The tale of two homebuyers (Or why the government should stay out of the mortgage business!)
Let me introduce you to two homebuyers, the first is Mr. Frank Doodle and the second is Lisa Normal. They both decided they wanted to buy a house in the next 2 months. Lisa is 47 and has 2 children. She has been divorced for the past 8 years and is barely living on her income of $30,000 per year. She has worked diligently at keeping her credit score high with the hopes of one day being able to get a mortgage. But with her income, she still struggles with her $1400/month rent. She is fortunate enough to have been getting child support throughout the years which has helped make ends meet but it will be coming to an end in a few short months.
Staying where she is, isn’t an option for Lisa because the rent is just too high. Her oldest daughter is in college and the younger daughter will be going to college soon. Her ex-husband has agreed to let the oldest stay with him until she graduates, but the younger one will stay with Lisa until she graduates and finds her own place.
Lisa, who has never owned a home by herself, asks her friends for advice. They all give her different ideas and some suggest real estate agents who can help her. She settles on an agent and gives her a call.
The other buyer is Mr. Doodle, a government worker. In fact, he is a senator making upwards of $300,000 a year. His wife also works as a teacher in a local school making about $78,000. The Doodle’s have 3 children. The oldest is attending his dad’s alma mater; a prestigious ivy league college. The middle child is about to go to her first year of college and the youngest is a sophomore in a private high school.
Mr. Doodle and his wife want to downsize into a smaller 3200 sqft. home from their current 6800 sqft. home. With two children in college, they realize they don’t’ need all that extra room. So a nice house by the beach only about half the size will suffice.
They call the real estate agent used by the majority of senators. Known for his professionalism and his discretion the real estate agent asks Mr. and Mrs. Doodle to meet him for lunch at the exclusive golf club, of which they are both members, to discuss the purchase.
Meanwhile, Lisa is waiting for a call back from the real estate agent she chose. Unbeknownst to Lisa, her agent is also working a part-time job to help make ends. Apparently, the real estate business isn’t as lucrative in her area.
Lisa finally gets a callback and they agree to meet at the agent’s office. The agent explains to Lisa that she can buy a house with only 3% out of her pocket using an FHA loan program by the government. Lisa is thrilled! She only has about $5000 that she saved in her 401k plan that she can use for the down payment. They call a local mortgage broker and he says that with her credit score and the fact that she has no considerable debt, Lisa will qualify for a home valued at up to $140,000. Again, Lisa is thrilled! “This is fantastic, I can finally have a home to myself!” she exclaims!
Lisa and her agent start scouring homes on the MLS and pick four or five homes that will fit the criteria. Appointments are set and they are off to tour the possibilities.
Mr. and Mrs. Doodle are enjoying their $200 lunch with the real estate agent. He tells the couple about 3 houses which have wonderful views of the ocean and incredible design. He suggested one, in particular, that was a bargain at $1.8 Million dollars. They can’t wait to go see it! After-all with the money, they will get from the sale of their current house, they only need to have a small mortgage of about $780,000 to purchase the beach house. It’s a no-brainer!
Meanwhile, Lisa picks a condo in a development which is about 25 years old. The condo is a 2nd floor unit with older, but usable carpet. It has very dated wallpaper in the kitchen and bedroom and the cabinets, although in great shape they are also outdated. It has two nice sized bedrooms for her and her daughter, but the best part is the vaulted ceiling in the living room. It will fit her nicely!
Mr. and Mrs. Doodle, look at the house by the beach and are excited with the location, the view, and the bargain! They realize that they will have to put about $150,000 into the kitchen and 3 of the bathrooms, plus finish the basement, but no problem, they have that in savings. So they put in an offer!
Lisa’s agent works with her to decide on an offer for the condo. Together they agree on a price of $142,000. In this arrangement, the seller will need to contribute 6% in what is known as “Seller Assist”. This “Seller Assist” allowance was created to allow the buyer to be able to finance part of the closing costs by having the seller bump up the price of the house and give up to 6% of the total sales price back to the buyer to assist them in the purchase. In this case, it is helping Lisa save $8520 that she would have had to pay at closing on top of her minimum deposit of 3.5% of the sales price to buy the home.
Without going through all of the math, this allows Lisa to buy the home with about $5500 out of pocket (all she has), instead of over $13,000 she would normally need for this type of mortgage. The seller agrees and they set a date to close about 45 days from the date they signed the contract. The agent asks Lisa for $1000 earnest money. Lisa’s smile evaporates. “I don’t have $1000 right now. The electric bill is late, I just paid my rent, my phone is about to shut off if don’t pay it tomorrow and I get paid on Friday.” The agent suggests that she write a check for $500 which can be held until she gets paid. Lisa quickly does some math and although she probably won’t be able to go grocery shopping this weekend, she agrees and once again gets excited about the home buying process.
Mr. and Mrs. Doodle go home and their exclusive agent drops by with a contract a few hours later. He asks for an earnest money deposit check of $50,000. Mr. Doodle asks if he can hold the check until tomorrow at 3 because he needs to wire some money into that account. They have a drink on the porch and celebrate.
