Is One Lender “Better” than Another? (Chapter 2)

I wrote a month ago explaining how one lender may be able to provide you with financing, while another lender comes back with either a substantially worse offer, or no offer at all.

 

When I got into mortgage lending nearly 30 years ago, the approval process seemed more like an exercise in black magic, versus a careful review of the borrower’s qualifications.  What I mean by that is the underwriter had greater discretionary authority than what they have in today’s lending environment.  The rules for saying yes or no have become clearly defined.

 

Yet recently I was confronted with a problem for one of my clients because their unique situation fell into a gray area – meaning the rules could be interpreted differently.  I proceeded with a lender I believed to have common sense underwriting and in my past experiences was able to issue an approval.

 

Judy was divorced and receiving both alimony and child support.  She was using that support along with the income from her job to qualify to buy a home for her and her kids.  The rules for using other types of income such as alimony and child support are very clear.  To be considered, the borrower must have received that income regularly and on time for a minimum of 6 months.  That makes sense, because if the payments by the former spouse are irregular or not paid on time, that could potentially trigger a situation where a mortgage payment could also then become late.

 

In Judy’s case the support was always on time.  Her unique situation was that a recent modification to the support agreement gave her more support for the kids but less alimony.  The net amount she received was the same.  The initial lender I chose decided to stick firm to the letter of the rule that she must have received that new higher amount of child support for a minimum of 6 months.  Since her child support increased recently, she didn’t have the 6-month history of that new amount.  But, it was my contention that the rule was there to demonstrate receipt of a certain level of support income – which she received for years.  The total received remained the same, only the allocation was different.  Despite all my efforts, that initial lender ultimately dug their heels in and said no.

 

When this issue first emerged, I reached out to another lender and asked a Senior Underwriter if their company would see things my way, or if they agreed with the other lender.  I was internally relieved when they said they would certainly consider the income as meeting that 6-month rule, allowing the loan to be approved.  The pressure to get Judy’s loan approved was intense - because Judy was not only a friend but had sold her previous home and had nowhere else to go if the transaction fell through.

 

I explained the situation to both agents involved because we needed some additional time to switch lenders.  I was given 2 weeks to get it done – not much at all.  I am happy to report that Judy closed on Friday the 26^th.  We were able to submit, underwrite, and close with lender #2 in exactly 14 days.

 

There are two lessons to be learned from this situation:  First, if you receive anything other than regular salaried income, you need to point it out to your lender.  The lender’s representative must not only be clear on the underwriting guidelines but should also get assurances from an underwriting manager that income will be considered as thought.  For us brokers, we need to check with our lending sources and their underwriters too.

 

The second lesson is that as a broker I have multiple lending sources.  Had Judy gone to a bank and been turned down, the process of switching lenders late in the transaction would have almost surely meant the seller cancelling and taking a backup offer.  Because we were the conduit for Judy, we easily switched from lender 1 to lender 2, including transferring the appraisal, and doing it in a near record time.

 

 

 

 

Accessing Your Funds

I had another recent transaction that unlike Judy’s above, had zero complications.  From application to submission, to receipt of the appraisal and final underwriting, everything went as planned and on schedule.

 

Charlie alerted us early on that he had a trip to the mainland planned right around the time we were scheduled to have him sign his closing documents.  That wasn’t an issue either as Charlie was going to be in Los Angeles, so signing with a mobile notary was going to be easy to arrange.

 

After the signing I called Charlie to make sure everything went as planned and to also confirm he was going to wire the remaining amount of his funds to escrow.  It was at that point Charlie asked me if I knew the procedure to wire funds from his account in Hawaii while he was on the mainland.  He thought it was as simple as calling the bank on the phone.

 

Please keep this very important fact stored in the back of your mind if you ever need to wire funds in the future.  I don’t know of any bank that allows for wire transfers without going into a branch in person.  While there may be one or two, those that do certainly aren’t the vast majority that don’t.  Check with your bank first!

 

Charlie quickly realized that he may need to fly back home immediately just to walk into his local bank to sign a form in person.  I suggested that Charlie call the bank and see if he could order a Cashier’s Check over the phone.  To my surprise, Bank of Hawaii agreed, so long as he submitted a signed authorization form and had it notarized.  I was able to pick up his check and deliver it to escrow with no delay in closing.

 

The lesson to be learned here is contact your bank prior to needing to access your funds.  Find out in advance their procedures and options for you accessing your own money.

 

 

 

 

 

And now the week’s economic news…….

 

Job Gains Fall Short

Weaker than expected economic data was favorable for mortgage markets this week.  The Fed meeting on Wednesday caused some volatility but had little net impact.  As a result, rates ended the week lower, dropping from their highest levels of the year.

 

Following four months of significantly stronger gains, the economy added a more modest 175,000 jobs in April, below the consensus forecast of 240,000.  The largest increases were seen in the healthcare, social assistance, and retail sectors.  For perspective, the April results were still strong by historical standards, but investors reacted to the deviation from their expectations.

 

The other major components of the Employment report also fell short of forecasts.  The unemployment rate unexpectedly rose from 3.8% to 3.9%, matching the highest level since January 2022.  Average hourly earnings were 3.9% higher than a year ago, down from 4.1% last month, and stand at the lowest annual rate of increase since May 2021.  Fed officials carefully monitor wage growth because it generally raises future inflationary pressures.

 

Two other significant economic reports released this week from the Institute of Supply Management revealed similar weakness.  The ISM national services sector index fell to 49.4 (lowest since December 2022), and the national manufacturing index dropped to 49.2, both well below their consensus forecasts.  Readings below 50 indicate contraction in the sectors.

 

Heading into the Fed meeting, investors wondered how officials would respond to higher-than-expected inflation data during the first few months of the year.  The answer is that they essentially plan to maintain the status quo.  As expected, the Fed again made no change in the federal funds rate.  The statement released after the meeting continued to say that officials want to gain "greater confidence" that inflation is on a sustainable downward path before they lower the federal funds rate.  According to the statement, there has recently been a "lack of further progress" in getting inflation back down.  In short, the economic data this year has indicated that the decline in inflation has stalled, and officials plan to wait and see what happens next before acting.  Most investors now anticipate that the first rate cut will take place in September.

 

 

 

 

Next Week

Investors will continue to watch for Fed officials to elaborate on their plans for future monetary policy.  It will be an extremely light week for economic reports.  Weekly Jobless Claims will be released on Thursday and Consumer Sentiment on Friday.  Treasury auctions on Wednesday and Thursday also may influence mortgage markets.

 

 

Until next week….