Identifying a Bad Deal - Addressing the Top 5 Reasons that Deals Fail to Close

Bad deals - the Achilles heel of most mortgage agents and brokers. You may take painstaking measures at the point of application to ask your client many questions to uncover bad deals – but some seem to always slip through. So how can you tighten your closure rates? What more can you do? Leverage technology to investigate your customer’s disclosure.

While some customers innocently misstate information, others do so intentionally. Fraud is rampant in the mortgage industry. Let’s look at some of the most common examples of why deals go bad – and what you can do when underwriting your deal to ensure that the information you need is uncovered sooner so that you can stop wasting time on bad deals and focus on the ones that can close.

Why deals go bad as it relates to the property being financed:

Someone else is on title – This is very common and often not done intentionally. Validating who is the legal homeowner of the property at the point of the application is the best way to stop this from coming up later.

The mortgage balance is more than stated – You can run a search to see when the mortgage was registered and what it was registered for. You could also ask your client to sign a 3^rd party consent form and simply request a current mortgage statement from the bank. This will enable you to validate not only the balance but also the payments and current mortgage standing (whether or not the mortgage is up to date).

The property value was overstated – This one is tough because, in the absence of an automated property valuation, property value will be validated one of two ways 1) by appraisal 2) by the insurer. The issue here is that, if your bad deal gets to the point of appraisal or submission to the insurer, so much time will have been wasted and your client (if an appraisal is involved) will have spent up to $400.00. You can mitigate deals lost as a result of value by performing an automated property valuation to validate the property value.

The current mortgage is in arrears – This can be addressed by requesting a current mortgage statement from the current mortgage holder at the point of application as discussed in the solution for how to ensure that the mortgage value isn’t overstated.

The property is under construction – There are different ways that you can go about identifying if a property is under construction externally. Aerial and street view imagery will enable you to view the property being financed both from above and from the street as though you were standing in front of it.

Taking the steps to do extra due diligence is the best way to identify bad deals, maximizing your time spent on deals and making you more competitive.

For more information about tools to identify bad deals please visit www.purview.ca/brokers or call 1-855-787-8439.

The Difference between a Property Appraisal and an Automated Valuation

Often times, when brokers and agents think about automated valuation, some think, “Why do I need that? My deals are either insured and if they’re not we look to a property appraisal to validate value.” This is issue number 1 – an automated valuation is not an appraisal.

Automated valuations are a tool that lenders and insurers have started using in recent years. You see, when you submit a deal to a lender and your deal doesn’t close because of an issue concerning value, this creates significant expense to the lender. Some lenders even have policies that require you to have a certain percentage of your mortgage applications close.

An automated valuation is generated through an automated valuation model or AVM which is essentially a computer program or algorithm that crunches data and produces an estimated value for a property. Some of this data includes the property’s sales history and comparable sales in the neighbourhood. Many lenders and insurers will run an automated valuation on an application to ensure that the value is accurate and reflects what is stated on your application.

If it turns out that the AVM came in on value and all other attributes on the mortgage application are acceptable, the lender will issue an approval and proceed to submit the deal to the insurer or advise you to order an appraisal.

It is clear that lenders and insurers are using them, as well as why. Well mortgage brokers and agents have started using them too! Why? For many of the same reasons lenders use them. If at the point that you take an application you request an automated valuation of the property you could: 1) learn that the value is not there and save yourself an incredible amount of time and expense, 2) learn that the equity is as expected and proceed with your deal, or 3) learn that there is more equity and perhaps take advantage of upsell opportunities.

When it comes to the worst case scenario (scenario 1), you know that you don’t want to lose money on bad deals. How do you value your time and relationships with your clients and lenders? The cost to run an automated valuation is negligible when compared to the incredible amount of time that is wasted underwriting an application, submitting it to the lender, the lender underwriting it, etc. Maybe at this point the lender runs an automated valuation. If they don’t, this issue may be uncovered later in the process leading to even more expense.

Scenario #1 is common for a number or reasons - many consumers have no idea what their homes are worth:

·        Because they live in an area that has been a hot market and values are all over the place

·        They simply have no idea

·        They are in love with their house (and therefore believe the value to be much higher than it actually is)

Many brokers, lenders and insurers are also using automated valuations because this enables them to offer superior services to their customers. Where an appraisal will be required on a deal, running an automated valuation in advance can save your clients the expense of paying for an appraisal if they have incorrectly estimated the value of their home.

Almost every mortgage agent or broker knows what an appraisal is, but there continues to be some confusion over what an automated valuation is and the fact that they are available to mortgage agents and brokers. We hope that this blog has shed some light on each one as well as on their relationship to one another.

If you would like more information about automated property valuation please visit www.purview.ca/brokers or call 1-855-787-8439.

CAAMP Mortgage Journal – Digital Version

Have you checked the new online CAAMP Mortgage Journal? If you are still getting the paper version through the mail, you should take a peek at the digital version. This makes it more accessible when you are on the go and is consistent with the direction technology is moving in (putting more content online).

This month’s issue included the months and cities where this year’s CAAMP events will be taking place. We thought it might be helpful to share. Some dates have passed so we are posting what’s left - here is a rundown:

·        Regional Symposiums and Tradeshows:

o   Halifax, June 2, 2014

o   Vancouver, June 18, 2014

·        Mortgage Fraud Summit

o   Toronto, Fall 2014

·        Mortgage Forum 2014

o   Montreal, November 23, 2014

·        Annual General Meeting

o   Location TBA, October 2014

Here is April 2014’s issue http://www.nxtbook.com/naylor/CIMH/CIMH0114/index.php.

Getting a Land Titles Search – The Dollars and Cents

The question has often come up whether or not a mortgage broker should absorb the expense of a land titles search (also referred to as a property title search) to verify what’s on the title to a home that is being refinanced by a client.

First of all, a property or land title search is something that real estate lawyers sometimes perform in the course of a real estate closing. This was more common before the days of property title insurance.

When mortgage brokers or agents refer to a property or land titles search, they are often referring to a Parcel Register, which is a document that can be retrieved from the Province of Ontario Land Registry System (POLARIS). It indicates who the legal homeowners of a property are, when they bought the property, what they paid for it, any mortgages registered against the property, etc.

If you are a mortgage broker or agent then you know that this information is very important.

Among the most common reasons that deals implode, non-disclosure on the part of the borrower is one of the biggest. When your customer fails to disclose information to you that causes the deal to be cancelled later in the process, this can be costly to not only you, but all those involved.

Depending on how far in the process you are, the result can be your time wasted and your lender’s time wasted. If an insurer is involved, their time will have been wasted, the real estate lawyer’s time will have been wasted – the expense related to a deal that goes bad as a result of non-disclosure is significant.

What kind of non-disclosure are we talking about?

o   Other parties on title

o   Undisclosed mortgages on title

o   Mortgages that are greater than disclosed

o   Discrepancies with value – property was purchased very recently for much less than the value being stated, etc.

While learning this information early in the application process can save you expense, you don’t need to obtain a Parcel Register to verify this information.

You can access the same application that lenders use and verify not only who the homeowner is and the mortgages registered on title, you can also review an automated property value to further validate if the information your client has provided is accurate.

It pays big time to validate who the legal homeowner is and any mortgages registered. Doing extra due diligence leads to increased time savings, savings on expenses, closure rates and strengthened lender relationships.

If you are a mortgage broker or agent and would like more information about how you can validate who owns a property or what mortgages they have registered please visit www.purview.ca/lenders or call 1-855-787-8439.