Lenders are a vital part of the real estate transaction. We gave some of our lenders the opportunity to speak out on hot topics and important questions that REALTORS® have during these crucial times of change. Here’s what you need to know.
- Tony Ameti | Neighborhood Loans
- Ryan Cotter | Movement Mortgage
- Tariq Khwaja | Blueleaf Lending
- Kelly Price | Wintrust Mortgage
- Amir Syed | Guaranteed Rate
WHAT CAN A REALTOR® DO TO MAKE THE LENDING PROCESS AS SMOOTH AS POSSIBLE RIGHT NOW?
TONY AMETI: Regardless of the market, the fundamentals stay consistent. Starting with an accurate pre-approval always helps a file close strong. Continue to have conversations with your clients about their financing plans to avoid setbacks: don’t change jobs, don’t move money around and don’t open new credit.
RYAN COTTER: REALTORS® can manage expectations of clients in these crazy times. We recommend that your contract allows for the new normal for completed inspections, appraisal turn times, etc.
TARIQ KHWAJA: REALTORS® should always be communicating with their lenders as to the status of the client’s pre-approval and confirming the transaction will go through without hiccups. Making sure that a borrower is fully qualified and getting them to the lender before you start showing them properties is the most suggested route.
KELLY PRICE: Efficiencies are always important. Make sure that purchase agreements have contact information that is 100% complete — and accurate. This includes the best phone number for the listing agent/agency for the appraisal order, HOA contact information for the lender questionnaire and the seller’s attorney contact information for follow-up on the title work. You can also set proper time expectations. Real estate is moving at a faster pace than normal, as many are in a hurry to take advantage of record low interest rates this year. Understanding the purchase lender’s ability to close by a certain date is key to setting the table for success. And, don’t be afraid to reset the table when needed.
Also, the best checkpoint to touch base with a lender is upon closing of the attorney review period. Make sure that the lender is made aware of any contractual changes and has all contact information and earnest money checks. Checking in with a lender for status on a contingency date is too late to help.
AMIR SYED: Stay calm at all times, be a buffer, especially if it’s a lender you recommended and endorsed, and drop a “sales anchor” at the onset. A “sales anchor” is an expectation that there will be bumps at some points in the transaction, so when that does happen, the REALTOR® can remind the buyer or seller that everything will be okay. Additionally, let buyers know there might be delays due to the high volume of refinances lenders are processing.
WHAT TOOLS ARE YOU OFFERING CLIENTS TO EASE THE BURDEN ON THE REALTOR®?
TA: We have in-house software that allows clients to pull a pre-approval letter digitally and instantaneously after their initial loan pre-approval with our company. This becomes useful when clients and brokers need an updated pre approval letter within minutes of seeing a property due to the high volume and multiple offers in today’s current market. We are also closing purchase loans in under 30 days.
RC: Our technology platform is awesome. It sends out automatic emails to the buyers, buyer’s agent and listing agents for every major milestone in the process, so they all know what is going on without asking. This includes: Appraisal Ordered, Application Submitted to Underwriting, Appraisal Received, Loan Approved and so on all the way through to closing, funding and postclosing surveys.
TK: Our online application system streamlines the entire process completely. Clients are immediately notified of what documents they’ll need to upload so the processing doesn’t lag. They upload, sign and acknowledge all lending processes in an automated manner in an effort to make things easier and more streamlined. Our system will also send out notifications on each step that has occurred to ensure proper communication from start to finish.
KP: Wintrust offers a streamlined pre-approval process for buyers to apply online through a secure web portal that is accessible from a computer or smart phone. Documentation for most borrowers is streamlined as the secure portal allows direct importation of work verification, bank account activity and other verifications that speed up the process. Electronic signatures throughout also trims excess time off the process and make it more efficient for faster turn-times and closings. The “WinApp” is our free Mortgage Calculator App that I encourage clients to use as a tool for pre-work prior to showings with their REALTOR®. The app provides answers on “what a property will cost (monthly),” which removes the number one buyer-hesitation when it comes to making an offer. If the pre-work is done correctly, the REALTOR® is showing the buyer(s) property that he or she already feels comfortable affording, which allows them to make a quicker decision on writing up an offer — including price.
AS: Guaranteed Rate has incredible REALTOR®-centric technology, one which specifically allows the REALTOR® to check the status of their buyers’ loan progress at any given time.
WHICH LOAN TYPES HAVE BEEN AFFECTED THE MOST BY THE CURRENT CLIMATE?
TA: There was a brief period earlier this year that saw a slowdown in FHA lending
across the country, mostly related to HUD’s guidance on forbearance and the reaction of the secondary market. Now, most of that appears to be in the rearview mirror, and markets are functioning normally again. However, the more exotic products that we call non-QM, like asset income, interestonly loans and other alternate options, have decidedly slowed down with the market’s reaction to COVID-19. For the stability of the housing and lending markets, some might consider that a good thing.
