Today, Sam discusses the issues involved when lenders disregard buyer’s contract dates for mortgage commitments:
When a buyer applies for a mortgage, the lender is given the commitment date that the buyer and seller have agreed to in their offer and/or the Purchase and Sale agreement. At that time, the loan officer should be able to tell the buyer if it is realistic for the lender to deliver the commitment on time. This is important because if the lender cannot deliver a well underwritten commitment letter by the commitment date, the buyer must go back to the seller and ask for an extension. If the seller says no, the transaction is either terminated and the buyer gets the deposit money back but has no home to buy or the buyer can stay in the transaction and risk losing deposit money if the commitment does not come through.
Most lenders try to deliver commitments on time, however, some are notorious among active real estate agents for not be able to deliver on time and/or close on time. As a result, sellers are often advised by their listing agents not to accept offers with pre-approval letters from such lenders.
Last week I ran into an interesting variation on this theme. My buyer-client applied to an extremely reputable lender. The mortgage process was ahead of schedule until the lender called to advise that the wholesale arm of the bank that they sell their jumbo mortgages to had revised their schedule and would not be able to underwrite the loan until July 14th, which was 15 days after the commitment was due. This information was provided four days before the commitment was due.
We had an unpredictable seller and the market for this particular property had appreciated since the buyer’s offer was accepted. Therefore, there was no assurance that the seller was likely to grant an extension for the commitment. Remarkably, the lender immediately placed the loan with another wholesaler, put a rush on the loan and was able to receive a commitment on time.
Despite several requests, the wholesale source refused to honor their original target date to underwrite the loan by the buyer’s commitment date because they took in too many loans to process in a timely fashion. I maintain that if a lender takes a loan, there should be a legal obligation to process and underwrite the loan by the commitment date or the lender should advise the buyer up front, in writing, that the date cannot be met. There is no such obligation that I am aware of, nor do I know of any clear penalty that lender’s currently face for failing to deliver and putting buyer’s new homes or deposits at risk.
What do you think?
Should lenders be held accountable?
If so, what should the penalty be?
Do you think that clear rules and penalties might help reduce this widespread problem with certain lenders?
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