Time-Wasters in Real Estate Lending: Are you playing Cat & Mouse?

The #1 time-waster in the real estate lending business occurs when a borrower’s mortgage broker calls or emails about a loan request, but has little, or no knowledge about the proposed loan transaction. They convey no information about the borrower’s qualification, or the relevant details about the security property. Why do some mortgage brokers merely transport a file with no inquiry? The borrower’s mortgage broker has a fiduciary obligation to collect the data and make a reasonable assessment as to all the material facts and full disclosure. It is obvious that some brokers receive the package from another source and pass it on with the expectation of a nice fee.

The #2 time-waster is about time spent sorting through a sloppy loan package submission. The borrower’s broker is eager to get a loan completed. They may accept a partially completed loan application with limited or no financials. Some brokers merely fill out the loan application and do not get a signature, or even a DocuSign signature.  Sometimes, the procuring broker does no preliminary underwriting before submission that would determine that the proposed transaction will probably be funded.

The #3 time-waster is time spent sorting out Pie-In-The Sky property valuations. A few borrowers have illusions of grandeur when suggesting the value conclusion of their collateral property. Some appraisers will complete an appraisal with faulty data including dissimilar comps, improper adjustments, mismatching data, and just plain messy workmanship. The funding lender may pull a property profile, go online to analyze comparables and value conclusions only to be disappointed. A borrower’s broker should have done this upfront which would save time and aggravation.

The #4 time-waster in the hard money is analyzing a loan request where the borrower has little or no-skin-in-the-game. Many borrowers purchase a property with little or no down payment. The new owner will borrow the rehab money to improve the property. Their loan request is intended to refinance all the purchase money and have the rehab debt rolled into one new replacement loan. The borrower ends up owning the property but has no capital at risk and could walk away if the market goes down and the lender assumes the risk. There are state regulatory requirements regarding maximums on loan to value and skin-in-the-game.

The #5 time-waster is analyzing a loan request that is not based upon equity loan underwriting standards, but rather a risk-capital standard like a joint venture partner who has a major risk and the potential for major financial reward. A real estate loan secured by a lien on the property is usually funded based upon the protective equity. The market value less the lien(s) equals the value of the protective equity. A loan request that does not contain significant protective equity will leave the lender at risk in the event of foreclosure like a risk capital equity owner.

The #6 time-waster is dealing with pushy borrower brokers and condescending borrowers. Some people love to put you down for any reason at all. They feel you are beneath or lessor quality of a person because they have more experience than you. Belittling you, or making hostile comments, in their mind reassures them they are better than you. They believe that they have more intelligence, more experience, more money, are far superior, the list of their accomplishments will never end.  The opposite side of this coin is always insecurity. “You don’t need any documents! This is hard money?” Treating everyone you meet with dignity and respect is only natural. Only by their actions and deeds will they deserve a different conversation.

The #7 time-waster is allowing borrowers to go from interested, to wishy-washy, to silent, to dark with absolutely no regard for the value of the service providers time. The quicker that this type of loan is placed on hold, the less time wasted. Processing and underwriting staff should focus on transactions most likely to close.

The #8 time-waster is saying “no” to a borrower’s mortgage broker when the transaction never should have been presented is in most cases problematic. The loan transaction, borrower and collateral property has absolutely no chance of success, but pressure is placed upon the funding broker to perform metaphysical miracles for an approved and funded loan.

Some mortgage brokers are highly professional and make every effort to submit a complete package with full disclosure in mind. Seek those out to work with and make a mental notation about the others.

Dan Harkey

Business and Private Money Finance Consultant

Bus. 949 521 7115

Cell 949 533 8315

[email protected]

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