Firstly, let me state as a mortgage broker I firmly believe that lenders of all stripes—including banks, alternative lenders, MIC’s and private lenders—have the absolute right to ask for whatever information they require to make a lending decision.
If we as mortgage brokers or borrowers ‘ask’ for money, we open our client’s personal finances for scrutiny. Borrowers should therefore anticipate and expect a thorough and complete review of credit, income and real estate.
However, I’ve noticed a troubling trend over the last few years—specifically in the alternative lending space.
Alternative lenders are either:
- intoxicated with their own power as a result of their new-found importance, given the tightening of lending guidelines
- scared of regulators that review their files
- or perhaps it’s a combination of both
When a lender delays, a borrower pays
I recently had a client who is self-employed and has been for over 25 years.
To apply for financing, he gave over personal taxes, business banking information, incorporation papers and numerous other personal and business-related documents. Every request for information from the lender was promptly provided.
Finally, the lending underwriter deemed the file complete and we were off to close the deal.
Then, the day before closing, the underwriter asked for more information. We provided it, but they said because of their volume of deals they couldn’t close on the agreed closing date.
My borrower had to pay $3000 to get a two-week extension from the builder.
Then again, after the two-week extension the lender continues to ask for more information… At some point as a lender you have to you-know-what or get off the pot!
We need a “common sense” timeline
Most lenders hide behind the fact that they must adhere to rules, regulations, B20 guidelines numerous other excuses. They have clauses built into their commitments, which allow them to hold the borrowers hostage until the very last minute.
Many times, this leaves borrowers scrambling to private lenders.
Think whatever you want about private lenders, but the ones I deal with have a ‘common sense’ approach. Although they are definitely more expensive than other lenders, at least as a broker I know what their lending guidelines are. I know I can count on them to give me an answer on a deal quickly, either yes or no.
A quick “no” is better than a long, drawn out process that seems to have no end. At least when you get a “no” or decline on a deal, you can move on to the next lender.
The frequent trend of alternative lenders approving a deal, then stringing out demands and paperwork requests at infinitum is troubling. It’s not a suitable way to conduct business.
Behind these requests for more documents and delays are real people that have to pay the consequences of delays, not to mention the stress of constantly wandering if their deal will close.
Again, I support lenders’ due diligence when reviewing a request for a mortgage, but it seems all too often lenders are so micro-focused on a file they forget any semblance of common sense.
If any other business did what lenders are doing, they wouldn’t last very long. Unfortunately, in the tough reality of the lending landscape today, there aren’t many options other than private lenders.
Something has to change
At the time of writing this, closing is set for tomorrow and I am still awaiting the lender’s blessing to close. If they don’t, it will be about a month of wasted time and closing with a private lender.
Unfortunately, I’m not alone. I’m sure other brokers and borrowers find themselves is similar circumstances every day. This is a one of the unintended consequences of tighter mortgage guidelines.
Something has to change.
If you’re having trouble navigating which lending options are best for you or your client, please give Mortgage Warehouse a call today. We can discuss which options are best and how to avoid surprises wherever possible.