I haven't seen much discussion about this here or in general on line, but much of my family works in real estate, and this is something we are seeing more and more. We have seen several real estate purchases recently where the buyer had a commitment from the mortage company, but come closing day, the mortage company did not have the cash on hand to complete the transaction. This leaves both the buyer and seller in a bad position, but the buyer is particularly at risk as there generally is no language in the real estate contract allowing them to back out or delay closing when this occurs.

Standard contracts provide a contingency on the purchaser getting a mortgage commitment, but until now, there hasn't been a problem with mortgage companies funding, so there generally isn't language providing a continency on the mortage company actually coming up with the money. Therefore when this happens, the buyers are in violation of the contract and can have to pay a per day penalty until they are able to come up with alternate financing and are at risk of being sued for specific performance or damages. While the buyer can then turn around sue the mortgage company for violating the contract, this does nothing to help in the short term and doesn't guarentee recovery.

This seems to be more of a cash flow problem for the mortgage companies than a total assets problem, as the companies do not go out of business after this and may go on to fund at a later date and to continue processing mortgages.

I wanted to give a heads up to anyone who might be purchasing that it might be worth while to look into inserting a contingency for this event. I only have our own anecdotal evidence so I don't know how common it is over all, but its something that no one really considered a possibility but we have now seen it happen with several closings.

What kind of shady, 2 bit mortgage companies are you using that they don't have funds?

These are the companies the buyers bring to the table, we don't get to pick. Interesting thing is that it isn't one or two shady companies doing this repeatedly, but several different ones, some of which I know have been fine to work with in the past.

Most underwriting offices have become brutal examples of strictly enforced production lines. The problem is that I am seeing more and more offices employ jr. underwriters for tasks they aren't capable of completing. This leads to mistakes and delays. More often than you think, the issues have nothing to do with capitalization and everything to do with rigidity of guidelines, an atmosphere of (perhaps deserved) fear, and an under trained production line in the underwriting offices responsible for clearing the loans conditions. I do know of situations with under-capitalized companies, but this problem is rarely passed onto buyers of homes the day of closing, more likely it is resolved through a juggleing of the warehouse lines.

You don't have to be lazy or incompetent to be simply unqualified to do the job. An underwriter is the responsible party for making sure that a loan/s either 1) can't get bought back for lenders that only sell into securitization pools, and 2) don't default beyond an acceptable risk/reward balance. The idea of a production line accomplishing this falls apart when you put people in place that can't grasp these 2 main functions but are still tasked with it.

...having said all that, the idea of a production line is a that a company is able to employ cheap labor, so yeah...there's a lot of lazy and incom...well...cheap labor.

FW's,

This has nothing to do with underwriting for the most part. This is a big problem across the board for Warehouse Lenders and Banks. The majority of the Mortgage Broker and Correspondent Broker business is written through what is called Wholesale Lenders, which are Mortgage Banks. These are are lenders that are typically just pass through lenders to other purchasers like Fannie Mae or a bigger bank servicers.

The reality of the situation is typically 2 scenarios.

1)
These wholesale lenders are funding there loans with Billion dollar lines of credit. They may close 1-2 Billion per month. Well the problem is that many of these lenders used to carry 2-3 Billion lines of credit. Those lines of credit have been shrinking rapidly. They may be funding $1-$1.5 billion dollars worth of loans but only have 1.2 billion of credit each month. So their lines get maxed out and they cant fund more loans until they sell the loans that they have off to their investors. The investors are getting pickier right now and are taking longer to purchase loans. This simply makes it harder for these lenders to buy more loans and they cant fund on deals. The problem is getting worse for more and more wholesale lenders. Title companies are telling me this is happening regularly. The problem is that a mortgage broker really has no control over their funding, since they are not funding the deal. They cant make the lender they took the loan to fund the deal. And typically they are caught offguard when this happens. They dont want this to happen but it just does and it makes them look bad. This is what happened with banks that were selling their loans to TB&W. Their funding was from Colonial Bank who shut down their lines of credit because of their implications of involvement with TB&W. These Mortgage Banks are scambling for funding but no new lines are getting opened for the large part of the industry. Or they are getting a higher rate than before so profits are getting eaten up.

2)
Alot of wholesale lenders are having to show the completed file to their Wholesale Line of Credit to check the file out before they will allow funding. I have heard that this can take up to 48 hours fund after closing sometimes. The reason is that the Line of Credit lender doesn't want crap loans that will be stuck on their line that cant be sold to the end investor, Fannie.

The solution to this is to work with an actual bank who funds their own loans based on actual assets. I work for a Small Community Bank that has its own in-house funding department. We pre-fund deals the day of closing and release funds within 30 minutes of signing. I have actually had title companies tell my clients that they cant get in their house on the day of closing because we couldn't fund that day. I called up the title company and asked them what they were talking about. She told me that they just dont see released funds that soon after closing very often. We funded within 5 minutes of closing before my client left the title company closing.

Had the w CitiMortgage - became obvious to me they were playing MBS markets to maximize their profit. Nothing rushed it took them 55 days in underwriting.

ThursdaysChild said:The solution to this is to work with an actual bank who funds their own loans based on actual assets.
How does one find out if a bank funds its own loans? How would one phrase the question? "Are you a portfolio lender"? I'd hate to just ask "do you fund yuor own loans" because it sounds ambiguous, although if it's a term of the art I guess it would be OK.

One good way is to work with an FDIC Insured and American Banking Association Lenders, these are lenders that are funded by an actual walkin bank. Second, ask you loan officer to explain their closing and funding process. Do they pre-fund their deal the day of closing? Who orders their wires? Is that a bank department or do you order that from another institution?

Or you can just be direct and ask the Loan Officer if they fund their deals off of warehouse lines of credit. Ask if they have had any issues with funding on the day of closing. If their answer is not very strong then talk with another lender.

ThursdaysChild said:The solution to this is to work with an actual bank who funds their own loans based on actual assets.
How does one find out if a bank funds its own loans? How would one phrase the question? "Are you a portfolio lender"? I'd hate to just ask "do you fund yuor own loans" because it sounds ambiguous, although if it's a term of the art I guess it would be OK.

Ask them if they will service your loan. Although that does not give you the answer, t is usually pretty close.

they also give you a disclosure that says what percentage of loans they sell/assign or transfer for the past 3 years.