Frankendodd, that crazy collection of mortgage and Wall Street regulation, is a complex and nefarious thing. Me? I’m just a Loan Officer armed with a pitchfork, a laptop and a torch or two. In other words, in a one on one battle I’d be toast. I’d get one lucky Chuck Norris roundhouse kick in and then the monster would rip off my head – with a bottle cap. Even though I have no hope of literal mortal combat with this thing, I do have a tip or two to pass along to fellow Loan Officers and Realtors.
One of the big challenges we face these days is something that has been very simple to address in the past: the total credit needed from a seller to be paid toward a buyer’s closing costs. In all honesty, it’s a question I have answered for the better part of 20 years and in most cases it’s been fairly simple to give an accurate and quick response. But that changed a few weeks ago when the monster of all mortgage regulation was unleashed upon the industry and consumers alike.
With the new regulations now in place, quoting a rate is a bit more of a challenge these days since any rate that is quoted will be a very literal cost or credit to the consumer. In other words, on any given day a range of rates is available to a consumer each of which will either have a cost or a credit depending on a variety of factors such as down payment, credit score, number of years etc. Any quote from a Loan Officer is only good for a small window of time. On several occasions in the last year we have seen days in which there have been multiple pricing changes that have made giving an accurate quote an extreme challenge.
It’s been commonplace in our market for purchases to close near the end of the month. Most Realtors and consumers pursue this strategy since it lowers the overall costs involved with closing. (Interest is calculated daily so by closing at the end of the month there is less interest and therefore lower costs). In my opinion, a new strategy is needed.
For new transactions in our post-Frankendodd world, I believe it best to have closings targeted toward the beginning of a month. Depending on the amount of the seller credit, the loan can be closed early at the end of the month or on time at the beginning of the month. Most rates are not locked in until after a purchase agreement has been written and a closing date set. Since it is unlikely the cost of the rate at the time of locking will be the same as the original quote, the seller credit may be higher or lower than what is needed. Having a few extra days built into the sales agreement may make it easier to coordinate the closing date to the amount of the seller credit.
As many of us are painfully aware, getting a short sale agreement takes an inordinate amount of time and effort. The last thing we want to do is to invalidate the agreement by trying to renegotiate a seller credit. My suggestion would be to have some flexibility built into the sales agreement.
Be warned: Frankendodd is a tricky monster and this tip is only one strategy we can employe to minimize the impact on our customers. If all else fails, a roundhouse kick may be in order.