How to Save a Deal When Your Clients’ Loans Are Getting Pulled
If you’ve been paying attention to the news amid the coronavirus crisis (as you should), then you may be feeling overwhelmed as things keep changing day to day. Real estate agents are no doubt already feeling an impact from COVID-19, as their ability to do everyday tasks like showing homes has been prohibited. Along with this, many buyers have decided to put off their home buying until things start showing signs of calming down.
And, if we didn’t think it could get any worse, many real estate agents who had buyers that were committed to sticking it out, are now experiencing their buyers losing their lending options, some right before they were about to close.
So, what exactly is happening now? We know that rates are going to be up and down for quite some time and that a lot of these things are pretty unpredictable. How can someone in this profession keep going in the face of such uncertainty? Is it better to walk away from the table now, or to hold out?
Hopefully, this will clear some things up.
Are the Rumors True?
A handful of agents in the LCA community have reported that their buyers are having their loans pulled. Some say it’s because the particular lender has put their lending on hold for the time being, while others have seemingly increased their lending requirements overnight, disqualifying some of their current loan recipients. In some cases, many lending institutions are simply not going forward with any more applications, which makes us wonder if the low mortgage application rates were the cause or the result of this.
Some real estate agents reported that the reason that FHA loans are getting pulled, for example, is because the minimum credit score requirement is up from 580 to 640 (with the 3.5% downpayment). But, rates are also changing by the minute, which makes it difficult to lock-in a rate that would be desirable for the buyer.
While HousingWire reports that the requirements themselves have stayed the same, some lenders have had to make dramatic changes that put those who would typically qualify for an FHA, unable to go forward due to ridiculous pricing adjustments. These means some have, in fact, changed their FICO score requirements and/or have bumped up the interest rates.
“The current economic environment is forcing lenders to make changes to their FHA lending programs. And those changes are likely to make FHA lending unavailable for a number of borrowers who could have gotten an FHA loan just a few weeks ago.”
What About Other Loans?
Most first-time home-buyers will choose to go with an FHA loan, due to the requirements. And, for those who would qualify for it, VA loans are also a good option. But, with everything going on right now, we’re looking at upcoming mortgage delinquencies, despite the fact we may get some relief with government assistance in the upcoming months.
In most cases, if a person was on-track to buy a home and they had their loan pulled, it’s not that easy to just hop on another. “It looks like borrowers who don’t fit neatly into Fannie Mae and Freddie Mac’s lending criteria could soon be running out of options if they want to buy a house. Over the last week, many (if not all) of the biggest lenders specializing in lending to borrowers outside the Qualified Mortgage lending box paused their activities due to uncertainty in the market.” reported HousingWire. Many who are no longer qualified for FHA may only have conventional loans as the next best option, and if they don’t have a large down payment, then this will be out of the question.
That being said, no one knows for sure what will be, and that’s why loans seem to be on hold altogether.
What Will Happen?
So, what happens when a lender decides to pull a loan? Well, it’s not very common but it can happen, even when we’re not in the midst of a global pandemic. Depending on how long it takes before getting pre-qualified and getting to closing, there could be a lot that happens in the meantime to your credit portfolio, which can force the lender to change its mind. Usually, that’s due to something on the buyer’s part, but in this case, these loan pulls are on the lender’s part, and unfortunately, there’s not much you can do. (Of course, there is also the issue of people losing their jobs during this crisis, which can also lead to a lender refusing to release the money.)
To combat this, buyers can seek out other loan options, or talk to their lender to find out exactly what the issue is and to learn how to potentially get around it. Remember – even though your job may be on the line, too, try to stay away from pushing your clients into a new loan, especially if you know it would be a stretch due to their financial circumstances.
How to Help Your Buyer
With mortgage applications on hold and those still lending changing their terms rapidly, don’t feel bad if you’re having trouble following what’s going on. Right now the news is changing by the minute, and you’re definitely not the only one that’s going through this. If your buyer for some reason gets their loan pulled, there are still other lenders that will still be processing applications. While it’s not your job to know where your buyer can go, try to reach out to colleagues and connections to see if you can point them in the right direction.