A Declining Market Flag? At The Last Minute? You Have Got To Be Kidding Me!

I wholeheartedly agre, Kevin.  I can understand them trying to limit their risk, but rescinding on the day before settlement is just bad business.  

Thank you for the post. I had this situation come up as well. Maybe ethics needs to come back into all of our business dealings, and your suggestion for these lenders should be taken to heart.

Gregory - I agree - risk management - I have no problem with that - but the whole last minute thing bugs me.

Frank - It just seems like they have powers beyond mortal men - and are abusing them.

Kevin,

Good post, I really loved the line "This pre-approval is subject to this lenders apparent ability to change the rules at the last minute", NS I can't wait to see this one a pre-cert.

Take care!

RJH

Robert - Thanks - this kind of behavior just drives me nuts.

It's such a shame that this is occurring since the buyer was already pre-approved and it happened the day before settlement. You would have thought when they pre-approved the person they would know what market the person is buying in.  Maybe they should have asked that question.   Prince William, Stafford, and Spotsylvania countines are all labeled as declining markets. 

Stacy - it is a shame - and am afraid of what will be next? Oh - you work in Real Estate? Yes - over 10 years your earnings are strong, and your credit is fine, but Real Estate is down, so we need a bigger down payment.

Its hard these days for anyone to keep their word.  Because the criteria keeps changing, or people are undecided, scared, and circumstances can change.  Nothing surprises me anymore.  Mistakes are for people, and we will always make them until we die.  Hope 2008 is a good year for you.  Lu

Its hard these days for anyone to keep their word.  Because the criteria keeps changing, or people are undecided, scared, and circumstances can change.  Nothing surprises me anymore.  Mistakes are for people, and we will always make them until we die.  Hope 2008 is a good year for you.  Lu

We are in different times the lenders word is not a commitment until it is funded. 

Where is the Fed addressing this obviuos breech of promise !!!

Terry - I agree that we are in different times - I just remember when a persons word meant something.

Charlie - my man - I could not agree more !

Lu - I just think that if they can't keep their word - don't make the promise?

The interest rate is suppose to cover the risk.  No one on the lending side knew about this until the last day?

Matt - I am only going by what I read - so who knew what when may be open for interpretation. 

I think that the buyers would have a pretty good case for actual damages if the appraisal came in where it needed to be, and there were no other restrictions on the pre-approval.  Let's see...

• lost earnest money.
• any damages from selling their current home
• moving expenses if they can't stay where they are
• storage costs
• etc...

Nothing new about this. 

A mortgage loan "pre-approval" and about $4 will get you a cup of coffee at Starbucks.

I agree with Lane--have the buyers sue the bank for either specific preformance or lost monies in the transaction.  Suddenly, lenders have become totally risk-adverse, yet that's the business they're in!  I don't count on any deal until it closes.

Kevin-lenders are just jumping through so many hoops these days.  I recently tried to write an offer on a condo and the building was disapproved to the high investor to owner ratio.  So no money.  Now there is just one more way not to get a deal to the settlement table.  Great post!

Cindy - I know - so many hoops - and I am ok with that - up front - it is just when I get adverse info the day before closing - I fell like saying - "Mr. Lender - where have you been - if you had a problem why not tell me earlier? When I do say that, they have no answer.

Thanks for posting. 

Dalia - It sure would be nice to see that case in the papers. I agree - I don't count them until they go to record.

Thanks for posting. 

Lenn - I know - it is a sad state of affairs - we insist on getting a "lender letter" but in reality it is worthless. Maybe a "lender letter" should be a letter from the letter, like a disclosure, outlining this practice?

Thanks for posting. 

Lane - I'm not sure if I can think of anything right now that would be more fun than that. I hope someone does it.

Thanks for posting. 

Kevin, according to my loan officer, this happens more often than not. Nothing is written in stone anymore. Sad, but true. I do, however, prepare my sellers of the possible scenario.

Hi Teri - it is surely a sign of the times - and a sad state of affairs - I wonder if this could potentially do more harm than the "sub-prime" issue?"

It is an unfortunate situation for the buyers for sure, and that those who have the money make the rules.

Kevin, thanks for sharing the article even though it just ticked me off!!

Michael - a very unfortunate situation - and all to true - the holder of the purse strings make the rules -and I am ok with that - I just don't like that they can change them mid-game.

I wonder - what if, due to the risk of reduced TV ratings if NE did not go undefeated - when Jacksonville had the ball yesterday - and the game was somewhat close - had the NFL decided in the 2nd qtr - that based on that new risk - Jacksonville TD's were now only worth 3 points?

