Mortgages going sideways

This morning, on one of our broker forums, I read a question from another broker.

He asked which lender would be able to finalize a mortgage for April 30 if he submits the application April 26.

In a nutshell, other brokers commented that this would likely be impossible right now. Five business day turnaround is quite a feat at the best of times.

I’ve done it twice, and it makes for a very stressful five days.

I cringed inside for this broker. My guess is that something went sideways for this file the week before closing. It happens.

How can this happen? There are a couple of things that come to mind.

Lenders each have their own way of doing things. Some require full documents at the time of submission for approval; others will issue an approval with a list of items (conditions) that need to be confirmed prior to the mortgage finalizing.

With the benefit of age and experience, my goal is that my clients have all of their lender’s conditions signed off before they remove their financing condition and make their Offer to Purchase a firm and binding contract.

Beautiful in theory, but it seems like in this crazy market it rarely happens.

Why mightn’t all of a client’s mortgage conditions be signed off before their Offer was considered firm?

With the craziness in our housing market right now, many of the participants are starting to bog down due to the overwhelming volumes. Spring is always busy, but this year has taken things to a whole new level.

• Lenders who normally have 24-48 hour turnaround times for approvals and document review are now running at double or even triple that.
• Because so many people are writing offers significantly higher than the original asking price, more files are requiring full appraisals to confirm market value. Appraisers are booked in some areas over three weeks out.
• Many companies have modified work arrangements for both their HR people and their employees, so having employment verifications completed in a timely manner can be an issue.
• Strata documents can sometimes take more than a few days to arrive.
• Many clients are writing offers with seven-day subject removal dates to make their offers more attractive.

In normal times, one week for subject removal is tight, but manageable provided everything lines up.

Another reason lately is that clients write a firm offer with no conditions. I’ve had multiple clients go in with subject-free offers because in the current sellers’ market this seems to be the only way they are able to negotiate an accepted offer.

Even though the Offer to Purchase may not include a financing subject, unless clients are purchasing their home with cash any lender approval will include conditions that need to be satisfied to finalize their approval.

Recently, clients wrote an offer with no financing subject, but thankfully included a clause about receipt of a satisfactory home inspection. We had an appraisal done, and the value came in slightly higher than what the clients had negotiated.

All their conditions were signed off by the lender. We were in great shape.

As it turned out, the home inspection on this much sought-after property revealed significant structural issues that needed to be addressed. The initial estimate for the work was just over $100,000.

Had the clients gone in with a subject-free offer, they would have been stuck closing on this home or losing their $50,000 deposit and potentially being sued.

Worse yet, had their realtor not included the home-inspection clause they would have closed on the house and found out after about the extensive work needed.

About two years ago I worked with a young, self-employed client. He had a well-established business and was making a solid income. We needed to use a specific program for self-employed clients and I took his application to a lender that promotes themselves as being the best lender for this program.

After two weeks of back and forth with the lender trying to have the client’s income confirmed, the client negotiated a week-long extension for his financing condition.

After another week of back and forth with the lender, they were still asking for more documentation. The client was not able to negotiate a further extension so removed his financing condition rather than lose out on this home.

We continued to submit more documents that the lender asked for. The requests were starting to border on absurd.

We were getting down to the wire and the lender was still asking for more documentation. Each time we sent in what they requested, it took at least three days to hear back from them.

I was beyond frustrated and I’m sure the client was stressed beyond belief. I know I was.

I had escalated the file and had my lender liaison helping from her end. On the Friday afternoon, one week before closing, the person reviewing documents on the lender’s end told me it wasn’t his problem. The client would just have to close a few days late.

This is not how things work with purchases. Clients don’t get to randomly close whichever date the lender deems appropriate. My head legitimately blew off that afternoon.

So the weekend before closing, I submitted the file to my favourite lender for approval. I had every conceivable document packaged up and sent in for review on Sunday afternoon.

I knew if any lender could make the file come together it was this one.

This file did close on time. This file reinforced for me that choosing a lender I could count on saved everyone a significant amount of stress.

Sometimes, even when all of the conditions have been signed off and it appears that all is in order, something can come out of the blue that can derail a mortgage approval.

Clients me from time to time “So my mortgage is all approved and signed off now right? They can’t cancel it?”

The answer to that question is that any lender can cancel an approval right up to moments before closing, if something comes to light that materially changes your mortgage application.

Some lenders re-check credit histories or double-check employment shortly before closing if your approval has been signed off for a long time prior to closing. They may also google their clients to see if anything pops up.

If a lender finds things like new loans that change your financing ratios, a change in employment, or something sketchy on-line, you might find yourself in a bind.

I am seeing more clients decide to step back from the market and hold off on purchasing due to the state of our market.

I am hoping that more people take a breath and don’t get sucked into the frenzy and put themselves in a bad situation. Will we see things slow down? With last week’s announcement that rates may start to climb the second half of this year, I suspect not.

If you are looking for a home, make wise decisions and have your ducks in a row. Don’t get pressured into making decisions you may regret down the road.

This article is written by or on behalf of an outsourced columnist and does not necessarily reflect the views of Castanet.