catastophic to a large bank and it's shareholders.
Since 2008, multi-tiered quality control processes have been put in place for all lenders in every department for every step of the process to insure a loan is saleable. It's not unusual for a underwriter (the people who review your loan package) to have their decision reviewed by their supervisor. Further, the supervisor's review will likely be reviewed by the supervisors-supervisor. Employees in mortgage lending are under extreme stress and scrutiny to not make a mistake. if an underwriter makes a wrong decision and clears a condition that shouldn't have been cleared, it could result in demotion or termination. Today, there simply is no margin-for-error in funding a loan that ultimately can't be sold to the secondary market.
Buyers and sellers become frustrated when the lender demands and continues to demand more documentation all the way up to closing. What many borrowers don't understand is that the processing of a real estate loan is dynamic all the way to closing. Here's why. As documentation is submitted from the borrower to the lender, upon review, the figures documented will often differ from the figures entered into the automated underwriting system at the time of application. This can cause the underwriter to have to re-run the automated approval based on the differing hardcopy data and lead to added conditions or even the possibility the loan could be denied or "ineligible".
Conditions of a loan approval- fall into to 2 catagories. The first is, "prior to document" or PTD conditions. PTD conditions are generally related to the buyers qualification such as verification of income or assets, employment etc. PTD conditions are intended to be submitted and reviewed prior to release of loan doucments to the title company.
As stated above, if the income or asset documentation differs greatly from that entered into the automated underwriting system, the underwriter must enter the revised data and rerun the approval. The revised information and updated loan approval (or findings) could trigger additional conditions or negate the original loan approval. "Prior to funding" or PTF conditions are generally escrow conditions, necessary to be completed but generally not related to the borrowers qualification.
That said, there are instances when a loan agent feels pressured by the realtors to move the loan transaction forward and may request (more like beg) to request a PTD condition be changed to a PTF condition so that loan documents be delivered (emailed) to the title company. Doing this is like playing "Russian-Roulette" with a real estate transaction with extremely important loan conditions still outstanding. This is very risky on the loan agents behalf, providing a false sense of security to others involved in the transaction.
Most buyers, sellers and their agents, believe when loan documents arrive in title company, all the "heavy-lifting" has been completed and it's downhill from that point. Meanwhile the loan agent may be frantically trying to gather or piece together documentation, or worse provide documentation that raises additional questions by the underwriter, thereby actually weakening the loan file.
All this while moving plans and moving vans are springing into action based on the fact both the buyers and sellers "signed" their closing documents. In this scenario, the possibility of the entire transaction coming to a crashing halt depends on the loan agents ability to both answer the underwriters latest concerns and satisfy a very important condition. This situation happens more often than one might think. Of course, we are headed for a worst-case scenario, the sale falls-apart with both buyer and seller and their agents never knowing what hit them.
It takes years and thousands of loans to reach the level of expertise and understanding Steve Armstrong's gained in the mortgage industry. Steve knows lending guidelines, understands the process and speaks the language. As your listing agent, this knowledge is a tremendous advantage to you as a seller. As a buyer, Steve's experience in real estate lending will help make the task of obtaining financing much less stressful as well.
What about Loan Agents Who Mostly Do Refinances?
It's extremely important your loan agents primary source of business be purchase loans. Loan agents who focus on purchase transactions are worth their weight in gold. Loan agents that specialize in purchase loans have a reputation within the local realtor community of understanding the complexities of a purchase, the importance of meeting contingency dates, the demands of a purchase contract and the effect delays have on people's lives.
Homebuyers may feels it's easier to use the same loan agent for their purchase that refinanced their loan or feel an obligation to use a friend or relative in the mortgage business. I would caution against allowing a loan agent with little "purchase" experience to "practice" on your purchase-money transaction. Steve can recommend several highly qualified loan agents who specialize in purchase money transactions.
Isn't selling your home still very much “old school”? In reality, the elements necessary for your home to sell have not changed much over the years. Location, presentation of your home and list price are still the "key" points to selling your home. In order for your home to have the best opportunity to sell, potential buyers need access to your home and access to information about your home.
The MLS remains the foundation of virtually every home search a buyer or realtor makes for information on available properties for sale. What has changed is how buyers search for homes. Thanks to technology, buyers now have updates on the most recent MLS listings at their finger-tips through websites such as Redfin, Zillow, Trulia and many others. The foundation for all of these search engines is the local MLS. Click on Steve's homepage tab and start your search for your new home by selecting the county you wish to search on the bay area map or price range tabs.
Is there an advantage to listing my home with a large franchise? If there was an advantage, you can bet Steve would be associated with a large franchise. In reality, the size of the office, the number of agents in an office and the number of offices within the franchise have little or nothing to do with selling your home. Access to the Multiple Listing Service (MLS) and membership in both the National Association of Realtors (NAR) and California Association of Realtors (CAR) insure all member realtors are on a level playing field.