Monday, January 21, 2008

The Temptation of "My Buddy the Lender"

Sometimes I run into buyers who have a friend who's a lender, and they want to use that person for their loan. It's rare that I try to talk a client into or out of anything, but this is one of those times. I'll practically get down on my knees and beg the buyer not to use their friend the lender. Why?

Inevitably, the friend lender is a part time loan originator and doesn't do that many deals. In the shifting sands that are our current lending world, a part timer just doesn't have the expertise and experience necessary to get a deal closed.  Lending guidelines change daily. Every Realtor I encounter has one or more horror stories about the lender who held up escrow, or 'forgot' to tell their buyer about a huge extra fee, or at the last minute the lender's underwriter decided the buyer wasn't worthy of a loan after all, thank you very much, goodbye.

I have my own horror story of the buyer using a friend lender. It wasn't even my buyer; I represented the seller. The buyer chose a friend for her loan. I suggested to the buyer's agent that a backup loan approval would be a great idea and my Coldwell Banker Home Loans agent will guarantee they'll close if they give you a pre-approval. The buyer and her agent didn't think they'd need that backup, but thanks anyway.

The friend lender says, "oh no problem, we'll close in 4 weeks, no worries."  I set the closing date 6 weeks out, just for cushion, just in case. About 3 weeks in, I'm reading the day's news headlines and I read that the buyer's chosen loan program - AmeriDream - is likely to be cancelled within the next 2 weeks. In a mini-panic I call the lender. He says, "oh, I'm sure it'll be fine. I never believe anything I read on the Internet anyway. Don't worry!"

He treats me like a hysterical female. I email him a link to the Wall Street Journal story about AmeriDream's cancellation. He doesn't respond.

Our six-week out closing date comes. And goes. No loan. Week seven comes. And goes. No loan. The buyer starts calling me daily, in tears. I'm not even her agent!  She calls, crying, and says she's convinced the loan will never fund. She just re-signed her apartment lease for another 6 months. At this point, my seller's panicking too. He's sure it'll never close. He fired his movers and planned to refinance.

During the 8th week (2 weeks past close, and 4 weeks past the date the friend lender swore he could close) the friend lender threatens to stop answering my calls. Just a note here: line 68 of the purchase contract all Valley Realtors use requires the lender to talk to both agents. I'd been calling him daily for an update. Politely, mind you. I'm nothing if not polite; my Mama raised me right. Just a simple "hey, how are things? anything new? any idea when the underwriters will fund the loan?" After 4 days of my calls, he starts yelling at me and says it's totally out of his hands and if I keep bugging him he'll just stop taking my calls.

Thankfully, this story ends happily. The loan funded, the seller moved out and the buyer moved in. But the whole process was brutal because of the friend lender the buyer had chosen. The lender made his friend the buyer cry daily for a week. I actually cried at one point and I am not a crier.

Buyers - buying a house is hard enough. You gonna want to focus on packing and moving and buying new stuff and so forth. Don't make it harder than it has to be by hiring a 'friend' for your loan. Hire someone based on good recommendations and make sure they've closed a loan just like yours in the past 1 or 2 months. Otherwise, you're taking a huge chance that your so-called friend could make your life miserable.