Jo - ticked me off pretty good as well. Thanks.

That is horrible. I thought the purpose of those were for that very reason. I could see if it was the buyer's fault. But to have a preapproval and be one day a way from closing......only to have them change their minds. WOW!

This is the second time today Im saying Lenn hit it on the nose..A pre approval is no better than a note from your mother, never has been. Now we are back to the days of 20% down payments and in a declining market Im not sure how good that will be.

 I see a return to the days of creative financing like we used in the 1980's. Installment contracts, seller take back seconds, wrap around mortages etc

Hi Ron - Sad but true - I think the market will find a way - it usually does. And I agree that a pre-approval letter is not worth the paper is is written on. I just still can't accept that the lender can change the program mid-game - that is just dirty pool.

Thanks for posting. 

Christy - I am afraid it happens more than anyone knows.

Thanks for posting. 

Happened to me last week and inspired my post that was featured.. My client had already signed docs and given escrow $30k. Movers had him packed. Lender refused to fund.

What can you do besides look bad to everyone involved? Again, I say loan contingency can only be removed on the day the lender funds.

Cold hard facts, sorry.

Janet - sorry to hear that happened - I know all too well how frustrating it is. I am a little concerned that if this type of behavior goes unchecked it could be as damaging as the whole sub-prime issue.

I think lenders should be held accountable. When they "commit" to lend, it is a promise, to me that is no different than when the loan closes and the borrower "commits" to pay.

Love your remarks in the quotes.  Unfortunately the banks CAN and DO make up their own rules.  In our state they don't even have to fill out the disclosure/disclaimer statements if they acquired the property by foreclosure or in lieu of foreclosure.

Michael - Thanks. I know - they seem to have a free hand - I'd like to see some oversight somewhere.

Thanks for posting. 

Andrew,

Good points all. With rates so low, and Mr. B indicating that another decrease may be on the horizon, I am afraid that your words ring too true. If Mr. B does lower the rates, I wonder how they will ever raise them again? 

I read that article and mentally made a note to do as Janet said and run that contingency right up to settlement.  There's really no other way in the current climate.  What I'd like to know is why they didn't know until so late?  Surely the appraiser checked that box on the appraisal.  Did no one notice?

Hi Kevin - what a sorry state of affairs we find ourselves in now.  And when this kind of thing happens, it usually has repercussions for more than just the buyer/seller involved in the sale that was just told no.  I feel really badly for all involved when this happens, and most times there's not a darn thing we can do about it, as Janet wrote in her comment above.   Just flat stinks!

Ann

Kevin:  Unfortunately, in 2008, we'll be seeing alot of this.  Sad but, true.  Here, the 'pre-approval' letter means absolutely nothing--we MUST have a loan committment letter to move forward because many lenders hand out pre-approvals like Halloween candy!

A pre-approval letter has never meant anything to me because I have known its usually not Worth the paper its printed on.  That is a very unfortunate statement.  Lending institutions should perform their due diligence and have a standard that they will ad-heed to before they issue a pre-approval letter.  They need to build back the confidence of the public.  I agree that ethics classes are needed for their industry too.

I'd be interested in knowing if the "declining market" box was checked on the appraisal.

It sounds to me like the lender, not "We Realtors" who need to take that Ethics Class.

Congratulations on the feature, Kevin!  IMHO, the bank did not bail at the last minute.  That almost never happens (again, IMHO.)  What does happen is that loan officers, whether for the bank or working for a broker, whip out a pre-approval letter, hoping that the buyer will stay with them, and not shop the loan.  They don't take the time to find out if the property is in a defined "declining market."  The original appraisal might have given the property a thumbs-up.  Like Elizabeth, I'd also wonder whether the "declining market" box was checked on the appraisal. 

We all (lenders, agents, appraisers and title) need to take more care in the details right now.

Mike in Tucson

You have posted about a deplorable practice. Lenders have always had many loopholes to use at the last minute, unfortunately, they are so afraid to make a bad decision right now, they are over-reacting. Clients need to be warned about this.

lots of folks from lots of industries could very well use lots of ethics classes. we could start with the oil industry, but that would be a waste of time. Closer to home though, lenders are feeling the heat these days, no?

best 

Interesting post. Sign of the times and likely more of which will come.

