Like raising a child, originating a mortgage these days, seems to take the work of an entire village to ensure it closes on time! Working on the compliance side of the loan process, but with the experience of originating fresh in my mind, I’ve noticed a few patterns lately when loans have problems at or near closing.
Editor’s Note:
Josh Weinberg (author to this article) is a housing expert whose experience is deep in both real estate and mortgage environments. Based in Santa Cruz, California Josh travels the United States to speak on the housing and mortgage regulatory requirements in today’s real estate market. His insights are invaluable. If every Real Estate Agent knew what Josh knows about how to prepare a consumer for qualifying for their mortgage program, an agent would better set expectations and have control of the process across the board. Rick Roque, managing editor, RE Edition.
Like raising a child, originating a mortgage these days, seems to take the work of an entire village to ensure it closes on time! Working on the compliance side of the loan process, but with the experience of originating fresh in my mind, I’ve noticed a few patterns lately when loans have problems at or near closing. To me, patterns identify areas of strength or weakness in a process and often allow us to find straightforward solutions to difficult problems. In the next few paragraphs, I will highlight a few of the patterns and the solutions I’ve been able to implement “in the real world” that have helped our bank improve the loan and real estate sale closing process.
It starts when we’re still young
You can tell early in a transaction’s development how well the partnership between the interested parties of the loan game will result by how well they play together during the process. Sometimes there are time tested relationships built on referrals or the successful closing of many transactions. However more often now a days, Agents are forced to find new business partners as the result of people leaving or being forced out of the industry. Buyers and Sellers can also make a big difference in the outcome of the transaction, let alone the stress or joy along the process. No matter how well you know your client, or the others involved, frequent and thorough communication can never be understated. Human nature often leads us not to discuss difficult subjects or problems; however this is the single largest factor I’ve noticed in loans and relationships falling apart.
The key to reducing stress and the anxiety all of us feel when we’re getting close to the contract deadline and we don’t have a clear to close on our loan is honest and direct communication. My suggestion is, the worse the news is, the more people you should tell and the faster you should tell them. No one likes getting bad news, but I assure you, people like getting bad news at the last minute even less. It almost sounds cliché to say teamwork is critical to smooth transactions, but just because the idea is basic doesn’t make it any less important. Let’s face it: getting borrowers qualified today is an uphill battle. There is nothing more effective than simply anticipating these challenges and setting the best expectations possible for your clients. This will require working closely with all of your working partners in the supply chain of the purchase agreement and the mortgage itself.
Difficult situations are usually best handled by including everyone involved and working towards mutual solutions. Another cliché that proves true in these circumstances is more minds are better than one. That doesn’t mean that the Realtor should try and become a mortgage expert, or that the Buyer should try to become an electrician to fix a problem, but by including everyone in the process, ideas outside of your own perspective come to the surface. Often, we get so bogged down into the specific details of a scenario that we lose perspective that someone not as involved may recognize. Also, by including everyone in the problem it reinforces the spirit of teamwork and promotes an inclusive feeling. When people find out about bad news and then learn that information was kept from them, it’s natural to feel excluded and to harbor negative feelings.
Pattern: Lack of communication, especially when there’s bad news.
Solution: Say it right away and include everyone.
The counsel of neighbors
I remember growing up, my mom always used to try and convince me that a wise person learns from other’s life lessons as much as their own. While I sometimes had to hit my own head against a wall to believe it actually hurt, I eventually learned that when people told me things were dangerous or painful
I could save myself some trauma. This is also true in the real estate industry. No matter what role you play in the industry or the process, it shouldn’t come as a surprise to you to read that virtually everything in this business is built on relationships. Especially with the ease of access to personal and company websites, social media, and affinity relationships, it’s easier than ever to learn more about your business partners. Asking friends and colleagues about their experiences, while not a guarantee for how your transaction may go, it can often give you a good idea.
