Flagstar Bank pulls the plug in the 11th hour!
These 1st-Time Home Buyers are awesome folks! They're the kind of people you LOVE to do business with. Even though they're relatively young and just starting a family, they've been exceptionally prudent and responsible with their finances. Their credit scores are exemplary. They have no outstanding debts. And both husband and wife have very stable histories of employment/income. They have a substantial chunk of change in the bank, and their parents are giving them a very generous gift to be used for a down payment.
Halfway through the transaction, there were some concerns voiced over the tax ramifications of the parents giving these kids a gift, so the gift was changed to a loan, and a vehicle was used as collaterral.
Yesterday, one day before closing, the kind folks at Flagstar pulled the plug. They stated that the vehicle was not sufficient enough to pose as collaterral for the loan.
They were asked if additional collateral was furnished, would that suffice? They said "No."
They were asked if the loan disappeared and the money was again offered as a gift, would that work? They said "No."
They were asked if there was anything that could be done to fund the loan? They said "No."
So 'Thank You' Flagstar Bank! Your New Wave of Banking is simply a wave 'Good-Bye!'
~ o ~ o ~ o ~ o ~ o ~
Rich Jacobson is a licensed real estate professional providing empowerment and relentless representation for his clients of residential properties and vacant land throughout all of Kitsap County WA and portions of Pierce, Mason, and Jefferson Counties. You can also find him at KitsapLife.com, SOUNDBITEBLOG, and Crabbing in the Hood.
This is the ultimate frustrating experience for everyone involved! Twice in my 15 years of residential experience I came close. One of those times it dragged on for 2 weeks after closing to fund. But I've never had to just give up and walk away. This is a new mortgage world....much uglier than before. CBS evening news last night had a feature on real estate and talked about somothing needs to be done to help the lenders. We'll see.
OUCH! I am sure you will be able to "flip" them over to another lending institution and get them closed. Don't you just want to walk into someones office and say - hey, listen here!
Rich,
You should have ran when they questioned the "tax ramifications of the parents giving these kids a gift" There are ramifications to the giver!
On the other hand, many loans restrict gifts! "so the gift was changed to a loan, and a vehicle was used as collateral."This is a very good and common solution to the problem if the buyers can afford the payments and remember the IRS will impute interest if Daddy doesn't carge a reasonable amount. To change the gift to a loan after the fact is a sham!
Our job is not to give tax advice, but rather to know the questions. The Banks job is not to give tax advice, especially bad advice, but they topped it suggesting fuard and then unbelievable turning it down.
This would be comendy if it were not so hard on the buyers! You sir need a compent LO!
Bill
Sir William: The LO is one of the most competent, knowledgeable and hardworking that I know. The LO did everything and then some to make this happen. The bank simply decided not to fund. Period.
A gift is a gift is a gift. If that is what it is any change to that after the fact constitutes fraud. I fail to see why a letter from the parent's accountant stating that the tax ramifications had been explained to them wouldn't suffice. The good news is that I'm sure you will be able to place this with another lender and get it closed. The bad news is that we are now back in the wild west of mortgage lending. A few years ago we would approve people for no reason. Now we turn them down for no reason.
It's so nice that Flagstar is in such great financial straits that they can afford to lose lending money to such a great credit risk.
And at the last minute, that is the worst - first time buyers can get frustrated, they are lucky/smart to have you working for them. Let us know the resolved/happy ending.
Looks like they were just looking for an excuse not to give the loan. Sucks when you have the perfect clients and a bank does this to them!
No other lending institutions to get the file to? I mean...everything is just about done... ????
Ahhh the proverbial gift. Sometimes it works and other times it doesn't. I guess that's just FirstBanks meaning of new wave in banking. It's just sad that things like this happen... very disheartening for 1st time buyers for sure.
Rich: Sorry to hear about this. There have been rumors of Flagstar ailing for a while now. That could be it. In the meantime, if the guy you work with is a broker, he needs to have access to bank lines. Wholesale lending is drying up and there are alot of pundits who say that it will be extinct by the end of the year. For now, banks are getting loans done as they have the wherewithal to buy the loan and then sell it. Just some food for thought. Better luck next time!
Hey Rich,
I had a similar situation happen to me, I had a buyer who had 800+ credit scores. They had a new house built, had plenty of money in there bank. There parents wanted to give them a gift for there down payment, and the bank put them through the ringer! It took a month to finally get the loan worked out. Thank goodness we got it funded, the house was already built!! It would have been a disaster to not have funded the loan. We ended up having to switch banks to get it done...It was ridiculous!
