Last month I had two settlements delayed. On both I was representing the seller and both were delayed due to appraisal issues. The appraisal issues were outside the control of the lenders but how they were handled demonstrates why I prefer local, direct lenders. Here are the stories…
CASES
Case 1: We were scheduled to settle on August 15. The turnaround time from contract to settlement was relatively short. The appraisal was ordered right away but in today’s world the loan officer and appraiser can not have contact and despite putting a rush on the appraisal, on August 15 it was still not back. It came in on the morning of August 22. When did we settle?
Case number 2: We were scheduled to settle on August 17. Again a relatively short period between contract and settlement. In this case the appraisal came back August 13 but was low. The buyer’s agent and I both agreed that the appraiser had made some mistakes . The buyer and seller allowed the appraisal to be protested. The appeal process concluded on August 22. When did we settle?
ANSWERS
On Case 1, the appraisal came back on August 22 and we settled on…….August 22. Why? This was a local direct lender who had a close working relationship with the underwriting and processing department. Typically in a loan, the loan officer waits until all documentation, including the appraisal, is in the file and then submits it to the underwriter for final approval. In this case, knowing that the appraisal was late, the local lender was able to get the file into and out of underwriting in advance of the appraisal and then had the underwriter on standby so the minute the appraisal came in they could sign off and get the loan out the door.
Case #2, the low appraisal situation was resolved on August 22 and we settled……well, we did not settle. This big box lender once they had a low appraisal stopped production on the loan even though they knew we would be moving forward regardless of the outcome of the appraisal appeal. They could not take things out of order since their system, policy etc would not allow the standard loan flow to be changed.
When the appraisal issue was resolved we asked how long until we settle and they said 2 more weeks. Well, for other bureaucratic reasons, that two weeks stretched into 3 weeks. Still everyone was hanging in there hoping to close. The buyer desperately needed to move and get into their new home and the seller believed the shortest path to settlement was to stick with the current contract and not start all over with a new buyer (really new lender). Well, eventually, the loan was ready to close and the compliance department did a final check.
This was was loan a FHA loan on condo. The very first step in a FHA condo loan is to make sure the condo is on the FHA approval list which this one was when the loan process started. But 5 days before we were scheduled to close, the FHA approval for the condo expired and there was no way to close without FHA approval. Had this big box lender acted like the local direct lender above and turned it around in 24 to 48 hours after the appraisal issue was resolved, we would have still had FHA approval and the buyers would be in their now home. But when the loan is processed out of the area and rule number 1 is to abide by policy which does not allow for common sense, stuff happens.
RECOMMENDATION
Please, please, if you are buying a home, look for a local direct lender that processes in house. If the loan is super clean and the appraisal is not an issue and everything else goes well, it doesn’t matter whether it is small lender or a big lender. But one little problem and, as I have seen time and time again, the bureaucracy of the big boys slows everything down to a snails pace. A home sale has so many moving parts. Buyers and sellers are making plans and commitments based on an expected settlement date. When it does not happen the damage from the fallout has a huge ripple effect on the lives of those involved. To minimize those issues, keep it local.
For more, see my first post on this topic: Buy Local – Why I Prefer Hometown Lenders
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