Aug 31 2007
The New Mortgage World and Earnest Money
The changes in the mortgage industry are well documented and you are seeing new releases everyday announcing the closing of more mortgage companies. What you may not be aware of is that everyday, multiple times a day, we are getting announcements from all investors and the secondary markets that programs are changing or worse - totally going away.
In the past if a loan program was stopped, the investors would honor all previous approvals and rate locks. This is not the case anymore. When a loan program is cancelled it is gone and you cannot close anymore. Also, this is not dictated by the size of the mortgage company you use; all companies are being effected by no liquidity in the market place. Wall Street is scared to death of mortgage backed securities, no one is buying.
What does that mean? It means you can be fully approved, be at closing and find out one second before signing documents that the deal will not close. Or worse, close on a refinance and have the loan program disappear during your three day right of rescission period. This is happening right now in the marketplace.
We are having meetings in the mortgage business everyday telling us to caution our clients and Realtors that things could change at a moments notice. The stress that this situation will cause is unmatched and unfortunately unavoidable until the industry settles down. That could be a long time. So the first piece of fallout from these volatile times; earnest money. If a loan does not close on the closing date what happens to the earnest money? As a realtor you have to address the situation that you will no longer get a loan commitment. If you do, it is not real, no matter what you are told. All of these deals that are not closing at the last minute had loan commitments from major players in the market. Do you match loan commitment dates to closing dates? There are no answers at this time; it is just the reality of the market. Is this wrong? Unfair? Not going to work? Going to cause major stress for everyone involved? Will you be involved?
The answer is Yes - be prepared!