The next day, Lisa gets a call from the mortgage broker and he leaves a message. With Lisa’s stressful job it isn’t easy for her to take personal calls at work. During her first break at 3, she listens to the message. In between bites of the pop-tart she had in her lunch, she calls the broker back and they discuss some of the details of the loan. He sends her agent a pre-approval form. This form basically states, that from the credit score and the information they have been given so far, she can qualify for a loan and buy this house. The broker tells her to look for an email and to sign it right away so he can get the process started.
She gets an email from the mortgage broker and It has a bunch of language and information that she doesn’t understand. It came in the form of something called DocuSign that lets her sign it electronically. She tries to understand it and read it but she can’t really decipher it. She calls her real estate agent, who doesn’t call her back for 3 hours, and asks what to do. The real estate agent says just click the link and touch where it says “sign here”. Nervously she follows the instructions. Good thing she did, because with the new mortgage rules, the mortgage lender can’t do anything more until they get that paperwork back and signed.
As Lisa starts to get excited about her new home, she then receives an email from a bank that she never heard of. The Broker never told her that the name of the bank is different than the name of the mortgage company. She is afraid to open it because she thinks may be a scam. A few days later the mortgage broker calls her and asks her why she didn’t send the information the mortgage company was asking for.
Of course, this was in a voicemail, because the mortgage broker calls her during the day and Lisa can’t answer the phone. By the time, she gets the message, she is home, hungry and exhausted. Now she is in a panic again.” I should have opened it” she murmurs in tears. She leaves a message for the mortgage broker apologizing and goes to open it. It expired! She can’t open it! Now she is freaking out!
She screams out loud, “What am I going to do? I have to move!”.
She calls back the mortgage broker, who luckily answers the phone. He tells her not to worry, he will resend the document.
When she finally gets the email, it explains that they need all kinds of paperwork from her. They need, the last two years of tax returns, her W2’s, her last 2 paychecks, her last 2 bank statements, her 401k statement, and a copy of her license. All of which needs to be emailed to them.
Once again, Lisa is in a panic! She screams, “Where am I going to get this from and how do I email it?” Lisa doesn’t have fancy office equipment. In fact, she has a slow outdated computer and a smartphone. Her printer needs ink and it’s didn’t work so well the last time she tried to print.
“So now what?” and she starts to cry.
Mr. Doodle sitting behind his walnut desk, answers the phone in a cheering voice “Hello Steve. Good morning.” he says.
Steve is the family banker. In fact, Steve has been helping the Doodle family for the past 30 years on all their banking needs. Steve explains that the real estate agent called him that morning and everything is all set. Steve tells Mr. Doodle that he will call the family accountant, of whom they are all friends, to get all the necessary paperwork. Mr. Doodle reminds Steve about their golf game this weekend for the charity they have been sponsoring. They hang up in good cheer. Mr. Doodle is not only preapproved, but already actually approved (pending an appraisal of course, but no one is worried). Everyone including the appraiser is in the same circle of friends and has already said this is a no-brainer appraisal.
Mr. and Mrs. Doodle and kids hire a moving company and a service to pack them up. They will be closing in just a couple of weeks.
Since Lisa’s landlord requires a 30 days notice she knows she doesn’t have time to spare. She informs him of her forwarding address and he congratulates her.
Lisa manages to find her w2’s and download her tax return from H & R Block online tax service. She sends the information over to the mortgage broker. She also downloads her 401k statement and sends that as well. Somehow, she forgot to attach the 2 months of bank statements but thinks she sent them.
Not another word from the mortgage company for the next 2 weeks. Her mortgage commitment is now due tomorrow. She doesn’t remember that it’s tomorrow, nor does she actually understand what a mortgage commitment is, but her agent does.
The agent calls the bank frantic and says “Where is the mortgage commitment?”. The bank says it’s coming right over. The commitment comes over with 33 contingencies! This isn’t a mortgage commitment! It’s a meaningless piece of paper! Believe it or not, one of the contingencies is an appraisal! Really, an appraisal? The Agent screams! The Mortgage company had this file for 3 weeks and hasn’t even had the property appraised yet?!
The agent explains this to Lisa. Lisa may be naive about buying a house but she isn’t stupid. She quickly realizes that she has no mortgage commitment at all. Now sheer panic sets in as she realizes that she gave her landlord notice. The landlord has already found a new tenant so if this mortgage isn’t approved, she will be homeless.
The mortgage broker explains that the appraisal was delayed because the condo development may not be FHA approved. “Not FHA approved?!” “What the heck does that mean?”, she wants to know.
FHA guidelines include things such as habitability, making sure the property is safe and habitable. The FHA guidelines include some obscure rules and one of them is how many units in the complex are owner-occupied. In this case, it is borderline as to the percentage of renters versus owner-occupied. That means that because the responsible people who tried to save their homes and credit by renting to someone instead of foreclosing may now be preventing nice people like Lisa from buying their first home using FHA funds and guidelines. Luckily for Lisa, they make this discovery, although it is close, this condo is FHA qualified. The appraisal gets done the next day. Lisa has 10 days left before she must close and 15 more days until she has to be out of her apartment.
