The credit crisis of the past 12+ months caused many lenders to shut their doors. And whereas the shutdown started with smaller players, it quickly escalated to include major lenders in the market (American Home Loans being the first to fall). So what impact do these closures have on the borrower, and what can a broker do to protect his/her client from these closures?

The good news is that this “protection” is only required while the loan is being processed. The reason is that the financial stability of the lender only impacts the capability of that lender to provide funds at settlement; for example, can the lender provide the $500,000 at closing you need to purchase the home. Once the loan closes, that mortgage note, secured by a deed of trust, becomes a marketable asset. And typically within 30 days of the loan closing, the lender has sold this marketable asset to a third party; either to private investors, or as part of a bundle of other mortgage notes which collectively make up a Real Estate Investment Trust (REIT).

These REITs are generally sold on Wall Street, available for purchase by the average consumer. Unless the lender is a “portfolio” lender (ie World Savings Bank), the note will typically be sold, perhaps several time during the life of the note (as most homeowners have experienced when directed to send their mortgage payment to a new lender/servicing company).

So what this all means is that the lender providing the financing only has “their hands on the file” for a short period of time, so a borrower does not need to be concerned with the long-term financial stability of a lender (and the state banking agency in charge of licensing and regulating the lender will evaluate the long-term stability). Further, no matter what lender is in possession of the mortgage note after closing, the terms and conditions are binding for the life of the note. Whereas in the 1930s banks were able to “call” the loan (ie suddenly give you 30 days to payoff your loan or the bank would repossess your house), this is no longer the case, and federal law now strongly protects the borrower in this area.

However, having said all that, the borrower is not without risk while the loan is being processed. Until the loan closes, a lender does have the right to change its lending policies, and can decide to deny the loan simply do to changing market conditions. While over the last several decades this has been extremely uncommon, it was rampant in Feb/March of 2007, and August of 2007. Borrowers that were 2-3 weeks into closing saw their loans cancelled, and had to go with a new lender.

So how can a broker protect is/her borrower while the loan is being processed? It’s impossible to predict the lenders who may adjust their policies so suddenly, for it happens to not only small lenders, but major players like Washington Mutual and Bear Sterns. But most brokers work with numerous lenders, so security for the borrower comes in the form of system redundancy-if one part fails, there is an immediate backup. So just by working with a broker, rather than the retail end of a single lender, the borrower is protected.

Further, the broker can strengthen this "system redundancy" by making sure he/she has a diversified mix of lenders that can be made available to the borrower; for example, for a particular scenario profile, a local lender (usually higher rates, but easier guidelines), a large, national lender (lower rates, but tighter guidelines), and a third lender with hybrid characteristics of the former two. A broker should have such a lender mix for different scenario profiles, ie excellent/poor credit for the borrower, low down payment/high down payment, etc. And lastly, the broker should be sure he/she is working with at least one lender that did not offer the OptionARM (ie neg am) loans in the past, as there appears to be a correlation between lenders that offered these products in the past and lenders that are currently experiencing financial difficulty.

Needless to say, you need to work with the best real estate professionals you can find in your area. In most cases, it takes a team effort to put a home-sale transaction together and see it through to fruition.

HOUSE HUNTING TIP: Successful negotiations usually require give and take by both parties. It has been said that the sign of a successful negotiation is one where both parties walk away feeling they have won. It has also been said that the key to a mutually acceptable agreement is that both sides feel a little wounded.

A must in this market is a commitment to exhaust all possible ways to put and keep a deal together before calling it quits. Recently, it looked like a purchase contract was about to fall apart. The buyers had originally offered a price that seemed insultingly low to the seller.

The seller set his personal feelings about the price aside and countered the buyers' offer at a price he felt was reasonable. The buyers accepted. As it turned out, the price was one that was halfway between the seller's list price and the price the buyers offered. Splitting the difference is often a winning strategy.

The house in question had been well inspected before the buyers entered into contract to buy it. However, when it came time for the buyers to remove their inspection contingency, they requested a large monetary credit from the seller. Not only did the buyers discover a few health and safety issues that weren't covered in the previous reports, they also developed a serious case of cold feet.

These buyers were able to find jumbo financing at a good interest rate. However, to obtain this financing, they had to make a larger cash down payment than anticipated. This left them feeling cash-strapped.

