Many of us cheered to hear that some of the large banks (who have not been wonderful to deal with regarding loan modifications, short sales and foreclosures or bank owned property sales) were getting sued by federal regulators for various types of malfeasance.
Most recently, the Federal Housing Finance Agency, which is in charge of Fannie Mae and Freddie Mac, filed a lawsuit against 17 major banks, including Bank of America, Citibank, Morgan Stanley, and several others (see a complete list here).
So how does this impact you, the Silicon Valley real estate home buyer or seller?
Imagine you’re on the board of any of these institutions. What do you do to protect your shareholders when something like this happens? Perhaps first of all, you make sure that whatever you’re accused of doing cannot happen in the future. You hand down new policies and get them implemented immediately. No exceptions.
Some of my buyers got caught in this situation, without warning, when their lender informed us that there will be a week-long delay in closing due to new procedures which are mandatory for every file, bar none. Our loan contingency was removed awhile ago (with the lender’s assurance that all was fine). We will still close escrow, but late. This never makes anyone happy.
Right now, if you are trying to buy a house and will be relying on lender financing, I suggest you find out if your bank or lender is involved in a big lawsuit and if so, how this may be impacting real estate purchase contract deadlines. Most lenders do need 17 days to get you fully approved if you go into the escrow pre-approved (with a real pre-approval, not a pre-qualification only) and 30 days to close the sale. But if your lending institution is in a messy legal battle, it could take longer, and it could be a surprise. In escrow, no one likes surprises, especially if they cause any sort of default.
This situation will probably benefit the credit unions and banks which did not misstep with the subprime loans. Got a great bank that performs fast and is free of legal battles? Please share it here!