Back in Washington, Mr. and Mrs. Doodle are enjoying another sunset at the golf club while they sit and drink Merlot with friends and tell them about the great house they are buying next week. The company they hired to pack for them is coming tomorrow to start sorting everything out. “It’s just a beautiful evening”, Mrs. Doodle whispers as the sun goes down by the lake.
Lisa has been collecting boxes from work and has started to pack up stuff she hasn’t seen in years. She can only pack at night and on weekends. She comes home exhausted but makes sure she packs at least one box each night before she passes out from the long day.
The next day Lisa hears a message on her cell phone from her banker, “Lisa, we still don’t have your bank statements and we need them right now to send the file to underwriting” Yelling at the phone she says “I sent them last week!”
Of course, no one is on the line but she is so frustrated and so sorry she even started this process. Every time she looks at the phone, it’s a message from the broker looking for something else. This time its bank statements she thought she sent. “6 more days of this crap. I just want to be in the house already!” she cries into her glass of wine at the end of the night. “I can’t stand this anymore!”
The broker calls and leaves her another message “We didn’t know you get child support. We see that child support payments are being deposited into your account. We need to prove of your divorce and your settlement agreement”
“Are you F***king kidding me! I don’t know where any of that stuff is and I packed everything already!” She frantically writes in an email back to him. This all on her only break at work.
The message continues “The mortgage company states we have to have it today because the new rules that came down from Washington last year, say that all parties need to approve the Closing Disclosure 3 days before closing.”
Point of references, the new TriD rules clearly state all parties must have and sign off on the ‘Closing Disclosure” at least 3 days before closing. That means if Lisa can’t find these documents today, closing must be delayed. A delayed closing affects so many people. Of course, Lisa was all set to move the Saturday after the closing. She had a few friends all ready to help and she needed a few days in her old apartment to clean it and give it back to the landlord in proper shape. This way she could get her security deposit back. The seller will also be inconvenienced as they are using the proceeds from this house to buy their new house immediately after Lisa buys their house. This domino effect means the house sellers of the house the sellers are buying can’t close either. What a mess!
These new TriD Rules were written by Mr. Doodle and his friends because they want to make the home buying process “clearer” to homebuyers. Of course, the Doodles don’t have to worry about being inconvenienced by this rules because they have so many people, like accountants and private bankers helping them with their transaction.
Frank Dodd, (whoops, Doodle, I mean Doodle), doesn’t play by the same rules they made for people like Lisa. They don’t actually care about how much the rules are causing stress for buyers, sellers, real estate agents banker and title companies, they just sit back and create silly rules that justify their ridiculous salaries and make it difficult to buy and sell houses.
Will houses still be bought and sold? The answer is yes, of course, but all this hassle for no good reason has to end!
3 days to go to closing and the Doodle family is out to dinner with their realtor. “Oh I can’t wait to move into the house,” she says as she puts down her glass of wine.
Lisa is still rubbishing through all of her boxes looking for her divorce papers. She has till midnight to send them to the mortgage company or her closing will be delayed.
She finds them and drinks a bottle of wine to put herself to sleep while she is still crying from the stress.
Closing day and the Doodles arrive at their lawyer’s office. He has coffee and cake for them and the old friends talk about their golf game and their wonderful new home on the beach.
Lisa arrives at the title company after the walk-through inspection of the house. At the walk-through, Lisa discovers that the seller put a hole in the wall while moving out the day before. She wants it fixed and discusses this with the realtor.
At the Title company office, Lisa’s agent asks for a credit of $200 to be used to fix the hole in the wall. The seller agrees but the title company says they can’t do that because the closing documents would need to be reapproved by everyone and that would mean new signatures and another 3 days wait.
Of course, the buyer and seller are confused, and can’t work this out. Lisa, being so frustrated already, just says “fine, I’ll buy it as-is!’
Lisa signs a bunch of papers she doesn’t understand but knows that she has to pay her mortgage payment or the house will be foreclosed on by the bank.
The Doodles are leaving the lawyer’s office and thank him again for reviewing all the paperwork to be sure everything is perfect. They meet the movers at the house and watch them unpack.
Lisa leaves closing feeling like she was hit by a truck, however, she is excited about moving. Her friends and children’s friends promised her they would help move her this weekend and she bought them pizza and beer.
Finally, she in the house and it’s hers. Thirty years from now, she will owe nothing and can retire there.
Lisa and Doodles had different experiences entirely. Lisa’s experience is more like the experience most Americans have to endure. The Doodles and other lawmakers and politicians get involved with the lives of everyday people. They don’t live lives similar to those they are changing.
The Dodd-Frank rules and many other rules that are created by politicians are created without any knowledge of how the real world works.
If you are a real estate agent or a buyer of a house recently, I am sure you can relate to Lisa’s tale.
Hopefully, someday realistic rules will be created by real people! I hope you enjoyed this fictional tale based on many true stories.