Why do lenders such as Countrywide demand all offers include a mortgage preapproval. Even us cash buyers.

Asked by Steveandjoan, St.Peterrsburg, FL Sun Mar 23, 2008

Do they hope we'll fall for some sucker mortgage program or maybe they need to make sure our credit is good just in cash our certified bank check bounces. Odd position for those lenders in such a strong financial positions.

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26
Khazeem Asad…, , Dallas, TX
Sun Mar 23, 2008
BEST ANSWER
I have to disagree with the last person. They do this because thats the way they keep the doors closed on certain people. Today, credit is like the Biblical "mark of the beast". If you don't have it you can't buy or sell. And if you are not a "credit" user, big businesses hate you, and they don't want you to be able to do anything if they can help it. Because, they don't make their money on the sale, they make their money on the interest, and so does every other lender. Therefore, they look for reasons not to take your cash without being liable for a discrimination suit.

I have no intentions on being disrespectful, but I find it hard to believe that we, as so-called professionals, really believe some of the stuff that we say on this site, and others. They (the lenders) have no good reason for checking your credit or requiring mortgage pre-approvals if you are using cash. Because your credit has nothing to do with the cash sale of property and if your check does bounce, they are plenty of measures of getting their property back. And considering the size of their applications and contracts, i'll bet there are many safeguard provisions in there on their behalf.

This is simply a way to discriminate without saying no to the buyer. The same way they would allow you to "purchase" a $200k home with no money down or 5% down, but if you want a $80k loan they want 15% down. A $200k loan is worth nearly $250k profit over the loan duration and the $80k loan is worth only $92k. You tell me which one you think they want. Its just a way to discriminate. See it for what it is.

Khazeem Asadullah

email: info@serapisdebtservices.com
3 votes
Tman, , 30642
Mon Mar 24, 2008
Steveandjoan,

For starters, Countrywide has always been a little left of center ... and it's been known for many years that they've fondled a contract here and there ...

Also, they're under investigation for all of the consumers they cremated under their "Full Spectrum" programs -- they have been ruthless with consumers...

I've bought quite a few properties in the last 29 years .. and I've been asked one time for a mortgage pre-approval on a cash purchase, and that came from a small bank in Arkansas 10 years ago (consider the source ;^)) ... and they got what everyone else got in a cash purchase, ID and a verification of funds - period.

Countrywide does it in the hope they'll be able to switch your cash purchase into one of their branch investment programs that they failed with so miserably with 2 years ago.


Tell them: it's either buy, no buy - or goodbye ..!


:^)


PS: good post Khazeem.
4 votes
Khazeem Asad…, , Dallas, TX
Sun Mar 23, 2008
Everyone seems to be upset by what I said but it is simply the truth. There is no need for "pre-approval", "pre-qualification" or anything else when the customer is paying with cash.

QUESTION: Suppose his credit was horrible, he could not get approved for the mortgage, but he still had the cash? What then?
ANSWER: He would have been denied the sale although he could make the purchase.
WHY?: I'll let the real pros answer this one because what I said wasn't good enough.

But I do know this:
1. Credit is not cash. Having a credit score of 790 does not mean you have cash money on hand.
2. Verification and Release forms have been used in business transactions for as long as I can remember. I've made large purchases from India for my retail business and all funds were verified before hand and my credit was never an issue. In fact, it never even came up. It is no problem to have the funds verified and secured before the transaction is completed.

What you guys seem to have missed is the part about the guy paying with "cash". Cash means "I have the money to buy it without the NEED OF CREDIT or MORTGAGES". He did not say that they wanted "proof of funds", they wanted a "pre-approved mortgage". Thats a big difference, and if I am the only one here that can see the true reason why they do this then so be it.

And J.R., what "qualification" does one need when they have the cash in hand? And what "word" can be verified by a "pre-approved mortgage"? I say again, suppose his credit was horrible and he still had the cash? What then? He would have been denied the sale although he could make the purchase.

To Sylvia, first of all nothing I said about percentages was in "theory", what I said is what my clients experience because the homes I sell are always a lot cheaper. If you were not familiar with this REALITY you should not have commented on it and it is "relevant" as an EXAMPLE of how they attempt to deny certain transactions; (2) You've taken all of my words completely out of context, most likely because you don't know what I know or you don't understand; And (3) I'm the naive one because I believe that people are basically smart and intelligent. And to trust corporations and assume that their business practices are honorable, with good intent, is not smart nor intelligent. You cannot read what I said with an open mind and not see the truth in what I said. They did this for a reason and it had nothing to do with any of the reasons you guys have given.