RC: Jumbo loans were really hit hard with additional restrictions on qualifying for them, but the good news is that we are already seeing some loosening on those restrictions for certain jumbo borrowers.
TK: Without question Jumbo loans. All loan types have had credit criterion change; however, jumbo has seen the most punishment with larger down payments, higher credit scores, lower debt-to-income ratios for the self-employed, or simply no longer offering jumbo loans for selfemployed individuals at all. I have seen multiple firms entirely stop the origination of jumbo loans and only offer loans that are at the conforming loan limit of $510,400 or less. There is a plethora of changes across the board but the luxury market seems to have been most affected, and I have seen it firsthand as a large chunk of my clients are borrowing with loan amounts from $800,000 to $1.5 million.
KP: It’s no secret that when COVD-19 broke out earlier this year, the financial markets also erupted, creating an uncertainty with most jumbo investors and their lending programs. For example, jumbo programs with less than 20% down payment options were put on hold, but by summer, the 10% down payment option returned with Private Mortgage Insurance (PMI). However, PMI companies, in general, have all tightened their credit requirements, making PMI harder to qualify for and more expensive to afford. We also saw renovation financing, such as FHA 203(k) and FN HomeStyle loans, become expensive in nature with interest rates that are 1-2% above market.
AS: Jumbo (non-conforming) loans! Which is anything that is not a Fannie Mae or Freddie Mac loan (conforming) — about 50% of all mortgage money. The jumbo loan underwriting times are incredibly delayed currently.
HOW ARE LENDERS VERIFYING EMPLOYMENT IN TODAY’S CLIMATE, AND HOW DO YOU HANDLE UNEMPLOYED OR FURLOUGHED BUYERS OR SELLERS MID-TRANSACTION?
TA: This has changed quite a bit since January. Lenders selling to the agencies used to complete a final verbal verification of employment within ten days of closing. As unemployment started to rise, those verifications moved to five, then two, then one day. In today’s environment, many lenders may complete their verbal verification of employment on the day of the closing, which can be burdensome for the lender and frustrating for the borrower’s employer. We will see this shortened timeframe continuing for most lenders at least for the remainder of 2020.
Much of the pressure to verify employment comes from the secondary market investors who want to see that the borrower has a job and is likely to remain employed after they sign the final documents. Lenders are under great pressure to document, and in some cases over-document, that they did everything in their power to verify that job. Until the market settles a bit and investors get more comfortable with the new normal, lenders will have to ensure that any loan they close doesn’t come back for repurchase.
RC: We are having to perform more verifications throughout the process — all the way up to closing. Unfortunately, if someone becomes unemployed or furloughed mid-transaction, they will become unqualified.
We definitely don’t want people who might not be able to make future mortgage payments to be put in an even more difficult situation. When my team runs into this situation, we have been lucky enough to get a co-signer to step in.
TK: The standard processes are in place. However, I should say that this is a nightmare if it happens mid-transaction. Pay stubs and verification of employment through calling the employer for a W-2/Wage earning borrower is the standard. Those that are self-employed have a different process, but it remains relatively unchanged. We want to see that income is consistent and will remain consistent. Furloughed borrowers, or those on unemployment, are not qualified for financing since we have to determine at least three-years continuance on supplemental income, such as unemployment. That does not continue, so it will be deemed unusable by underwriting.
KP: Lenders are still verifying employment in the same manner — upfront, and again, just days prior to closing. However, during a pandemic, it’s always a good idea to have multiple contingency plans in place. More borrowers are requesting to be qualified on a single-person’s salary when applying jointly, just in case of a furlough event, and, when available, Plans A, B and sometimes even C are discussed upfront. This way, if someone is furloughed during the process, another plan could be immediately executed to keep the financing approval in place.
AS: We are asking the right questions upfront at time of pre-approval, but a homebuyer’s employment is verbally verified again on the day of closing with one additional pay stub requested. Additionally, unemployed or furloughed buyers are not able to secure home financing.
WHEN A BUYER IS LOOKING AT RATES ONLINE, THAT NUMBER IS OFTEN INACCURATE. WHAT FACTORS GO INTO THE FINAL RATE?
TA: At the end of the day, an interest rate is a representation of risk. The lower the risk, the lower the rate. Although rates are at historic lows, the fundamentals here don’t change — credit score, down payment, type of property, occupancy and even escrow all contribute to the final rate you receive.
One way that REALTORS® can help their clients who are working with multiple lenders is to educate them on how to effectively shop a lender’s deal: compare APR and not just the interest rate, look at the total cost of the loan and not just the bottom-line figure. Unfortunately, online quotes are not always representative of what a borrower receives. There are still loan officers out there that move information around to make their deal look more favorable than it is. A well-educated REALTOR® can make a well-educated borrower and work together to find the best deal.
