Part 3 of Tales of a Mortgage: The Long and Winding Road

Last October, I mentioned that I had finally hit a net worth of zero, celebrating the occasion of being officially worthless. At that point I mentioned that my next step was to buy a house. I can now say that I finally did get down and buy a house, closing a few months ago on June 13th. I started looking in November just to see what was out there but didn’t seriously crack down and take it seriously until about April. I plan on writing a four-part series about my experience with the mortgage process and some of the hilarious and depressing encounters with the various people along the way.

Part 1: How I Learned to Stop Worrying and Love the ARM

Part 2: Realtors Bite

Part 3: The Long and Winding Road

Part 4: Thank You for Selling

From the very start of the process of looking for a home to closing on the house took about four months. A lot of this time was on my own end searching for a home and preparing my documents for a mortgage but the mortgage process itself was close to two months. As I’m sure most readers are aware, obtaining a mortgage is a long, onerous project subject to financial strip searches and fumbled documents. I have never refinanced but I can only imaginebased off of stories that obtaining a refinance is as enjoyable as a proctology exam.

I signed a purchase agreement on May 2nd. The sellers said that they required closing by June 15th so that they would avoid another mortgage payment. That leaves 44 days for closing. I obtained my prequalification through Chase Home Mortgage and they were unable to get back to me until May 3rd letting me know that they are unable to agree to a purchase agreement with less than 45 days closing. This is despite the fact that I was already pre-approved: I had already gone through the longer process of having my documentation and assets fact-checked, which is a bit more intensive than just a basic prequalification. From my standpoint, the only steps left would be to obtain an appraisal and get PMI and home insurance. Apparently, Chase was steadfast in their inability to sign on less than 45 days but “assured” me that they would do everything they can do to get the mortgage finished by June 15th.

Can’t I take Chase solely on their word?

To me, this is unacceptable. I know little about contract law but what I do know is that if Chase is able to close the loan by June 17th (45 days) and the seller backs out because I did not honor the contract, then I am on hook for the earnest money, despite how much Chase is able to assure me they will work “as hard as they can”. I immediately called up three other mortgage originator and was able to find that all three are willing to sign on contracts up to 35-40 days so I selected the lowest rate/points combination and moved on it.

The Chase servicer that I had been working with for three weeks was furious with me but I had already made my move and it wasn’t personal: simply business. It turns out that I locked my rate on May 6th. Looking at the thirty-year rate following my lock, it appears the market moved in opposition to me finally locking in. The rate spiked about 0.80% in the few weeks afterward and I snuck into my rate just in time. Pure luck although I prefer to think I timed it perfectly with my brilliant insight.

Why don’t more people take large financial decisions seriously?

I work at a company that is related to the mortgage origination industry and one of the takeaways is the concept of ‘stickiness’. The term is usually applied to checking accounts: once somebody locks into a checking account it is extremely difficult for the customer to change banks. If a new bank opens with 0.10% higher APR on their checking account, the inertia in the market makes it extremely difficult for the money to move quickly from one bank to another. Banks take advantage of this to fleece their customers: Bank of America has made a practice of it over the past decade yet they are still #1 or #2 in domestic deposits, barely decreasing since their PR disasters (charging $5 debit card fee?).

Mortgages: An Inefficient Process

This concept also applies to the mortgage process. Since the application is such a lengthy process, minor quirks or kinks in the system are not properly calibrated or optimized. For example, if my originator has an appraisal fee of $395 instead of $345, I will probably just ignore it because I am far into the process. This is true of signing on 40- or 45- day closing, true of finding the lowest rate, true of being forced into higher points than expected. The Chase servicer was just not used to somebody walking away late enough in the process and I think I surprised him with my willingness to jump ship. Not only did it turn out to close the loan much easier, but I also got a much lower rate.

Long story short: be willing to shop around for a mortgage even late in the process, it could save you thousands of dollars and a headache if it ensures that you close.

 

Cheers,

Cameron Daniels

Comments

  1. AvgJoeMoney says

    It makes me laugh that the Chase rep was “furious.” Furious? That you had a requirement and he/she couldn’t meet it? The rep should have been furious….at his/her company and their inability to make a client happy. Get with it, Chase.

    • CameronDaniels says

      To be fair, the representative was initially just stunned that I would go ask a ton of places without waiting for him to get back to me. From my (and I presume yours) it’s only fair and the clock is ticking so I don’t really have time to sit around and wait.

      After that, he called me about a week later saying that he can sign under 40 days now (which would put the timeline at about 35-36 days now on the original contract, go figure) and that he was more furious with his supervisors. So he was frustrated at both.

  2. says

    But they promised they would do their best!

    And, assuredly, you would have been on the hook when they closed in 45 days instead of 44.

    • CameronDaniels says

      I would love to see that court case. The sellers try to back out of the sale and keep the earnest money. Chase refuses to honor it because they met their commitment. Who would I be able to hold responsible? I’m not throwing out $4k+ at a very real possibility that it will be completely lost with no recourse.

  3. says

    Once you had other companies willing to work with your constraints, i would given Chase one last opportunity to agree to your conditions, as a simple courtesy to the work that they’d done on your behalf. While you had no obligation to do so, I can see where the Chase person might have been a little put out. In any case, you make a good point that it’s always best to shop around. When it comes to collecting tens of thousands of dollars of interest, you’d be surprised just how many are out there who’d be willing to work with you. Don’t let the headlines fool you, mortgages are attainable.

