Vail Daily column: Patience will be important in real estate deals
The Mortgage Guy
Not so long ago, the only people involved in a real estate deal who needed to have a lot of patience were sellers and their agents. Selling a property could take months, and in some cases years. Once a buyer came along and a price was struck things could happen pretty quickly.
But the great minds at the Consumer Finance Protection Bureau (and in fairness, a couple of other government agencies) have deemed that buyers must be patient, too, and that it is good to ponder, delay, reflect, lie awake at night and fuss about every aspect of getting a mortgage loan. And if you lose your earnest money because you are forced to think too long, then that’s the price you should gladly pay for being saved from making a rash decision.
At the beginning, consumers must choose a lender and loan program and decide if it is better for them to have a lower rate and higher closing costs or a higher rate and lower closing costs, or a myriad of other options. Once that decision is made, the feds insist a borrower take three business days to reflect before putting down money to order an appraisal.
So if a buyer enters into a contract to close on a property within 30 days on March 1 (a Monday) and selects his loan program on Tuesday he must ponder the wisdom of his choice until Saturday before an appraisal can be ordered, and on the following Monday (meaning eight days of the 30 days is gone) an appraisal fee can be collected.
Because lenders can no longer order an appraisal directly from the appraiser, the lender contacts an appraisal management company (known as the AMC) on Day 8 and places the order. Sometime around Day 9 or 10 the AMC will place the order with an appraiser. Once that has happened, we would hope to see the appraisal report get to the AMC around Day 18-19. With any luck the AMC will send the report onto the lender on Day 20.
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Compare this to the “old days” when I could order the appraisal at the time of application directly from an appraiser on Day 1 and probably have it back by Day 7.
So, during Days 2-20 we have gathered all of the other information from the borrower and submitted the loan to the lender and gotten an approval contingent upon the appraisal coming in. On Day 20 (a Friday), we send the appraisal over the lender, who probably has a two business day turn time on approving the appraisal. Late the following Tuesday (the 24th), we get full approval and happily tell the borrower and seller we are good to go.
So bright and early on the 25th (a Tuesday), the title company gets numbers and by early afternoon has generated a settlement statement for me and the lender to approve which takes until the 26th. After going back and forth over being sure that condo unit B-2 is not mistakenly referred to as unit 2-B and a dozen other minor items that can get everyone fined into oblivion, we agree it’s good.
But on Friday (March 27), someone finds a clerical error on the documents, such as the lender is referred to as a “Co. instead of “Company” and to be compliant with federal regulations we have to correct that. The cash to close and loan terms don’t change and everyone rolls their eyes and plays the game and the closing goes on as scheduled.
Under the current rules we could make that change and close on the 30th as planned. But come next Aug. 1, we probably could not make that change and still close on time.
While the interpretation of the new rules coming in August from the Consumer Finance Protection Bureau is still being debated it appears that in the above scenario we would have to re-issue the settlement statements starting the waiting and disclosure period over meaning the closing could not happen until April 3.
The buyer is then in default because of a honest mistake made by an honest person and his earnest money is at risk. Per the bureau charged with protecting consumers he must carefully consider if he wishes to do business with a bunch of nitwits who don’t know the difference between “a Company and a Co.” If he loses his earnest money, then well that’s better than making a rush decision on such an important matter according to the CFPB.
Now, let’s assume the seller of the house has movers scheduled, and is set to buy a new house on the same day and needs the proceeds from the sale to close on his new house. He is then in the impossible position of being in default and could lose his earnest money.
And the above is assuming that every deadline by the AMC, the appraiser, the lender and the title company is made perfectly, and that there are no holidays, snow days, black outs, terrorist attacks, computer glitches or sick days involving any of the above parties.
It is going to be a whole new world come Aug. 1. Buyers, sellers and Realtors need to completely rethink their expectations and contracts need to be written to allow for flexibility and tolerance for honest mistakes.
When there is a government regulation that has zero tolerance for honest mistakes made by honest people, the only people who benefit will be the lawyers.
Chris Neuswanger is a loan originator at Macro Financial Group in Avon and may be reached at 970-748-0342. He welcomes mortgage related inquiries from readers. His blog and a collection of his columns may be found at http://www.mtnmortgageguy.com.