Slightly off short sale topic but important to all of us, I had a confrontation yesterday with a mortgage broker who I have worked with in the past. He says "I have a lead for you who’s interested in buying a home" and I think to myself great.
He says "they have great credit scores and I qualified them for USDA financing (Which is 100% loan to value financing allowing the buyer not to have to put any money down) with 6% concessions. You have to get 6% because that's the only way they can buy." Seller concessions are cost associated with buying a home that the seller contributes too. So essentially if you have 100% financing and 6% seller concessions you pretty much are buying a home without much out of pocket money at all.
The mortgage broker spoke to the buyers about short sales and foreclosures, he mentioned new homes and as he's telling me what he told them I'm thinking to myself “why are you boxing me in and essentially setting me up for failure with these buyers.”
I told him that if our only option was 6% were limited in the options as it relates to housing we may have and really were taking shots in the dark when putting in contracts. He says that I can just pad the deal (Offer more than the home is listed for and take hopefully the seller allows the extra money to be applied to paying for the buyers other expenses) and go over list price and use the extra funds to be credited toward closing costs.
I told him that that was a horrible strategy and we would begin making offers on homes only to go two, three months deep only to lose the deal and waste everyone’s time. When the banks counter and we can't pull the trigger we will be out of the deal and have to start all over again. He seemed offended and began telling me he gets 6% all the time on deals he originates.
The worst part is he tells me in frustration "well that's all you can do because he only has $800 to his name" I tell him "don't you think that's a step in the wrong direction?"
I mean escrow alone is $1000 not to mention appraisal, inspections and most IMPORTANTLY..........reserves for a couple months God forbid anything were to happen.
Now guys don't get me wrong. I love helping first time home buyers and I also have done several down payment programs and have successfully done bond programs getting my clients money back at closing but all of them at least understood they would need some money and understood the additional cost with buying a home.
My point is that this mess started by extending credit to anyone and everyone and we were leveraging buyers at 100% loan to value, no reserves in their bank accounts, no equity and a blatant disregard for the potential danger of job loss or default. We didn't educate them about not only buying a home but the importance of equity and protection against devaluation.
Now four to five years deep into the worst housing crash in history we seem to not have learned anything!!!
Oh and his response to all this. "I have a moral duty to qualify someone with good scores no matter how little they may have."
