New commonsense for today’s market
From the front lines of working directly with Realtors® and with mortgage clients, I see there is a need to move to a new commonsense that fits the new situation. Our old commonsense doesn’t work in a new situation; in fact, it can be counterproductive to being successful. So we need to adjust our actions to the new situation so we can compete more effectively. By “we”, I mean home buyers, Realtors® and finance providers.
The old commonsense was that mortgages were a commodity to be priced off of a rate sheet and a borrower could call around and get quoted a rate and they could be sure that it would be available. As a strategy, for most people, I think this was flawed and we are now seeing much of the result of that in the foreclosure stories that are now abundant. That’s a different story to be written at a different time.
The old commonsense was that the home seller had all the power and the buyer had to give in to most demands that the seller had. The old commonsense was that a Realtor® didn’t have to be too concerned about who the mortgage provider was. Yes, there was concern about the on line lender being able to perform but generally any other pre-approval was accepted without much concern for who it was or who the underlying lender was.
Now, let’s look at the new situation and how our commonsense needs to adjust. Mortgages are at this moment not a commodity to be priced off of a rate sheet and delivered with 100% certainty by any company that has Home Loan in their name. The new commonsense is that the mortgage needs to be sourced from a large brand bank. Trust is now, once again, important. It always was but people tend to forget that when the money was flowing so freely.
Use a mortgage bank that can source several different large banks so your buyer has back up protection. The Realtor® and the home buyer need to know who the end lender is and if it isn’t a household name, then don’t trust it. By household, I mean Bank of America or Wells Fargo. Countrywide is still probably okay so I’d make sure that the pre-approval is at least with two of those three.
The home buyer has gained power in this market. They can use it by asking for credits to help pay closing costs and to buy down the rate. There are buyers who have been knocked out of buying because the programs are not available for them anymore or the qualifying terms have changed or the rates are now out of reach for what they can afford.
The Realtor® now needs to get more involved understanding the source of the funding. If they don’t, they may get surprised when their deal falls through because a lower tier bank is unable to fund the loan. By getting involved, I mean, ask who the lender is that has approved the loan. Ask to see the approval from the lender. If your buyer goes directly to Bank of America, have them also go talk to Wells Fargo. With my company, we can lock with each of them to protect the client so they only need to apply once.
Also, know that everything is going to take more time and the lender can choose to institute new policies without notice. One of these we have seen is to do a pre-funding audit to give the loan a last look before releasing funds. This can add 3-5 days to your funding as the lender sends it through the bureaucracy to get signatures. I’m not talking about just the little banks doing this; expect the large banks to do these actions as well.
Mark and I have been working closely to develop strategies for buyers in this new market situation so they can be successful in getting the house and in having an exceptional rate so they do not need to hope for a refinance later. Let us know if you want to review the strategies and the numbers. Perhaps we’ll post some of our thinking at a later time.