    • CameronDaniels says

      I agree. I felt slightly bad that I was able to move real quick but when he said initially that he could only sign 45 days or higher and I had 43 days I emphasized that this is a complete deal breaker for the seller. This, to me, is the indication that you need to let me know NOW if you can sign it or I’m moving on it. Every day that he had to check with his supervisors and get back to me was another day that was ticking off my countdown to June 15th. The fact that I could find three originators within a day who would work in the constraints (some with lower fees and points) only reinforced my confidence in switching.

      I do feel there is some need for common courtesy with the servicer I was working with but that extends simply giving him the chance to match the offer, something that I did not happen in the timeframe that I needed.

    • freeby50 says

      How much work would the Chase rep. have really done at that point? I honestly don’t know but it doesn’t seem to me that getting a preapproval on a loan should be tons of work.

  4. freeby50 says

    I had a somewhat similar experience myself once. I signed up and got prequalified for a lender. It was my first purchase and I didn’t really know what I was doing and I didn’t do a good job researching the lenders… When I got to closing i was ambushed by inflated closing costs about 2x normal so I walked away from that lender at the last minute. The lender had not given me a good faith estimate. They even threatened to sue me or something. I then got referrals by my realtor to 2-3 other lenders and got quotes from them. I picked the cheapest one and they closed the deal very fast, I want to say it took less than a week. One of the other lenders my realtor referred me to got upset that I didn’t pick him. I guess he thought I was supposed to give him a chance to lower his price rather than him being competitive in the first offer.

    Here’s a longer version :
    http://www.freeby50.com/2010/01/my-mortgage-loan-horror-story.html

    • CameronDaniels says

      Read through your article, I think there is a vast difference in what is standardized or required from mortgage originators now from 1999 (I think your first home purchase ?). Good Faith Estimates must be provided at the firm offer of credit and if a few of the fees change >20% they need to be documented immediately.

      Speaking with some more people in the industry, the time that has caused a lot of the delays is not specifically the mortgage originator or broker dragging their feet. They need to get appraisers, investors, documentation, banks all in line as well. If an appraiser who is independent from the company drags his feet for five more days? Tough shit. If there is an error in the most recent filing at the tax county assessor’s office? Tough shit, got to spend a week fixing it.

      Add this to the increase in documentation at new FNMA and Freddie Mac filing rules and documentation requirements (not saying this is a bad thing with NINJA loans from the recession) and 30 days seems to be a too-ambitious goal nowadays, especially if you are looking for an FHA or non-conforming loan. I went in with the expectation of 40-45 day closing and was surprised with the rigidity around 45 days.

      All told, I cannot complain specifically about how I was treated by Chase: they were forthright and open about their policies and gave me fair estimates on everything. The originator I worked with individually was moving very quickly during the time I worked with him, but their policies simply did not match my needs and that meant that I had to move on. I can’t say that I felt cheated or misrepresented.

      • freeby50 says

        It was 98 or 99, I can never remember exactly when.

        I’m pretty sure that a Good Faith Estimate was legally required when had that original loan and the lender failed to do that. I think that is a key reason they had no reason to complain. In fact I think they even paid for an appraisal and ate that cost.

        I’m sure that the closing process has changed some otherwise and I wouldn’t expect anyone to rush through closing in a couple days now.

  5. Jacob @ iHeartBudgets says

    My originator was married to our Real Estate agent. Conflict of interest? Maybe. Awesome experience? You betcha! Closed in 5 weeks, lowest rate around, and we were extremely happy. Heck, they even offered us a few cold ones when signing closing papers, which helped ease the pain :P

    • CameronDaniels says

      I think, all told, when the other companies said they could sign under 45 days the closing took about 5 weeks as well. Talking with a lot of my mortgage originator friends it appears that the “Guaranteed 30-day closing” is now a thing of the past. It can be done but it is no longer the industry norm, standard or promise.

  6. says

    I find this fascinating and annoying. Where I live in Canada, as long as there are no complications, a mortgage takes about 2 weeks, less if you need it ASAP. Taking that long just blows my mind!

    • CameronDaniels says

      It’s a tradeoff. The industry standard used to be (way way back in the prehistoric time of 2009) 30-day closing guaranteed with most loans that didn’t have complications coming in around 3 weeks. Industry documentation and lending requirements have increased and there are a lot more controls in the process after the housing bust which makes the process drag its feet a little bit.

      I don’t know all the details of the Canadian housing market but I imagine a lot of the difference is the conflict of interest between mortgage originator and Government Sponsored Entity (GSEs, more commonly known as Fannie Mae and Freddie Mac). Also add FHA lending requirements and internal differences within companies and you get a whole lot of mess. I am not saying it is a complete nightmare, it just seems like there is a lot of waste in the process.

  7. krantcents says

    I find that with home mortgages you need to push them or they will operate at another speed. In California, the real estate broker helps in that respect. It is still your loan and your involvement helps.

  8. Andy Hough says

    It is good that you were able to switch so quickly and everything worked out. If a company can’t meet your requirements then they shouldn’t be surprised when you go to another company.

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