When confronted with a problem during the transaction and the conversations seem to be hitting a dead end, it’s often helpful to reach out to your co-workers, managers, or other business partners to see if they can lend a hand. Like asking your neighbor to borrow a cup of sugar can help you finish your cake and avoid an unnecessary trip to the store, asking a loan originator you work with, but who is not part of the specific transaction if they have been able to resolve a similar issue, can often help you close your loan without delaying the process or jeopardizing its completion. I’m not suggesting you pull the loan from the current lender, but most people feel flattered to be asked for their opinion and are happy to help. That being said, when you find you’re continually going back to the same person to ask for guidance or assistance, that’s a pretty good indication that there’s a relationship that’s more like a partnership than it is just another contact.
Pattern: Trying to close a transaction without the input of others.
Solution: Do your homework and use the counsel of peers and trusted advisors.
Education and independence through knowledge
Even though mom was right and I should learn as much from others as I can, sometimes there is just no replacement for experience. Many times I see loans bottleneck at closing when the people who are supposed to be guiding the process are trying to drive and navigate at the same time. If you’ve never originated a Veteran’s Administration loan, you are probably not familiar with the nuances of those types of transactions. For example, VA loans require that monthly debt obligation calculations account for childcare for dependent aged children. If that expense is not factored in upfront, there may be underwriting challenges that come up. Some loan originators may try and alleviate concerns by explaining they’ve already received an Automated Underwriting decision, but like most software, the results you get are only as good as the data entered. So if there are no expenses for childcare put into the calculation, the system won’t ask for it to be included, but will give you a decision omitting that fact. Since we’re talking about VA loans, not only are appraisals required to be ordered and reviewed by the VA, but a termite/pest inspection report is also required. In addition, the VA appraiser is allowed 10 days to upload the appraisal to the VA after they’ve completed their inspection and the VA has 10 days to return it’s Notice of Valuation (NOV). Especially when volume is high, everyone involved in the transaction needs to be aware and prepared for these turn-times.
By setting realistic expectations of the transaction timeline, many of the last minute delays and problems can be avoided. This holds true for virtually every type of specialty loan program, whether it’s a VA loan, a Reverse Mortgage, a USDA Rural Housing loan, or a 203(k) FHA Rehabilitation loan. Since these loan products are among the only options for many buyers these days, it pays to work with seasoned professionals and to learn about the guidelines and product parameters as well. Never be afraid to ask your business partners to help educate you. If they hesitate, you should consider finding new partners. If you find a particular business partner especially helpful, or if they’re the person you turn to for help when your transactions with others go sideways, consider inviting them to your office to help educate the other agents. This will help increase the specialization of your team, but is also a kind gesture to return a favor. Reciprocity is a key in building and maintaining a team so pay it forward and help when you can.
Pattern: Inexperience causing unforeseen delays and mistakes.
Solution: Educate yourself and work with proven professionals.
Being a real estate professional is no easy task, especially in today’s environment, but it sure isn’t boring! As much as we’re still feeling the repercussions from the market collapse, we’re in a unique time for our industry. We are literally rewriting the rules of the game while the game is still being played. I hope the suggestions included here are helpful to help resolve any similar problems you may be experiencing, but also help guide you towards a way of thinking that helps keep the big picture in focus. The role of Realtors is as important as ever to help ensure transaction stays on track and grow from inception through to closing. I’m hopeful one of the results of these changes will be a closer alignment between the professionals on all sides of the transaction. We all serve the same customer and have the same goal of closing the transaction. Only by working together do we leave clients satisfied and help restore confidence in our profession.
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Joshua Weinberg is a nationally recognized speaker, author, consultant, and leader in real estate industry; specializing in integrating compliance and technology. He is currently Director of Compliance for First Choice Bank, a State Chartered and FDIC insured Depository institution and Senior Vice President of Compliance for First Choice Loan Services Inc., its subsidiary.
Previously he was one of the owners and COO of a real estate services firm in San Francisco, CA providing real estate sales, mortgage brokering and property management services. He can be reached for consultation or questions at [email protected].
