Residential Realities August 2013
August 20, 2013--The End of the 30-Day Commitment Letter...The Lender's Broken Promise
There was a time when most lenders could produce a loan commitment letter within a reasonable period of time, usually 30 days. Over the past year or so, that time frame has increased to 45 days, with some lenders taking even more time to issue the commitment (almost always chock full of conditions). Buyers and sellers expect lenders to produce commitment letters within this time period and closing dates are calculated with a 30 or 45-day commitment period in mind. It is becoming apparent that banks are no longer able to underwrite a loan within a time period that is suitable to complete a residential real estate transaction.
The Abyss between Sales and Underwriting
Over and over again the same pattern emerges. The "loan officer", who is basically a salesperson with no influence over the underwriting of the loan, makes unrealistic promises to the borrower as to when the loan will be "approved" by the lender. The promises are made to induce the borrower to submit the loan application to the loan officer's bank. In other cases, the borrower chases a low interest rate and chooses a lender with very difficult and time consuming underwriting standards that many co-ops and condos simply cannot satisfy. The results can be disastrous. The transaction will be significantly delayed or may not happen at all, if the bank ultimately refuses to lend in a particular building.
The Disappearing Loan Officer
Although chummy at the get go, once the loan application is submitted, the loan officer can be difficult to reach, and in some cases, is no longer associated with the transaction. Long delays go unexplained and document requests seem to go on forever. In one recent deal, even the bank's attorney could not get a return phone call or email from the bank underwriter for over week. Banks appear to give residential loans their lowest priority. There seems to be a total disregard for the complications that result from delayed completion of the underwriting process. Rather than provide a comprehensive list of all conditions that need to be satisfied, in many cases, conditions keep coming, despite the borrower's best efforts to get things submitted as soon as possible.
Residential Reality: No End in Sight
This trend of never-ending underwriting may be the new normal. Banks seem to hold their proverbial noses every time a residential loan is made. Perhaps the profit is too low or the regulations too cumbersome. With fewer and fewer players willing to lend in the residential market, borrowers should readjust their closing schedules and expect long delays before the bank is ready to wire funds. What was once a very straightforward process has become complicated and fraught with trap doors that can unhinge a deal at the last moment. Borrowers are well advised to stay away from troublesome lenders, no matter how low the interest rate may be...