The seller refused to credit the buyers the amount of money they requested. However, he was willing to credit some money. Or, he would carry a second mortgage for the buyers so that they didn't have to put so much cash down.

Flexibility gives the parties to a negotiation a way to explore options for making a deal or for keeping one moving forward. In order for the buyers in this case to feel comfortable closing the sale, they needed a concession from the seller in order to ease their financial strain. By offering to carry a second mortgage against the property, the seller found a way to free up more cash for the buyer.

As it turned out, the buyers elected not to take the seller-financing offer and accepted a monetary credit at closing.

Credits at closing require approval by the buyers' lender. Most lenders have limits on how much money a seller can credit a buyer at closing. It is often equal to 3 percent of the purchase price, but cannot exceed the actual amount of the buyers' nonrecurring closing costs. These are costs paid for the buyers on a one-time-only basis at closing, such as title insurance or a transfer tax.

A seller carry-back would also need lender approval. The lender in first position would want to ensure that the terms of the second mortgage were reasonable and would not be likely to put the buyers in financial jeopardy.

THE CLOSING: Sellers should carefully consider whether it makes good financial sense to carry financing for a buyer who is making a relatively small cash down payment.

Dian Hymer is author of "House Hunting, The Take-Along Workbook for Home Buyers" and "Starting Out, The Complete Home Buyer's Guide," Chronicle Books.

Why are there building codes and building permits? Quite simply, building codes -- which include codes on structural, electrical, plumbing, mechanical and other components of your home -- are in place to help ensure your safety. The codes set a number of uniform standards for the construction industry to follow, and all are intended to help builders, homeowners, and the community have safe and secure buildings.

Building permits are essentially your community's legal permission to proceed with the project, as well as your agreement to do the work in compliance with current codes.

I'm not a contractor. Why do I have to get a permit for my own home? Once again, it's to ensure your safety. Even the most well-meaning homeowner can make mistakes when working on a home-improvement project, and those mistakes can put you and your family at risk. By having a qualified, independent person inspect the work, those mistakes can be corrected before a dangerous situation can develop.

If I get a permit, am I still allowed to do the work myself? Absolutely! You can perform any construction work on a home that you own, providing you are not building or remodeling the home with the specific intention of selling it in the next six months. Having a building permit simply ensures that any work done on the house, by you or others, meets the current building codes.

When do I need a permit? The only way to get an exact answer to this is to check with your local building department. However, in general you will need a permit if you expand or structurally alter your home or any of its wiring, plumbing, or mechanical systems.

When don't I need a permit? Many redecorating and repair jobs do not require a building permit. This includes replacing cabinets; replacing floor covering; painting and decorating; replacing roofing; replacing windows if you are not altering the size of the openings; replacing siding if you are not also making structural alterations; replacing plumbing fixtures if you are not altering the plumbing system; and replacing light fixtures and appliances if you are not altering or replacing wiring.

Where do I get a building permit? Permits are issued through your local building department, which you can find in the phone book. It may also be listed as "Community Development."

Is there a fee for obtaining a permit? Yes. The fees vary, and are based on the size of the project, the number of inspections that will be required, the impact on the overall community, and a variety of other factors.

What will I need in order to get the permit? That depends on the nature of the permit. For example, a permit to install a wood stove might simply require the name and model number of the stove, while a permit for a room addition will require a complete set of plans and other information. Your best bet is to simply call or stop in at your local building department, explain your project, and go from there.

What happens if I'm doing some work without a permit, and I get caught? The first thing that will happen is that the building department will request that you temporarily stop work on the project until you have obtained the necessary permits. Once you have the permits, an inspector will inspect the project and see what you've done up to that point. If the work has been done correctly, the inspector will allow the project to proceed. If the inspector finds errors with the work, those errors will need to be repaired and re-inspected.

Are there other reasons to get a permit? Other than the fact that you are legally required to have one in many instances, there are several other very good reasons to get a building permit. First and foremost, the permit process ensures your safety and the safety of your neighbors and your community. You also have a legal responsibility to disclose work that's been done on your house to potential buyers, and today's buyers are very savvy about building permits -- if you didn't obtain the proper permits along the way, you may at minimum lose your sale, and could even face very costly liability issues. Your homeowners insurance company also requires that work be done with a permit, and if your home is damaged and it's discovered that work has been done without the necessary permits, the insurance company may deny coverage for the loss.

Remodeling and repair questions? E-mail Paul at paul2887@ykwc.net.