According to nearly 1,400 real estate agents who participated in an April survey conducted by Campbell Communications, about 12 percent of closings have to be rescheduled past the original closing date, and another three to four percent never make it to closing. The number one cause of the majority of these delays and lost deals, say about 73 percent of the agents surveyed, is due to "underwriting delays."

While other causes are also at fault for delaying closings, including "appraisal delays" (number two culprit) and "HUD-1s not available one day in advance of closing" (number four), agents can certainly exert more control over the number three culprit - "Homebuyer denied mortgage with initial lender."

When asked about issues that cause home purchase transactions to fail, the number one reason cited by 62 percent of agent respondents was "Homebuyer denied mortgage.”

Underwriting delays, blame the agents, are usually caused by mortgage brokers who issue next-to-worthless preapproval letters, often on their own letterheads, without credit or employment verification. In fact, it is so easy to get a preapproval letter that many buyers simply download them from the Internet.

Other reasons cited point back to the same problem - poor buyer preparation by lenders and the buyer's agent, and ultimately, the listing agent. Thirty percent of agent respondents said “Seller unwilling to extend closing for mortgage delays” is also a significant reason why home purchase transactions fail to close.

Says Tom Popik, principal of Geosegment Systems and designer of the survey, "There has been anecdotal information about delayed or lost transactions due to mortgage issues, but we believe this is the first time the issue has been quantified."

Agents blame easy-to-obtain preapproval by mortgage brokers for the problem. About 10 percent of all preapproval letters are invalid, with 46 percent of respondents blaming mortgage brokers. In-house mortgage companies were only to blame three percent of the time. “National lender with local representative” and “Local lender” were identified as causing preapproval problems relatively infrequently, both being chosen by only 11 percent of respondents.

“One interesting aspect to this survey, and a distinguishing feature of all of our surveys, is the lender-specific responses we get,” said John Campbell, president of Campbell Communications, a marketing and research firm based in Washington, which conducts surveys in several industries.

Suggests Popik, "Many buyers are getting a mortgage preapproval before reaching the Realtor, and this limits the ability of the Realtor to recommend a reliable mortgage provider.”

One side effect of not getting preapproved by a lender is that if the buyer isn't able to qualify for the loan, the buyer may be denied, or put into a different loan product that carries higher closing costs. Many buyers are surprised to find themselves at the closing table with higher fees to pay.

With Realtors providing only about 40 percent of mortgage leads, mortgage brokers are increasingly turning directly to the public to get business, suggests Popik. While he says that figure is unconfirmed, it does imply that with Realtors bringing in fewer mortgage leads, mortgage brokers may feel they have no choice but to issue such preapprovals subject to credit and income verification to retain the lead.

“We asked agents which mortgage providers they recommend most often,” Campbell explains, "We found that local mortgage brokers were recommended only 34 percent of the time, while some estimates of overall mortgage broker share, including refinances, are over 60 percent. In contrast, large direct lenders such as Countrywide and Wells Fargo were well represented in real estate agent recommendations, consistent with the strong advantage that direct lenders have over mortgage brokers in the home purchase market.”

Editor's note: Wells Fargo once told Realty Times that real estate agents make up about 70 percent of its mortgage origination leads.

The problem is serious enough that many listing agents told the surveyors that they are now insisting that buyers are preapproved by lenders known to them before they counsel sellers to accept such a buyer's offer. Others may refuse to consider working with a buyer or presenting a buyer's offer if the buyer is working with a certain mortgage broker known to cause closing problems.

Even if a troubled mortgage loan makes it to the closing table, other problems could still arise - unexpected closing costs. In about 14 percent of all home purchase mortgage transactions, closing costs are significantly higher ($100 or more) than the homebuyer expected, according to survey respondents, and unexpected costs can run in the hundreds of dollars.

Popik explains what can happen sometimes. "The mortgage broker thinks there is a particular lender who will approve the loan, and the lender doesn't, so then the broker has to find another lender and get it underwritten, and now they go to a subprime lender and the interest rate and closing costs are higher. The buyer turns around and cries 'Predatory lender!', although the extra closing costs may be legitimate. But, anyone can see that if the consumer isn't adequately informed and prepared to buy, and the agent doesn't know who the lender is until closing, that the potential for these kinds of closing problems are much higher."

Buyer's agents owe it to their customer/clients to make sure they are ready and able to buy a home, and listing agents need to protect their sellers from buyers who may not be able to close.

To that end, many are already not accepting buyer clients without a preapproval letter from a lender in which the agent can verify that credit and income were verified with a credit check and automated underwriter certification that the loan has been preapproved.

Says Popik, "It's the responsibility of the Realtors to look out for the consumer. Most broker/owners would want to educate their agents about what a preapproval letter does or does not mean in today’s lending environment. Homebuyers need a solid credible preapproval letter to have the most leverage when presenting their offer to listing agents and sellers.”

Real estate agents can also encourage their lobbying groups to ask HUD to include a rule in its RESPA reforms that asks that preapprovals be a term that is standardized to include a credit check performed, income verification, and automated underwriter certification.

The results of the survey “How Real Estate Agents View Relationships with Lenders” will be available for purchase at the end of this month. Contact John Campbell at (202) 363-2069 or john@campbellsurveys.com.