But I know what the problem is here, you guys are stuck on "loans". You are stuck on credit. Steveandjoan did not mention a loan, he said that he had cash. Therefore, every counter-argument that mentions "loans", "means", "qualification", "approval", and any other term other than CASH is without merits.

Steveandjoan, the reason I gave below is the truth. Email me if you have any other questions.

Khazeem Asadullah

info@serapisdebtservices.com
4 votes
Rudy Bachraty, , Fort Collins, CO
Tue Apr 1, 2008
Yeah. The TU and TD are intended to reward those with good answers and to highlight content that may be inappropriate or not that valuable. This way, we can take the appropriate actions. We'd appreciate it if everybody played nice regarding this feature.

Thanking everyone in advance for your understanding.

Rudy
Social Media Guru at Trulia
Web Reference:  http://www.truliablog.com
3 votes
Pam Winterba…, Agent, Danville, VA
Mon Mar 24, 2008
Hey thought I would chime in to see if I get a TD! What is up that everyone can't play nicely in the sandbox?

Even if you are an all cash buyer the lender wants to make sure they are dealing with a creditworthy buyer. Go figure.
3 votes
Deborah Madey, Agent, Brick, NJ
Mon Mar 24, 2008
I have only once had a request for preapproval on an all cash deal. I asked "why" since the buyer had provided proof of funds. The sale went through.


The lender may be concerned that your cash could disappear before the closing date, and you would be unable to close. By running a credit ck and gaining a preapproval, there has been a verification process that indicates the transaction is likely to close. That's the explanation I have been given.

I guess it depends on if you are willing to risk losing the property. Whoever wants least is in control. If you are willing to risk killing the deal, stand your ground and let the bank risk losing the sale. I would like to be able to say that Countrywide (or any bank) would not risk losing a sale to a cash buyer, but.......... banks can be rigid, so you never know.

I believe that w/ proof of funds, the request for a preapproval is not needed. But........if you decline, and they say "no deal".....are you OK with that?
3 votes
Linda Ginex, Agent, Newport Beach, CA
Mon Mar 24, 2008
It makes sense for them to look at your debt to income ratio REGARDLESS of if your paying cash or not. If it were you, would'nt you be the least bit curious as to where this money is coming from? Banks will most likely want to see that it is sourced and seasoned. Like many stated below, banks are not in the position to get burned twice. How much time out of your day do you really think getting pre-approved will take? Typically, it will involve rounding up some documents and a fax machine. Getting pre-approved isn't going to hurt your credit like so many buyers believe. As long as you don't have your credit pulled 2 more times within the same month you should be just fine. Bottomline- If you really like the home, go for it.
3 votes
J R, , New York, NY
Mon Mar 24, 2008
Khazeem, I've seen such a requirement before in foreclosure listings. I'm sure they would be just as pleased to see a verification of funds as a preapproval letter. Perhaps it was just the agent's wording of what the bank rep said they wanted.
3 votes
Sylvia Barry,…, Agent, Marin, CA
Sun Mar 23, 2008
Hi Stevenandjoan:

I don't blame Countrywide for wanting somebody who they trust to do a mortgage pre-approval even with an all cash offer. I think they were badly damaged during the mortgage industry fall out. They are in enough trouble whether it's their own fault or somebody else's fault, it really does not matter. The bottom line is a lot of people are hurt through the whole process. They are now in a defensive/self preservation mode, I presume.

A few things - first, they use somebody they know who follow a certain set of procedures before they pre-approve a customer; second, they might not require as an extensive procedure for all cash offers; third, once the prospects are pre-approved, who know, they might even decide to go with Countrywide's program. Sometimes it’s more advantages to go with a loan for write offs of leaving money for investment, etc; all depends on the situation. From what i have seen, it does cost you some hassle but does not cost you anything otherwise. If you ended up using them, countrywide will mostly waive the appraisal fee also.

In this day and age, it’s good to be safe than sorry. Protects us all.

Sylvia
3 votes
Shannon Moore…, Agent, Port Charlotte, FL
Sun Mar 23, 2008
There are probably a few reasons for this:

1. Just to double check, they probably want to see with their own eyes your financial situation.

2. If you change your mind on using cash, they are hoping if you already have been approved by them that you would use them for your mortgage company.

3. We just wrote an all cash deal on a Countrywide foreclosure and all they wanted to see was the bank statement verifying the money in the bank. They didn't require you to be approved through them. Most often they do though.

