The tale of two home-buyers (Or why the government should stay out of the mortgage business!)
Let me introduce you to two home-buyers, 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, age 47 with 2 kids and divorced for the past 8 years, has barely an income of $30,000 per year. She, of course has worked diligently at keeping her credit score high enough to be able to get a mortgage but still struggles with her $1400/month rent. Her child support, which ends in a few months has made it possible for her try and make ends meet.
She knows that she can’t stay where she is because the rent is too high. Her oldest is in college and the younger one 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 have never owned a home by herself, asks for advice from friends about what to do. They all give her different advice and some suggest real estate agents who can help her. Finally, she picks an agent and calls her.
The other Buyer is Mr. Doodle and he is a government worker. In fact, he is a senator making upwards of $300,000 a year off the taxpayer’s backs. His Wife also works. She is a teacher in a local school making about $78,000. They have 3 Children. The oldest is in an ivy league college just like the one his dad went to. 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 sq. ft. home from the 6800 sq ft. home they have now. They decided that with two in college and they will likely graduate into six figure jobs, they don’t’ need all that extra room. So a nice house by the beach only half the size they are in now will suffice.
They call the real estate agent that all the senators use. He is used by them for his professionalism and mostly because of 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. Of course, the lunch will be all paid for by the real estate agent.
Meanwhile Lisa is waiting for a call back from her real estate agent, because little does she know, her agent has a part time job to help make ends meet because the real estate business isn’t so good in the area she is working.
Lisa finally gets a call back and they agree to meet at the office of the agent. The agent explains 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 that down payment. They call a local mortgage broker and he says that with her credit 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!
The agent starts showing Lisa homes on the MLS and they pick four or five homes that will fit the criteria. They make appointments and start looking.
Mr. and Mrs. Doodle are enjoying their $200 lunch with the real estate agent assigned to them. He tells the couple about 3 houses that he knows of that 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 their current house, they only need to have a small mortgage of about $780,000 to purchase it. It’s a no brainer!
Meanwhile, Lisa picks a condo in a newer development that 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 just nicely!
Mr. and Mrs. Doodle, look at the house by the beach and wow it has everything! They realize that they will have to put about $150,000 into the kitchen and 3 of the bathrooms, and finish the basement, but no problem, they have that in savings and they put in an offer!
Lisa’s agent helps her decide what price to offer on the condo and they settle for a price of $142,000, however the seller needs 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 some 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 a mortgage loan like this. 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 for the contract and then Lisa’s smile went away. “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 and she will hold it until she gets paid. Lisa quickly does some math and although she probably won’t be able to go food shopping this weekend, agrees and 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. You see, Lisa is in a stressful job and it isn’t easy for her to answer the phone at work. She take her first break at 3 and listens to the message. In between bits of the pop-tart she had in her lunch, because her job is so busy, she calls the broker back and they discuss some of the details of the loan. He sends her agent a preapproval form. This form basically states, that from the credit score and the information we 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 does just that. Good thing she did, because with the new mortgage rules, the mortgage 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 here that the name of the bank is different that the name of the mortgage company. She is afraid to open it because she thinks t 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 call. He tells her not to worry, he will have it resent.
When she finally gets the email, it explains that they will 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. They explain that she needs to email 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 smart phone. Her printer needs ink and it’s didn’t work so well the last time she tried to use it anyway.
“So now what?” and she starts to cry.
Mr. Doodle sitting behind his walnut desk, answers the phone in a cheering voice “Hello good morning, Steve” 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 says, the real estate agent called him this 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 they need. Mr. Doodle reminds Steve about their Golf game this weekend. This is for the charity they have been sponsoring and 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.
Lisa gives notice to her landlord. He required 30 days’ notice and she managed to just get it in time for about 35 days’ notice. She informs him of her forwarding address and he congratulates her.
Lisa manages to find w2’s and download her tax return from HR block online tax service. She sends that over to the mortgage broker. She 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 for the next 2 weeks. Her mortgage commitment is 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 franticly 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 now and hasn’t even had the property apprised 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 really has no mortgage commitment at all. Now shear panic is in her eyes as she realizes that she gave her landlord notice already. If this mortgage isn’t approved, she will be homeless because the landlord has already found the next tenant!
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 verses 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 find out that, 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 she splays 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 it’s 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 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.”
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Point of references, the new TriD rules say clearly that 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 already 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 this house and them 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 them, 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!
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3 days to go to closing and the Doodle family are out to dinner with their realtor. “Oh I can’t wait to move in to 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 Lawyers office. He has coffee and cake for them and the old friends talk about their golf game and how great this new house is going be.
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 as they were moving out yesterday. She wants them to fix it or at least pay for it to be 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 fixed the hole in the wall. The seller agrees but the title company says they can’t do that because the closing document 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 lawyers office and thank him again for reviewing all the paperwork for them just 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 likely the experience most Americans will have to endure. The Doddles and other law makers and politicians get involved with the lives of everyday people. They don’t live the life they are changing or interfering with.
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.
Larry Steinhouse
