The Epic Fallout Rate of Sacramento Home Mortgages

While working on putting another home in Land Park into escrow yesterday, I had an opportunity to engage in a long chat with a mortgage guy who works at Wells Fargo in San Francisco. He doesn’t work directly in the residential resale division but he hears first-hand what’s going on. His experience pretty much parallels what I see happening in the Sacramento mortgage market: a large percentage of home loans are either being delayed or outright rejected, resulting in an epic fallout rate.

Almost half of my pending listing inventory slated to close in January rolled into February due to problems with the buyer’s mortgage, which resulted in stunning closing numbers in February (production wise) for this Sacramento REALTOR but not so great for sellers and buyers. There are some people who will say this is a good thing, not giving loans to borrowers who don’t fit stringent criteria. There are others who will say the rules are too strict and it’s preventing otherwise good people from buying a home in Sacramento. Like with most things, the truth is probably somewhere in the middle.

It does mean that we listing agents need now more than ever to vet borrowers. Just because a person put pen to paper or mouse to mouse pad doesn’t mean that person is capable of closing an escrow. Just because a loan officer signed a preapproval letter doesn’t mean the borrower can get a Sacramento home mortgage, either.

I called a mortgage lender yesterday to inquire about a borrower. The lender said the borrower had no debt to speak of, excellent credit, the liquid assets and been reviewed and verified; the borrower is over qualified on income ratios and the borrower’s FICO is around 800. Sounds good on the surface, but it doesn’t mean the borrower doesn’t have an ex-spouse who did a short sale or had a foreclosure. It doesn’t mean the borrower won’t discover a lien has been filed in another state. Heck, there are so many things that can go wrong in underwriting that we can form hypotheses until our heads spin.

Much goes on behind the Sacramento home mortgage loan application.

One acceptable solution, of course, is to run a borrower through underwriting and obtain underwriting approval before presenting an offer. That would give a buyer’s purchase offer extra-duty strength. I’m not proposing desktop underwriting approval, which is pretty much worthless to me. Having a DU from Fannie Mae is almost like saying: I looked up my home’s market value in Zillow. Ha, ha. Close, but no cigar.