The Long Pull

By now we had cleared the inspection and appraisal contingencies.  The ball was squarely in the seller's court.  They were having a hard time getting the HOA documents, so we extended that contingency date.

Redfin initially sent me the wrong documents - I was a little confused when I started reading through them and kept running across guidelines on using the marina.  Finally, we got the real documents.  They were fairly simple - the HOA started back in 1980, so all the documents were typed up the old-fashioned way.  It all looked pretty typical and straight-forward... association meetings, several elected offices (President, Vice-President, Secretary, and Treasurer), rules that seemed reasonable and not onerous.

The one thing that made me nervous was a sheet filled out by the HOA manager, which listed the owner-occupancy ratio as 50%.  Since I was buying one of the rented units, that would push the ratio up to 60%, but that was still below the 70% that I frequently heard mentioned.  This seemed likely to sink the deal, and once again I bemoaned that we were doing the HOA docs at the end of the contingencies instead of at the beginning.

There are an incredible number of people involved in a real estate transaction.  In addition to the buyer, seller, buyer's agent, seller's agent, and various hired professionals, there's also an escrow officer, and, on the loan side, a loan officer, loan analyst, underwriter, and funder.  Almost all of my interactions up to this point had been with the loan officer, but as we came closer to the finish line, I started getting a few inquiries from the loan analyst, who prepares documents for the underwriter.  A few of the things that she wanted included:
* An explanation for why the company name on my paycheck didn't match the company name on my W-2.  (We were acquired by another company, and are handled by their payroll, and operate as a wholly-owned subsidiary.)
* An explanation for why a credit bureau was reporting that I still lived at an old address.  (My answer: I have no idea, I haven't lived there since 2003, it must be an error.)
That was pretty much it.  I'm not sure how far they dug into these things, it felt like they just wanted a satisfying answer from me that they could document.

A day or so later, I got a conditional loan approval.  That meant that Provident would fund the loan once certain conditions were met.  Some of those I had no qualms about, like verifying my employment and checking my rent history.  I was pleasantly surprised to see that the occupancy ratio wasn't a dealbreaker.  Instead, it was the HOA budget.

Ever since Fannie Mae and Freddie Mac entered federal receivership, the government has been tightening their lending guidelines.  This didn't happen all at once; rather, it's an ongoing, rolling process; another loan officer told me later that it felt like the guidelines were changing every few weeks.  Right now, virtually every loan made in the country is backed by a federally-affiliated program - FHA, VHA, Fannie Mae or Freddie Mac; private money is still extremely scarce, and can have restrictions as tight or tighter than the federal ones.

I've complained about this on the blog before, but I think that Fannie and Freddie have seriously miscalculated in their approach to condo loans.  I suspect that what happened is, they looked at the subprime mortgage meltdown, saw that a lot of those units were condos, and decided to make condo loans harder to get.  The thing is, though, that condos by themselves aren't any riskier than single-family houses.  The reasons why there were so many condos involved were because there were so many flippers operating in places like Miama, Las Vegas, and Phoenix; condo construction boomed, people were treating them as investments instead of as places to live, and as a result they became the biggest part of the bubble.  In places with high costs of living and extremely limited space, like, say, the San Francisco Bay Area, condos are a very prudent and conservative housing investment.  Fannie and Freddie's one-size-fits-all approach ignores that reality.

Back to my loan: in their current incarnation, the guidelines actually have a wonderful new policy: owner-occupancy ratios are only a factor for investment properties.  They are not a consideration if the buyer plans to live in their unit, as I do.  This is great, since it allows associations that have slipped towards renters to gradually move back towards owners; under the previous system, once the ratio ever slipped below a magic number, it became impossible to recover because new owners could not get loans.  So, I'm a big fan of that change, and look forward to seeing its result.

In its place, though, is a new policy - the HOA's budget must set aside at least 10% of the budget for a reserve fund.  Now, in practice, I think that's a great idea.  I'm a fan of well-funded HOAs and a foe of special assessments.  Once again, though, this one-size-fits-all policy couldn't capture the nuance of each association.  In my case, the amount set aside for reserves was rather low - just about 3%.  However, the reserves themselves were quite well funded; they had enough cash in the bank to cover all scheduled capital improvements for the next few years, with some more left over.  I could certainly see why the association would want to keep fees low... I'm paranoid, so I will always sock more away, but there really didn't seem to be a need for it.

That said, a rule's a rule, and this is one that couldn't be waived.  That set things into a minor panic.  Everything else had been taken care of, all other contingencies cleared, but this could send the deal down in flames.  Regina urged me to start checking around with some other lenders to see if someone else could make the loan.  In the meantime, she and the listing agent kept working with the HOA to see if there was any way around the budget.

Regina had worked before with a lender from Wells Fargo who I connected with.  I was initially quite skeptical - I didn't feel at all like switching lenders this late in the game, and especially not to someone from a big bank.  I was pleasantly surprised when he quoted me a rate and fees competitive with what I was getting from Provident, one that came in below that listed on the Wells Fargo web site.  I suppose that loan officers have some leeway in making offers, and can trade in some of their commission in exchange for landing a deal.  There was a catch, though - they didn't care about the budget, but would still require a full HOA review, which could take a while, and might come back negative.  I could fast-track the application by putting down 30%, which sets it into a different set of standards and has a speedier approval process.

That was a possibility for me; I could have bumped up my down payment, but obviously that wasn't my first choice.  I also spoke with a mortgage broker who the listing agent knew.  (The listing agent was with Prudential Realty, and the broker with Prudential Finance, so it seems likely that there was some back-scratching going on.)  She took all my financial docs - tax returns, pay stubs, etc. - but we never got around to actually meeting due to some late nights I had to work.

Regina and the listing agent were having a hard time tracking down the HOA.  The contact person's cell phone mailbox was full, and the only way they could get ahold of him was by camping out in front of his office until he showed up.  When they did get him, he was helpful.  The budget we had received was the official one drawn up in February at the start of the fiscal year; since then, the budget had been revised, but not yet reprinted.  He produced the updated one, faxed it off to Regina.  The loan analyst checked on my verification of employment and rent history and submitted everything back to the underwriter.  He came back and said that the budget would need to be signed.

Regina mildly flipped out, pointing out (accurately) that this requirement hadn't been expressed before, that it always took days to get updates from the HOA, and that we were running up against the extended contingency date for loan approval, and that our closing date was in jeopardy.  Then, we all went back to work.  We got the signed budget, put it back in, and waited for the answer.