Repercussions of the real estate meltdown still with us


People inspecting home

Reader Question: We recently submitted an offer on a home. The seller’s agent wanted a forty-eight-hour extension to allow the seller’s agent time to discuss our loan with our loan officer before extending a counter offer. Even though we have our pre-qualification letter for the specified amount. Is this common? Our agent assures us that it is common for agents to speak with the buyer’s lender to determine a counter offer. Is this ethical? Ted and Aimee V.

Monty’s Answer: There are two possible questions that could cause the seller’s agent to request to speak with your loan officer. The pre-approval letter with most lenders requires more due diligence on the part of the lender because pre-approval is a stronger commitment than a pre-qualification letter. It would be common on a pre-approval to run a credit check, but would not on a pre-qualification. The listing agent is seeking assurance from your lender that they see no obstacles ahead.

Regarding the listing agents talking with the buyer’s lender, I checked with several mortgage loan officers for an update.

Eric Kilstrom of V.I.P.Mortgage in Phoenix, AZ, had the typical response. It is not uncommon for a listing agent to call the lender to get more information from the lender about the buyer. Kilstrom stated, “The lender has a fiduciary responsibility to protect the buyer’s financial information. However, they can reveal the same information already on the pre-qualification form. Some agents try to pry for even more information. I always tell them I cannot say more. I can say yes, I can get that loan done for the current offer amount, but anything else would require a counter. I would then issue a new pre-qualification form if needed. Many times the agents just want to know policy and procedures on moving forward. ”

As to your ethics question, it is not unethical for your agent or your lender to share the information on the pre-qualification letter with your permission.

Reader Question: Why would a seller ask for my mortgage rate to increase? I recently put an offer in on a condo. The seller countered and in their counter they asked for my mortgage rate to increase? I’ve never encountered this before and am confused as to why they would ask this? Josh D.

Monty’s Answer: There is not enough information provided to answer this question with certainty. But, I do have a theory that would explain the request.

In many “offer to purchase” documents, the financing contingency is written to state that the buyer must obtain a mortgage with an interest rate “not to exceed” a certain interest rate. If the buyer cannot obtain a rate at that maximum rate or lower, the buyer can walk away from the transaction.

The seller likely does not want to commit to taking the house off the market while you seek your mortgage because they believe the rates will go up past the maximum rate stated in your offer. Savvy real estate agents see a much higher number of mortgage rejections, and they are educating today’s home sellers.

The meltdown of the real estate market in 2008 caused the regulators and lenders to toughen the requirements and the documentation on real estate mortgages that is still with us today. The result is many more transactions failing at the last minute than ever before. Sellers and their agents are reluctant to take their homes off the market or negotiate on price with a buyer that may not be qualified. There are more hoops than ever before to jump through for today’s borrowers.

What created these changes?

Repercussions from the real estate meltdown are causing the confusion. The culprit is the policy of the federal government. The real estate meltdown was brought on by some members of Congress applying pressure some years earlier on the regulators to help increase the rate of homeownership in America. This pressure led to Freddie Mac and Fannie Mae lowering the bar so more people could qualify for home loans.

Rule changes in the early to mid- 2000’s such as “stated income” in place of a W-2 or an income tax return when qualifying for a loan. “Stated income,” meant the loan was approved on the applicant’s word. Such actions combined with the creation of mortgage derivatives, into which these loans were packaged, were the leading causes of the market crash. The pendulum today has swung too far in the opposite direction.