I had neglected, prior to writing a contract offer on a house, to get a pre-approval for a mortgage. Pre-approvals don’t seem to be worth a whole lot for a buyer. The reality is that no mortgage company will approve a mortgage without a signed contract. All a pre-approval does is say to a seller that, yes, the buyer’s credit report has passed somebody’s initial screening. Not a particularly high bar.
But that said, I needed one for my contract and I needed it fast. So I called my big financial services company (let’s call it USA) of whom I have been a customer for my entire working life. They promptly faxed me a pre-approval – but I also noted that theirs was an extremely expensive mortgage: $4K in lenders fees alone, and a $350 deposit to lock in the rate.
I went looking for something else on the internet, and found one: a company advertising an extraordinarily low rate and fees. Let’s call it Internet Lending Corporation (ILC). “Stay away from those internet lenders,” my realtor warned. “There’s no telling what you’ll actually get at closing.” But it seemed worth a call. I got a voicemail, and left a message.
It was, I think, two days later, in the middle of our formal house inspection, when I received a call back. A very nice young lady (“Christina,” let’s call her) from ILC began trying to sell me a VHA loan, which is for people who don’t have a 20% down payment. I had the down payment and said that I was interested in a conventional loan at a fixed rate. “But VHA loans are cheaper,” she told me. What? “Ma’am,” I said, “I hate to tell you your business, but this is my third house, and I have always found other-than-conventional loans to be more expensive in rate and fees than conventional ones.” I don’t remember exactly how we finished up the conversation, but I was not impressed with what I had seen so far.
Flash forward several days. We’re on our trip back home when I received a call from someone identifying himself as the president of ILC (“Tim,” let’s call him). Tim told me that, yes, a conventional loan would be better if I had the cash. Send me a GFE, I told him, still skeptical.
I received the good faith estimate that evening and held it side-by-side with the one from USA. I called Tim and asked him, basically, how can you make money this way. He said, well, we’re building a business, and we hope that if you are happy with our services, you’ll generate some word-of- mouth. That sounded plausible, so I said, okay, let’s lock the rate until the closing date. Interest rates had risen every day that week, but his rate was still better than the competition. Mindful of the risk, I decided to keep USA’s loan on hold until closing in the event something fell through.
And so the fun began.
Three weeks to closing
I received a panicky call from my realtor, a panicky old biddy: “The appraisal hasn’t been done!” she said. “Um, so?” I asked, innocently. “We were supposed to have final loan approval in three weeks from the contract! It’s been four and a half!” Okay, I said, the lender has my completed application, proof of income, leases, financial statements, etc. They’ve told me that I’m good for the money. Unless you think the house is overpriced, then the appraisal is just a formality. But I’ll call the lender and find out what’s going on. So I called Christina. And I received something of a long story about arrangements that had fallen through, and about the difficulty of finding someone. An appraisal! She had finally found an appraiser that could work on what was now short notice, but she was in another city and would have to drive. I personally called the appraiser, then called the seller’s realtor to set up the appointment to visit the house. These are, in fact, multiple phone calls, since NOBODY answers their phone the first time in this part of the country except my realtor (God bless her). But we had the appraisal within a week. And “final loan approval,” whatever than means.
Ten days to closing
Let me back up. My realtor had at some point told me that we were going to use title company X (her agency’s in-house title company) for the closing, and I had duly sent this information to Tim when I made my application. If there were to be any surprises associated with this loan, I wanted to know them as soon as possible, so I called X to get what’s called a HUD, in this context the listing of all closing costs paid by both the buyer and seller. X had no idea who I was. This is bad, I thought. I called Christina, who didn’t answer, then called Tim, who went back to the loan processor (not Christina). He came back and told me that the underwriter would not normally send out the closing documents until three days before closing, and that in any case they were using title company Y, not company X. Now to me, title companies are commodities. I can’t see why I should care one way or another which company I use except for the fees, and those appeared comparable. So I emailed the new information to my realtor. She promptly called to let me know she was NOT happy about this change. She also let me know that the lender-picked appraiser was incompetent. The appraiser had had no idea how to operate the MLS system (for finding comps) in her city, and that SHE, the realtor, had had to do most of the work in this regard.
