Agents Of Ill Advice

Agents Of Ill Advice

Real estate agents are dispensing loan advice. It’s time they stopped.

BY LEW SICHELMAN | CONTRIBUTING WRITER, NATIONAL MORTGAGE PROFESSIONAL

More wanna-be home buyers than not start the process with a call to their favorite real estate agent as opposed to the loan officer or mortgage broker who is going to handle their financing. Of course, that’s just plain wrong. The first stop for anyone who intends to purchase a house should be with a lender. That’s the point when they can lay their finances bare, find out how much house they can afford and get pre-approved – or rejected – so they can start the process armed with the knowledge that once their realty agent finds them the property of their dreams, they can proceed quickly to tie down the deal.

But lately, realty agents have been moving in on what it says here is rightfully the mortgage sector’s turf. Many have become financing “experts,” advising their clients about stuff they don’t really know enough about, if they know anything at all.

This topic was brought to mind on the last day of June when Inman News, a web-based news service aimed at real estate agents and brokers, published a piece about what its audience should know about today’s mortgage market. (In the interest of full disclosure, I wrote extensively for the site until this year.)

UNQUALIFIED ADVISORS

The story gave me chills, as it should every mortgage professional. Sure, agents should be well versed in what’s occurring in the financing field; i.e., that lenders are moving away from more risky loans, as the piece suggests, or that qualification standards have tightened considerably. And yes, agents should, as many do, advise wouldbe clients to see a lender first, then hunt for a house.

But asking them if they have enough savings if the economy continues to falter, if they have any kind of job security, how strong is their credit score or if they’ve gathered all the necessary documentation to support their loan applications? That’s what the author, Salomon Chong, CEO of The Mortgage Hub in Southern California, suggests.

To be fair, Chong writes under the supposition that COVID-19 will linger into next year, so “it’s prudent for agents to set expectations and explain to buyers that getting a mortgage during the coronavirus can be a little challenging.”

But aren’t those questions the lender’s bailiwick? Agents should help buyers and sellers buy and sell houses and leave the financing stuff to the folks who work that key part of the process, day-in and day-out. After all, mortgage professionals don’t help buyers find their ideal homes, do they?

BECOMING DISCUSSION OBSTACLES

Take the aforementioned issue of how much house a buyer can afford, for example. Realty agents aren’t equipped to review their clients’ financial situation to come up with that figure, but mortgage professionals are.

There’s good reason for a buyer to know the max they can offer and still be able to secure funding and slide to the closing table without a hitch. For one thing, they will be able to shop in a price range they know they can afford as opposed to looking around in a realm for which they can’t possibly win approval.

That, alone, is reason enough for a real estate agent to send a new client to a lender before running the client from house to house to house, either in person or virtually on the Internet. To do otherwise could mean both client and agent could be wasting each other’s time.

For another thing, when a buyer is armed with a lender’s preapproval – not pre-qualification, but preapproval – he is telling sellers he’s gold. There’s not likely to be any glitches with financing, which, after problematic inspections, is a major reason deals fall through.

But how many realty agents will warn borrowers that they might not want to bite off more than they can chew? Or, in other words, go to the limit of their buying power? To do so could leave them house poor, so much so that if they don’t have anything left in the tank after settlement, they could lose the place they’ve worked so hard for should they be hit with any kind of financial setback. I suspect more loan agents than realty agents would offer such a warning, especially if the loan could wind up back in their lap.

Lenders also can help buyers put their finances in order, especially their all-important credit scores. Scores are now the Holy Grail of housing finance, and poor advice from a well-meaning, yet unknowing realty agent can set people back rather than propel them forward.

MISDIRECTION AWAY FROM LOs

I 'm not picking on Inman, believe me, but another June 30 article on the site offered five credit myths agents should explain to rookie home buyers. Here, I take exception with Myth No. 4, “Paying off a collection or debt removes it from my credit report.” Not because it’s wrong, but because it doesn’t go far enough.

The story by Vance Kellogg, director of marketing and communications with Red Door Agency in Kingsport, Tenn., correctly points out that there’s no way to remove a derogatory item from a person’s credit file unless it is incorrect. It remains there for seven years before simply fading away.

But he fails to note that the older the collection or missed payment is, the less it counts against your overall score. And he doesn’t mention at all that if an old derog is paid off, it becomes a new entry and counts far more than if you just leave it alone. So, yes, leave it alone, but for the right reasons.

Kellogg also points out, again correctly, that lenders look at how long an applicant’s credit accounts have been open. Thus, he advises keeping an old account open, even if it is no longer used, is better than closing it out. But he doesn’t mention that having only three to seven credit accounts is ideal.

Nor does he even reference the fact that more important than the age of the account is how much of the allowable credit is being used. It’s better to keep balances at 30 percent of the credit. That shows buyers use their credit allocation responsibly, which is what lenders are really looking for.

And do you really want someone other than yourself trying to explain the intricacies of the various products from which your clients can choose? Can you count on a realty agent to know where your borrowers can find assistance if they are a tad short on cash for a downpayment?

Who do you trust with that kind of information? And who do you think a buyer who has a poor experience will come back on if things don’t go smoothly?

This is why lending professionals should be out there beating the bushes, telling their prized realty agents and brokers to work their side of the transaction and let you handle the financing end. To cede even a portion of the financing side to your realty agent partners could prove to be disastrous.

Lew Sichelman is a contributing writer to National Mortgage Professional magazine. He has been covering the housing and mortgage sectors for 52 years. His syndicated column appears in major newspapers throughout the country. He also has been the real estate editor at two major Washington, D.C., dailies and spent 30 years on the staff of National Mortgage News, formerly National Thrift News.