I am sure it has happened to many readers or to someone you know…a mortgage settlement gets delayed or occurs several hours late! And it is customary to blame the mortgage lender, because after all, settlement had been scheduled for weeks and weeks. How could the settlement be delayed when we all knew for so long what the target settlement date was??
Here is the truth about delayed settlements, it is everyone’s fault, the lender, the seller, the buyer, the Realtors, the appraiser, etc.
Here is what happens on a typical loan file.
July 1st, 8 p.m., sales contract ratified with a 30 day settlement date, set for August 1st. 30 days should be plenty of time to approve a mortgage loan, yes? But, since its 8 p.m. this means there is really only 29 days to settlement in which the lender gets to prepare the loan, since the first day is now effectively over. But hey, what’s one day?! Should not be a problem…
July 2nd, the buyers are so focused on lining up their home inspector, and calling their parents and friends to celebrate that they got the house, they don’t get around to asking their lender about filling out the loan papers.
July 3rd, the buyers call their lender, he tells them he can do the loan application with them over the phone or they can go online. They are busy with work that day, so they’ll go online that night and do the loan application. 27 days left to closing.
July 4th, the loan application is done. However, it is a holiday, so nothing can be done. The mortgage lender tells the buyers what supporting documentation he needs, like a copy of pay stubs, bank statements, and W-2 forms.
July 5th, the mortgage lender pulls a credit report and works on the file. 25 days to closing, and the lender is finally starting the loan process in earnest.
July 6th & 7th: weekend
July 8th, everybody is back to business after a long holiday weekend, and the appraisal is ordered. The appraisal is the longest process in the whole loan application, so it is important to order it as soon as possible. The appraiser is backed up and says he will need 9-10 days, uh oh.
July 11th, the appraiser calls the mortgage lender and says he has made repeated calls to the listing agent to gain access to the property to do the appraisal, however he has not heard back. The lender calls the listing agent and urges them to accommodate the appraiser quickly, and the listing agent says they have been too busy planning their Summer boat party, working, and also had minor cosmetic surgery. They promise to get the appraiser in to see the property in the next few days.
The mortgage lender reminds the buyers he still does not have all of the paperwork that he needs from them.
July 14th, It is Saturday, and this was the best day for the listing agent to get the appraiser in to see the property. And of course, it is important to cater to the listing agent, not the consumer, the transaction, or the lender.
July 16th, the appraiser says he still needs to research the appropriate comparables (comps) and go shoot photos of those comps, and then he will write up his appraisal report.
The buyers fax in the last remaining pieces of documentation that the lender needs. It is not quite everything that the lender asked for, as some of the money for the down payment came from a gift from a family member, and the buyers and the family member feel it is nobody’s business as to where that money came from.
July 21st, the appraiser turns in the appraisal report (a few days late), and the property has appraised just fine, and all is well. Everyone is excited. Things seem to be going well, there are 10 days left until settlement, and what could go wrong?
July 22nd, now with the appraisal in hand, the mortgage lender can submit the file to the underwriter for loan approval. Except…the mortgage lender is very busy this day with a golf tournament that he is sponsoring, to court Realtors for more business. He really needs to review the loan with his loan processor before it can be submitted, so it will have to wait a day.
July 23rd, the mortgage lender gets in the office late, a little bit before lunch, because he was hung over from the party after the golf outing. So now another half a day is lost. Because the mortgage lender has come in late, he is behind on returning some urgent phone calls and e-mails. He can not sit down with his loan processor to go over the file until after lunch. Of course, that becomes 3 PM, and the reality is that the file does not get looked at until towards the very end of the day. Another day is lost. The file is faxed, overnighted or uploaded in the bank’s computer system at the end of the day.
July 24th, the underwriter acknowledges receipt of the new loan submission. The underwriters are taking 3-4 days to turn around a loan approval, but they will “try” to get it done more quickly.
July 27th, the underwriter sends the mortgage lender a contingent loan approval letter, saying that the loan is approved but that the underwriter would like more documentation on where the buyers got the cash for their down payment from.
July 28th, the buyers reluctantly fax over the documentation that the underwriter wants to see as part of the loan approval.
July 29th, the underwriter reviews the last pieces of documentation that she wanted to see in order to approve the loan. Today we have final loan approval! Now the loan goes to the closing department for the preparation of the settlement documents. The closing department is very backlogged and will need two days to get to the file in order to prepare the closing documents.
July 30, everyone is panicked because the title company has called the Realtors saying that the lender has not provided the closing documents yet. Everybody wonders if settlement is going to happen on time, and even wonder if there a problem with the loan? Will settlement not happen?!
August 1st, the closing department prepares the closing documents and get them off to the settlement company via a secure, password-protected email by noon. But settlement was supposed to happen at 11 AM! The title company needs several hours to take the banks closing documents and merge them in with their own documents, and prepare the whole package for settlement. By 2 PM the settlement has started, and by 3 PM everything is done. All the parties to the transaction are irate that they had to sit around and wait several hours with nothing to do, from 11 a.m. to 2 p.m. The Realtors pick up the phone and scream at the mortgage lender. The home buyers pick up the phone and scream at the mortgage lender. The title company picks up the phone and screams at the mortgage lender.
Does anybody else see that there were other parties at fault here?
The moral of the story is that every party to a mortgage transaction must move quickly, provide everything that the lender asks for, and continue to push the ball back in the mortgage lenders court. Just one person acting in a quicker and more efficient fashion would have saved the several hour delay at settlement. If the listing agent would have let the appraiser into the property more quickly, settlement would not have been delayed. If the buyer would have made loan application immediately, settlement would not have been delayed. If the buyer got all the documentation required to the lender in advance, settlement would not have been delayed. If the Realtors would have foreseen that an evening contract ratification and a holiday would have stolen some time from the transaction, maybe they would have written a slightly longer settlement date, and settlement would not have been delayed.
Work hard, provide all that is asked, ask lots of questions of your lender, move quickly, push your lender to go faster, take your vitamins, go to bed early, and eat your vegetables. Follow these rules and life will be easy, and so will your mortgage settlement…