RC: Online rate shopping requires looking at all the small print first. Generally, people don’t do this, so this approach is hit or miss. Without knowing all of your specific information such as median or middle credit score, financial information, and more, you won’t know if you are getting an accurate quote at all.
TK: Sadly, almost all online advertised rates are just click bait. The vast majority are purely posted to give the company a chance at earning a borrower’s business. Each borrower has a different scenario, so there is never a blanket rate that covers everyone. You must determine the following to let the borrower know what the interest rate will truly be and provide them an offer: property type, occupancy, credit score, intent (purchase or refinance), zip code and loan amount.
KP: A multitude of loan characteristics are factored into determining an interest rate including, but not limited to the following: credit scores, equity or down payment, PMI or no PMI, purpose of the purchase (occupancy), amortization, property type, down payment assistance and secondary financing, to name a few. Some jumbo investors even added premiums to interest rates for self-employed borrowers during the pandemic.
AS: Unfortunately, there are many layers to one’s individually tailored interest rate. Several factors, such as credit score, down payment percentage, property type, occupancy type and even the state, play a factor in determining the interest rate. One size does not fit all.
MOST PEOPLE EXPECT RATES TO REMAIN LOW IN THE SHORT TERM. WHAT ARE SOME MACRO SIGNALS TO WATCH OUT FOR THAT MAY INDICATE RATES MIGHT BEGIN TO PICK UP?
TA: The ten-year bond, which is usually a reliable bellwether for rates, has been somewhat decoupled recently because both rates and bonds are so close to their historic lows. The market’s not sure how to react and we’re keeping an eye on employment figures, mortgage delinquency percentages and forbearance requests compared to overall production as early indicators if the economy is improving. As these numbers improve, rates could be expected to return to their usual levels.
TK: As of right now, I see little to no reason rates will be increasing, unless the election goes in a certain direction or unemployment drastically changes. Right now, we have a nice run of the best rates I have seen in my career, which has spanned almost 20 years.
KP: The financial markets, inflation and the labor market, including unemployment rates, are always indicators for mortgage interest rates, whether direct or indirect. The COVID-19 pandemic is by far the biggest force affecting all of the above, including mortgage interest rates in 2020.
AS: Simply put, pay attention to the unemployment rate. That, in my opinion, is a key driving indicator to the health of the overall economy and what impacts mortgage interest rate determination.
MY CLIENT CHOSE/OPTED INTO FORBEARANCE. NOW WHAT? WHAT HAPPENS WHEN YOU GO INTO FORBEARANCE?
TA: Thankfully, HUD and FHFA took some good steps to protect buyers that are in a forbearance plan in these unprecedented times, but then followed it up with good clarity for how lenders should help these clients. We are finding many buyers who already own a home were put into forbearance without even knowing it or requested forbearance “just in case” but continued to pay their bills as normal. For buyers who are in a forbearance, plan on their current loan — if their payments are and have been current, that person can still get a mortgage today. For borrowers who have had difficulty and are in a forbearance plan, HUD has been very clear that any missed payments are to be paid off when the house sells or at the end of the mortgage term. No late payments are being reported to damage a borrower’s credit, and there is usually not a lump sum due at the end of the forgiveness period.
The best advice I could give for anyone in or about to be in forbearance is to check with your current lender to make sure you’re doing everything you should be.
RC: This prevents them from financing until they are caught up, at the very least, and depending on what they are looking to accomplish, more steps may be needed.
TK: In a forbearance, you are allowed to delay payments. Lenders are either offering you three months off and to make a lump sum payment at the end of a 90 day period, or to put those missed payments on the back of your loan. Be aware that if you have done this on a home you own and are trying to buy a new one or refinance, the Fannie Mae and Freddie Mac Guidelines state that you must be caught up on payments and removed from the forbearance plan, and get a letter from your current lender stating that you are on time and current with all payments. I suggest anyone who can make their payments should continue doing so.
KP: Forbearance is a financial hardship, to the degree that when an individual is in forbearance, they are not eligible for new financing, whether that’s a purchase or refinance. Many who opted to put their mortgage into forbearance on their primary residence, or even on various rental properties, had to bring all mortgage payments current to qualify for a new mortgage. Allowances were made during the COVID-19 pandemic to not harm the credit of consumers who opted into forbearance, as stipulated by their lender. However, the myth believed by many was that forbearance meant forgivable payments, which was not — and is not — the case.
AS: Forbearance is something that should only be elected in truly severe financial hardship as it has many implications, including an effect on credit scores, home refinancing eligibility, increased mortgage amounts and more.