Ask Ross

I got an urgent call from a realtor friend last Friday afternoon. He explained he had clients buying a home whose condition of financing was expiring on Monday afternoon, and they had not been approved at the Royal Bank, their long time personal bank.

The offer had been made the previous Monday, and finally on Friday, RBC advised the clients they would not qualify for a mortgage, but perhaps they might consider a “B” type mortgage. Could I help?

I promised to stop everything I was doing, and get on it right away. The realtor sent me the MLS listing and the offer to purchase, and set up a call between me and his clients.

It only took ten minutes on the phone to understand that RBC was correct – these were not “A” clients – the question becomes how come it took RBC four business days to figure this out? And how long would it take them to find a suitable “B” mortgage solution, and on what terms? The clients were major league stressed out – worrying they were going to lose this house, and they had lost faith in the process.

Turns out both Mr. and Mrs. Smith had declared bankruptcy in 2007. Since then, Mrs. Smith had not made any attempts to reestablish her credit history – so she in fact had no credit score. Mr. Smith does have a car loan with a TD Bank, and a $300 Capital One credit card – which was well over the limit, carrying a balance of $670.

However, Mr. Smith also had three unpaid collection accounts sitting in his credit history. A total mess, his Equifax credit score was a generous 518. How clear does it have to be that this couple cannot possibly qualify for the type of mortgage we all lust after – like 2.99% with Partner Mortgage, fixed for five years?

On the plus side, they both have excellent jobs, Mr. Smith having working in the same manufacturing plant as an assembler for thirty five years, and his wife works at a Tim Horton’s store full time, and has done so for eight years.

Further good news – they plan to put $60,000 down towards the purchase price of $295,000. So their loan to value ratio is a respectable 80%.

The solution was clear. First, I had to explain to Mr. and Mrs. Smith the reality of their circumstances, and to show them a path towards the kind of mortgage they want and ultimately deserve.

I got on the phone to our dedicated underwriter at Partner Mortgage, one who specializes in B mortgages. We agreed the best approach to get Mr. and Mrs. Smith into their new home is a one year mortgage with Partner Mortgage at an interest rate of 4.75%. The monthly payment will be $1,333.

As is typical with B mortgages, there would be a one-time lender fee of 1% of the mortgage amount à$2,350.

Over the next year, I will give the couple a specific action plan as to how to establish a decent credit score for Mrs. Smith, and how to increase Mr. Smith’s credit score. The goal being to get each of them in the low 600’s within a year, when their one year mortgage matures.

One year from now, we can recheck their credit history and see if their application is strong enough to switch over to an ‘A’ lender. I believe it will be, we will renew for one more year, at which point I am certain they will be ready.

The rule of thumb for reestablishing credit is to have at least two credit facilities; with a limit of at least $2,000, and ideally from a major lender or credit card issuer – as opposed to a retail store card, or even a Capital One card – which is quite easily obtained, and does not have the currency of a major bank credit card.

By Monday before lunch, Patty had issued a commitment letter exactly as promised. The conditions were that Mr. Smith’s Capital One card be paid in full (it is already) and that he prove he has settled all the outstanding collection accounts registered against his name. (He did that too last week)

Thus, the crisis was averted and the happy and relieved couple can look forward to taking possession of their new home in March.

Happy ending right? Well yes, and no. When I spoke with Mr. Smith on Monday afternoon, he seemed calm and cool – actually distant, compared to his frantic, pleading tone on Friday.

Turns out he called RBC on Friday after speaking with me, and told them he had already found a mortgage broker agent who had quickly assessed the file and promised him a mortgage commitment along these lines before the deadline expired.

Someone at RBC woke up and realized they were about to lose their client, and they should stop dicking around. Shortly after, they called Mr. Smith and promised him a one year mortgage also – at 4.5 % and there would be no lender fee He happily accepted.

So life is good. My realtor friend is happy as his deal will close after all. The Smiths are happy as they salvaged a desperate situation, and secured a really good mortgage under the circumstances. The only casualties in the process were me and Partner Mortgage – as I had cleared my desk to prioritize the Smiths, and my underwriter had done the same thing.

Such is the life of a mortgage broker agent. You win some, you lose some. You do the best you can, provide service above and beyond the norm, and you will win your share of business.

Although this transaction will not be going through our books, my realtor friend is very grateful and appreciative – and has committed to working with me on the majority of his deals from now on.

Realtors only get paid when the sale closes. They don’t want to waste a lot of time on borderline deals which get mangled by clients who mess up on securing financing.  No one does.