Blame Fannie Mae (FNMA).  FNMA has instituted Soft Market requirements nationally which state if the appraisal reflects 1) over 6 months marketing time, 2) declining prices and 3) oversupply, then the lender must require an additional 5% down on the 1st mortgage.  If the borrower's credit score is 680 or higher then the extra 5% can often be placed on secondary financing, but for those without a 680 credit score the Soft Market flag can be a deal killer.  Trust me, Loan Officers don't like this anymore than you do!

Folks, I hate to tell you, If the home is in a declining market(most are), get ready for 25% down.

Michael - while I think 25% down is a market killer, if it is disclosed up front, ok. My problem is the practice of last minute program changes. Either your word as a business is good, or it is not.

Thanks for posting. 

Wendy - I am sure the loan officers hate it - but if FNMA has a policy, then it is a policy. I just have a problem when the institute is retroactively.

Thanks for posting 

Bob & Carolyn - A scary sign of the times. Who has 25% of a purchase price laying around?

Thanks for posting. 

Gary & Richard - great point on the oil industry.

Thanks for posting. 

Wayne - truly deplorable - I think everyone should know. They FED thinks the housing market is bad now.....

Thanks for posting.

Mike - interesting take - and I think you may be right. If so, I wonder is USAA will demand a retraction?

Thanks for posting. 

Margaret - sounds like they could certainly benefit from the class.

Thanks for posting. 

Elizabeth - great point on the appraisal. It seems a like I have stuck a stick in a hornets nest.

Thanks for posting. Hope you got all the storm damage repaired ok. 

Samuel - I agree - the lender industry may be in need of a serious PR Campaign.

Thanks for posting. 

Debe - yes - I think we will see more of it in 2008. I wonder how the market will correct this, because I think it could have a ver negative impact on sales.

Thanks for posting. 

Ann - it does seem like we have to just sit here and take it.

Thanks for posting 

Josette - great point about the contingency date!

Thanks for posting. 

Kevin -- Unbelievable!  I have not come across this yet, and I hope I never do.  Seems that if it was the day before closing, the file would have been all the way through underwriting and the "clear to close" had been issued.  Seems like more than a preapproval had been given here.  I agree with Lenn above -- the borrowers might have some legal recourse.

I heard about the declining market flag, but I'm surprised to hear USAA used it to kill a deal that was pre-approved.... very shoddy policy at best on that one.  I've worked on a couple deals through USAA and I've never known them to flounder like that at the last minute.  Loooks like a changing market means they've decided to do what the please, pre-approval or not....

Several things may have happened.  One, the originator did not lock the program, and the rules changed in the interim.  The lock expired and the rules changed in the interim.  If it is truly because of the " declining Market" it was known at the time of underwriting.  I have never heard of a lender changing the downpayment requirements after the approval.  It was more likely an originator error.  And I am an originator.

Scott - thanks for the info - good points all. It could be exactly as you say; I am only going by what the article stated. Either way, it seems like someone should step up and take some responsiblity.

Thanks for posting 

Jonathan,

I too had a deal with USAA - and it was smooth. Again, I can only go by what was stated in the article.

Thanks for posting. 

But Dan, you make it look so easy.

You are the man. 

Kathy - I agree - I think agents will take the business where it needs to go for the market to survive.

Thanks for posting. 

Lori - I agree - and it sure would be nice to see some litigation on this.

Thanks for posting. 

I'm so tired of lenders changing the rules at the last minute, even a good faith estimate means nothing to these companies. I would love to see them held accountable if they are not within $50 of their estimate.

Kevin - Welcome to the club of "I've been screwed by the lender at the last minute because of DECLINING MARKET CONDITIONS"!!  What a crappy club to be a member of!  Just when you think things are going well and you have a buyer who is willing and seemingly able to buy, then you have to deal with overzealous lenders swinging their ridiculous pendulum back in the other direction.  First too lax, now completely paranoid!

This is one reason why I don't recommend long escrow periods.... particularly in a rapidly changing financial market.

Sorry to hear that you are having trouble.

I think some lenders need to look up the word "commitment" before they agree to provide a loan. I know, they say it is spelled out in the fine print. Fine print is one of the biggest problems today; it makes the world too complicated. See Subprime Mortgages. Either you agree to do it, or you don't agree to do it. Pick one.

I hope it all works out for you. Best of luck. 

Thanks for this article.  It is truly sad to hear this, however we do not get to hear the actual resolution.  I hope these buyers were able to pick themselves up and continue on with their home purchase despite this unfortunate incident.  There is plenty of good people and established businesses for every less than perfect one you stumble upon.