-Lisa
I was just talking with someone yesterday and said that now more than ever nothing is EVER a done deal until it's really, truly, everyone-actually-has-the-money-in-their-accounts done! Best of luck for your buyers, hopefully they just hit a snag and not a dead-end.
Rich,
That is a really interesting scenario. It is frustrating when they pull the rug out that close to closing.
Rich, WOW that does not make sense. First the Loan Officer should have been able to get a answer from his Underwriter before they even did this to see if she/he would accept it. Second, it does not make any sense that they would not be willing to re-structure the loan using gift money or anything else that would make it work, or even switch to a loan program that could use those funds. Sounds like the Loan Officer was a sleep at the switch to me, or doesn't know what the heck he/she is doing.
Tell them to buy in Connecticut and I will get them the loan .......... LOL
Hi Rich—Just my opinion, but as a loss mitigator I do not believe the lenders need any more HELP! They need to help themselves by taking the short sale market and stream-lining their internal process.
It does not make any sense to renig on deals such as this one which is essentially a slam-dunk. Lenders don't realize for some unfathomable reason that it is in their best interest to do good, solid loans. All this does is make potential buyers even more hesitant which in turns delays economic recovery. I am NOT going to get on my soap box, but I am sorely tempted - LOL!
Thank you for adding me as an associate. Have a great week!
Don't speculate on what folks think happened. Focus on what did happen. The bank rejected the loan.
They don't have any money.
"Flagstar has operations in Michigan, Indiana and Georgia. It posted a loss of $62.1 million for the third quarter, reflecting $86.9 million in loan loss provisions and a $17 million loss linked to the collapse of Lehman Brothers."
Flagstar took about $288 Million in TARP money.
Rich, How heartbreaking for the young couple who I'm sure think they did everything right.
Rich - Drives you nuts, doesn't it. I had a lender go out of business the day my buyers' loan was supposed to fund... aaarrrrgggghhhh!!!
Rich- I hope you were/are able to find new financing for this couple. Some of the worst stories, I've heard, this year, are of deals falling apart AT the closing table, because the bank changed their requirements.
Lenn: My clients only needed about $200K of that TARP money!...
Hi Rich, I was speaking to Sally today and I missed the news. Congratulations and All the Very Best!
This is a story line that warrants being featured Rich not because you need the points or the notoriety but because agents need to be aware of the " just about anything" is all it takes to make the financing disappear. Now of course, the will need to start over if they are not too discouraged to actually do that.
I would bet that Brian could step in and help everyone get this all straitened out and get that loan funded. Your LO is not the one that messed up he simply submitted the change. That is another reason why other agents needs to know that between them and the LO, we are only going to have one chance and we must make sure in advance now that no changes will be made. In earlier times ( only yesterday it seems- it was just yesterday, LOL) the LO could adjust the package when need be. It sounds like that is no longer the case.
An excellent post and a sad one too that the Buyers have to start over fresh with their financing. I would bet my bottom dollar that within a short period of time, they will be in their new home.
Rich - Back in November, Flagstar did something similar (not quite the 11th hour) to me and my clients who sound exactly like your clients. I did some quick scrambling and had them with another lender and were only a week late on the COE. It was really stressful until they funded and I totally blame Flagstar for it all. I haven't submitted a file to them since.
This is just nuts! They irritated me a few years ago and I never gave them another chance.
Rich, Wow this is a raw deal. We don't have Flagstar Bank here in my market. I hope that you have an alternate lender that can help your clients get to the closing table successfully.
I haven't had to play the exact game... But, when I was a first time home buyer a long time ago, I had a similar experience from the ugly side... Didn't like it.
Rich. The financial institutions that accepted TARP money capitalized the money and paid dividends with it or used it to meet their minimum depository needs. They didn't take it with the intention of making consumer loans.
What an incredible disappointment! I am working with a your couple, 1st timers and I had forgotten how much fun it can be and with all of the excitement, hopes and expectations. It's appalling that institutions can be this absurd. Frankly, it's probably going to get a little worse before it gets better! I know you will help them along and hope you are able to find another lender and finally get them in to a home!
Wow that is real disappointing Rich. You would think finding out something like this would not happen the day before a closing. The bank screwed with a lot of peoples lives.
Rich, this sucks. I feel terrible for your buyers, how heartbreaking. These banks make me SICK. They took our money and then don't help the buyers out. That is why the continual bailouts are a mess.
It is NOT getting to the consumer.