Shannon Moore, Realtor®, 941-276-8142
Roxanne Moore, Realtor®, 941-626-3926
Re/Max Anchor Realty
North Port/Port Charlotte
http://www.TropicalFloridaProperty.com
http://www.TwoMoores.com
3 votes
Alma Kee, Agent, Tampa, FL
Fri Mar 28, 2008
Give proof of your funds via a copy of a bank statement with the account number crossed out. Or even better, agree to give a substantial extra earnest deposit (to the title company to be held in escrow) after you have vetted the house (after inspections). That should give some assurance that you will not walk away from the deal.
Web Reference:  http://www.soldontampa.com
2 votes
Deborah Madey, Agent, Brick, NJ
Mon Mar 24, 2008
Hi TD Bandit....You're quick and a night owl, too!
2 votes
Deborah Madey, Agent, Brick, NJ
Mon Mar 24, 2008
Hi Lisa,

I almost wanted to give you a TD, just so you didn't feel left out......Just Kiddding!

Yes, there are a few TD Bandits who troll the board. I suppose that it gives the bandit(s) a sense of power or authority. I found a lot of valid points on this thread. There are different perspectives.........Some argue it's no big deal, just cooperate and go for the preapproval, and others say, no way - walk. Neither answer is wrong. I took the approach, of "I agree it's not necessary, but make your decision based upon your willingness to accept the possibility that the lender may decline to review or accept your offer." Gosh.....everyone gets TD.....If you say yes, no, or weigh your decisions.

What do you think might get you saved from the scathing TD?