Three days to closing
I finally receive the HUD from the title company. I quickly see that the 1% discount point (about $1800) has been moved to the line that says “origination fee” and that there is an unanticipated $1600 on a line labeled “price change.” I call the title company. Price change? Information provided by the lender. I call Christina. That’s for lowering the interest rate to 5 7/8 from 6 1/8, she said. “Um, no,” I replied. “The consideration for the interest rate buy-down is the $1800, which should be on the line labeled ‘discount points’.” “The $1800 is compensation to us, your mortgage broker, for brokering the loan.”
“Christina, I went over this with Tim when I signed up with you guys. Tim very generously said that ILC’s compensation was limited to the $300 administrative fee, which appears on line X of the GFE and line Y on the HUD. There wasn’t an origination fee or a “price increase.”
“Well, what do you think is fair?”
“Christina, “fair” is what we agreed to in the GFE, which was attached to the loan application and which I signed and sent back to you!”
Then I was told The Story. It seems that Christina’s relationship with ILC is something less than that of employee to employer. Christina is an independent contractor who receives referrals from the ILC website, but whose only compensation is from fees derived from the closing costs. In my case, there had been some initial confusion over at ILC as to who would actually serve as the mortgage broker. Tim was the one who had initially locked the rate, but had then passed the handling of the loan to Christina without telling her that there was no money in it! (Tim claimed the $300 administrative fee.)
I never did nail down when exactly Christina discovered that the terms of the loan that Tim had negotiated on her behalf did not include any income for her. These terms, after all, were in my loan file, and were among the application documents that Christina had handled, if not read. (There is an irony coming up here.) But I could see Christina’s point about fairness, and I also knew that I needed Christina’s cooperation to close the loan. So we eventually negotiated a fee of $687 (down from $1600) for her brokerage services.
Day of Closing
2:00 a.m. I can’t sleep. A fairly regular problem over the last few weeks. I took my laptop (my OLD laptop, a Thinkpad 380Z with a dead battery) to the lobby of our hotel (we had moved out of our house by this time) and went over the closing statement. I noticed a line on the HUD: “Consideration (i.e. money) paid by seller to buyer for unpaid property taxes - $2k.” This appeared to be the year’s prorated taxes, but I was interested in when and how these taxes would eventually be collected. I sent an email to my realtor asking this question, and went back to sleep around 5:00a.m.
7:30 a.m. I am awakened by the unpleasant sound of my cell phone. (My wife, who had slept well, had already left to supervise the carpet cleaners.)
“This is your title company.” (Terry, let’s call her.) “The seller’s want an additional $2k.”
“Why?” I asked, through the fog of my interrupted sleep.
“Property taxes for the first half of the year.”
Note to reader: there was beginning to be a cumulative effect to the aggravations. Because we were closing by mail, and because of delays between the lender and broker, plus the surprises in the HUD that needed to be adjusted, there was not time to mail a certified bank check to the title company covering the down payment and closing costs. I had made a wire transfer, which carries a $20 fee. I had also had to “overnight” the notarized closing documents via UPS to guarantee that they would be at the title company on time, which cost about $30.
“Let me get make sure I understand: does this concern the item in the HUD for the prorated taxes?”
“Have the seller’s paid these taxes?”
“Who is going to pay them?”
I thought to myself, how would my father handle this?
“In hell,” I said rather forcefully. “If the sellers are looking to break this deal, then they just broke it. I have put up with more aggravation over this clown act than I would have thought possible. This is the last straw. I’m not buying the house.”
“Okay,” said Terry, “let me see if I can get more details about what’s going on and give you a call back when you aren’t so upset.”
I received several calls from both Terry and the realtor that morning that I refused to take. Since their messages didn’t sound like good news, I was sufficiently pissed to let the whole thing fall apart. Like I said, this was my third house, and I was quite certain that a last minute demand that the buyer pay property taxes for time that he didn’t live in the house was unprecedented.
But the realtor eventually called my wife and pointed to a clause in the contract that, when read very closely, did leave these property taxes to me. But she also said that, to save me from having to come up with $2k, the agency would put up the $2k until I got to town, so the closing could proceed as planned.
So that’s the story of my closing woes.