I would ponder that....but it's too late in the night.
2 votes
Lisa Hill, , Port Orange, FL
Mon Mar 24, 2008
What the heck is with all the thumbs down on these answers? I see a lot of legitimately truthful answers here, yet they've all been marked with thumbs down. Have children been let loose or is someone being petty? Even the original question has been marked with a thumbs down. Am I missing something? It looks like someone is just being immature and/or spiteful here.
2 votes
J R, , New York, NY
Mon Mar 24, 2008
And J.R., what "qualification" does one need when they have the cash in hand?
~~~~~~~~~~~~~~~~
Well, unless he's carrying it around in a big sack with him, how is the bank supposed to know he has it. Or again I ask you---are they just supposed to take his word for it? And if he has the cash, he can get preapproved even if his credit is bad. Unless you mean he has the cash illegally, not someplace where he can prove it. That's something different. Is that what you're saying, Kazeem?
2 votes
., , Grand Rapids, MI
Sun Mar 23, 2008
Steve and Joan,

I can't bite my tongue on this one. That last answer was miles off the mark.

Just bring them a letter from your bank with proof of funds! This will be sufficient. I know, I have done it many times.

The truth, as mis-stated in the last response, is not that nefarious. Realtors or banks who demand a preapproval through a big company like countrywide want to know that the deal will actually make it to close.

Let me give you an example. I personally know another Realtor who went to this policy: He sold a home 4 times to different people. Each of these people had pre-approvals through 2nd rate brokers and banks that weren't worth the paper they were written on. All 4 deals fell through because the lender could not perform.

By demanding that there is a pre-approval through Countrywide (One of the largest and most respected banks in home lending), he feels the sale will actually make it to the close. Even that is still not a guarantee, but it is a bank that everybody knows and expects higher standards in pre-qualification.
Web Reference:  http://www.OwnGR.com
2 votes
Lisa Hill, , Port Orange, FL
Sun Mar 23, 2008
Steve and Joan, Did you ask if they would be satisfied with proof of funds, instead of a mortgage pre-approval? If that is not satisfactory to them, you can probably get pre-approved pretty easily. The lenders have gone back to the old way of doing things. Thankfully, this time, we're not seeing 13% interest rates at the same time. And Countrywide is NOT in a strong financial position. They've had to borrow money, just to keep funding mortgages. ALL of the lenders that have been perceived to be in strong financial positions, are no longer as they were just a couple of years ago. The mortgage industry has changed, drastically!
2 votes
Sylvia Barry,…, Agent, Marin, CA
Sun Mar 23, 2008
Call me naive, but it worries me when we start to talk about “’Biblical 'Mark of the Beast’" when we are discussing a requirement by a company to get pre-approvals from their own company on properties they own.

I also worry about seeing statements declaring discrimination and claiming this is just a way to say no to a buyer with no proof. In this case, Countrywide just want to have solid proof that the person who is buying the home has the means to do so. I don’t think they will refuse to sell the property if Steve and Joan do not get a loan from Countrywide so Countrywide can’t make $$ on the loan.

And the theory about lower purchase vs. higher purchase price with certain percentage down because the lender can't make enough money? Totally irrelevant in this case because, yes, this is a cash purchase. And I don’t believe Countrywide requires anybody to use their loan.

There are a lot of scams out there for people who either have to sell due to hardship and/or potential foreclosures or for people who are looking to get a great deal. I will worry about offerings that are too good to be true and tread water very carefully.

Sylvia
2 votes
J R, , New York, NY
Sun Mar 23, 2008
Khazeem, like all sellers, they want to ensure the buyer is qualified. Do YOU think they should just take their word for it?
2 votes
J R, , New York, NY
Sun Mar 23, 2008
SteveandJoan, do you expect them to just take your word for it?
2 votes
Phil Fowler, Agent, Brandon, FL
Sun Mar 23, 2008
Hello Steve and Joan,

It's very simple. They want proof of funds, especially if you are making an offer on a short sale or foreclosure. They have that right, after all, it is their property.
2 votes
Hi, , Virginia
Mon Mar 24, 2008
leave your number with them, if they want the deal they will call you.
Cash is King
CountryWide knows it, they just don't have any
by the way they are getting sold to Bank of America, because of all the bad mortgages, for 4 billion dollars
think about it
if median house = 200K
5 houses = 1 million
50 houses = 10 million
500 houses = 100 million
5000 houses = 1 billion

multiply that by 4 = price to buy CountryWide

yes the biggest mortgage company in america is worth about 20,000 median home value houses

for a comparison, i remember reading somewhere that currently there are 80,000 houses/condos for sale in Miami

you may want to wait, that deal may look a lot better in a year or two.
1 vote
Graham M. Lo…, Agent, Franklin, TN
Mon Mar 24, 2008
Steve&Joan- I personally buy property with cash whenever possible, and I have NEVER had anyone ask me for a loan pre-approval. The only item I supply beyond normal contractual items is a fund verification letter from my bank or brokerage showing that I have sufficient funds to carry through with the purchase. I would think in this current credit challenged economic climate, that cash would carry more weight when it comes to purchasing. I understand the argument that taking out a loan is almost the same since it's cash at the end, but wouldn't you as a seller of Real Estate, not want to worry about Buyer financing falling through at the last minute or the appraisel not coming in as needed to support the loan amount? If it did, that could be cash coming out of your pocket. I know I would. Just my 2 cents worth. Good Luck!
1 vote
Khazeem Asad…, , Dallas, TX
Mon Mar 24, 2008
J.R. That is what I am saying. But! There is still no need to get "pre-approved" for a mortgage when one is not even needed. To Mr. Freeman, there is no need to bite your tongue, but you should hold it when appropriate. I'm sorry, let me clarify one thing...... I'm no Realtor, agent, broker, etc. I do sell homes and I have a full services Real Estate company. My background is really in Law and Retail. I'm a professional Federal Litigator and civil/criminal Writ Writer, and I've ran my own retail businesses for the last decade.

And the issue here is not verification of funds. They have the right to do this and they should. The issue here is why does one need to be "pre-approved" for a mortgage to buy a property with cash. And I think as of now, J.R. is the only one that is understanding what I said. Mr. Freemen, your examples are way off base here. And If you believe that Countrywide is a respectable business, then that says a lot about your understanding of this business and MBS's and how they've destroyed the U.S. economy. Especially since Countrywide is under investigation as we debate......?????? But, that is another topic, for another forum or post. And I don't mean to turn this into a debate, but I am a cash buyer so I know how hard it can be at times to do things without the use of credit, and I understand that credit is their way of controlling us. Hell, today you can't get a job without credit...... go figure. You guys can believe what you want, but in the end the truth will still be the truth.

Khazeem Asadullah

info@serapisdebtservices.com
1 vote
Barry Lynn M…, , Trussville, AL
Wed Sep 3, 2008
What better way for them to know if you are a serious buyer than to look at your credit - Just because you have cash doesn't exclude you because no one else can come back and claim special treatment- not that it has been a problem in the past they are just cutting out another law suit
0 votes
Bill Eckler, Agent, Venice, FL
Wed Sep 3, 2008
Steve,

The purpose of requiring requesting a preapproval is to insure the funds are there, allowing the transaction to move forward without unnecessary delays.
0 votes
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