Consumer complaint received 2022-10-01
Product: Mortgage — Conventional home mortgage
Issue: Applying for a mortgage or refinancing an existing mortgage — 
Company: PENTAGON FEDERAL CREDIT UNION (VA)

My fiance and I applied for a mortgage pre-approval with PenFed on XX/XX/XXXX and made an offer on a condo shortly thereafter. PenFeds Loan Officer responded well, got all our information, repeatedly lauded our creditworthiness, and expressed some about our current assets. At no point did they express concerns about the condo building itself. We procured a home inspection and received the condo disclosures required by Virginia state law. I reviewed these thoroughly. Though not stellar, it was clear that the association was doing more than the minimum upkeep and was funding its reserves to XXXX XXXX standards, so we decided to press on with the sale. We were set to close on XX/XX/XXXX. 

On XX/XX/XXXX, I called the Loan Processor that PenFed had assigned to us a couple days earlier. We discussed what steps would be needed to progress through underwriting, what documents would be needed, etc. Among the requirements, he mentioned that they needed the condo associations financials. He said they would request them from the association directly, but when I told him I had sat least some of what they needed, he said I should go ahead and upload them. PenFeds applicant portal provides specific places for these documents to be uploaded by the applicant, so I uploaded them in the designated space within an hour of that phone call. In all my subsequent conversations with our Loan Processor and/or Loan Officer, no one from PenFed ever mentioned any concerns about the association or the documents I uploaded until XX/XX/XXXX. 

On XX/XX/XXXX, eight days before closing, our Loan Processor called me to warn that it appeared unlikely that PenFed would approve the loan because the condo association was not contributing the required 10 % of its budget to its reserve fund. This was false, and I said as much on the call and in a follow up email. His Supervisor called me later that day to reiterate this concern. I reiterated that it wasnt true, the Supervisor referred to notes left by PenFeds condo review team as jargon that he didnt understand well enough to explain but said that theyd call back the next day with a final answer. The next day the Supervisor called back to offer clarity on the problem : he now agreed that the association was meeting the 10 % requirement. The concern now was that the association had sent its most recent reserve study, which PenFed apparently doesnt request ( but which I had provide on XX/XX/XXXX ). The reserve study concludes that, to keep the reserve fund balance above a recommended minimum amount and fund the recommended improvements XXXX recommends the community increase annual dues to at least {$280000.00} by Year 8 of the study period ( 2029 ). The study does not describe any deferred maintenance at all, makes no suggestion that any repair is overdue, but simply states that, Current reserves do not allow for funding of all the recommended projects on the timelines shown. Deferral of some projects may be necessary if considerable increases in funding are not implemented. For context, current reserve contributions are at about 11 % of the budget, {$73000.00} in 2022 ; the study states that it was at {$68000.00} during the engineers visit. 

I noted that the study is not assessing or making a conclusion about only what is needed to fund necessary maintenance and repairs ( i.e. those affecting habitability, safety, structural integrity, per XXXX XXXX ), and that the majority of that significant increase is to cover the cost of the engineers recommended but discretionary work, to be done on the engineers recommended timeline ( which is provided as Appendix XXXX of the report ). Examples of these recommendations include : the purchase of new pool furniture, upgrades to unit kitchens, superfluous repainting, and similar cosmetic or non-essential items. The Supervisor reiterated only that they cant unsee it, despite the fact that they do not usually request it, and that it reflected mismanagement. He said he would call back with a final answer later that day.

The supervisors Manager called me back about 40 minutes later to say that they were denying the loan because the association was unwarrantable under XXXX XXXX standards. I suppose its not her job to be kind, but for what its worth, she was rude, abrupt, condescending, and dismissive for the entirety of the 41 minute phone call that followed. I repeatedly asked for an explanation. I dont expect PenFed to give a mortgage for a unit that XXXX XXXX wont buy, but there is no indication that this association does not meet XXXX XXXX standards. However, she was not able to provide any coherent explanation. 

From what I was able to get from her, the Association, in its questionnaire, referred the lender to the reserve study in response to the questionnaires inquiry about its plan for its deferred maintenance components/items to be repairs or replaced. PenFed has apparently interpreted this answer to mean that everything which the study recommends is deferred maintenance or a necessary repair, replacement of the pool furniture included. The Manager repeatedly told me that this association has deferred maintenance, despite no evidence of that in the reserve study or elsewhere, and failed to tell me why she believed that when I asked her to tell me where she was getting that information. Instead, she kept referring to this questionnaire answer and quoting a line from the reserve study : Current reserves do not allow for funding of all the recommended projects on the timelines shown. 

The conflation of recommended projects with deferred maintenance/items to be repaired or replaced appears to be at the heart of this dispute. No rational reading of the questionnaire and the study can support the suggestion that the association intended to label all of the engineering firms recommended projects as deferred maintenance under this definition. The study itself does not say that everything it recommends is necessary or that any maintenance has been deferred. Again, the majority of the recommended work is discretionary, cosmetic, or aimed at improving the building rather than maintaining it. It is clear that PenFeds review of these documents was cursory at best, and my conversations with the Manager leaves me fairly convinced that no one ever read past the fist 6 pages of the 47 page reserve study. Ultimately, the Manager made it very clear that, regardless of what was true or false. She then hung up on me.

To me, and to any reasonable reader, it seems clear that Association referred PenFed to this study because this study does answer the question : it describes needed maintenance ( e.g. the water supplier rising pipes will soon be due for replacement ) and it describes the Associations plan to pay for those things ( e.g. theyre are preemptively replacing two per year, two were done as of the study date and 18 remained ). The fact that the study also recommends a great deal of superfluous work does not seem to be relevant. The obviousness of this, and the unreasonableness of PenFeds review, is confirmed by the fact that three other mortgage banks read the same documents and issued mortgages in this property within 60 days of PenFeds decision, including the bank that issues a mortgage on this exact unit to the buyers that bought it after PendFed pulled the rug out from under us at the last minute ( see XXXX XXXX property records, instrument numbers XXXX, XXXX, XXXX ). PenFeds representatives have claimed that they called XXXX XXXX, after they had already denied out loan, to confirm its decision and they were told that this loan was indeed unwarrantable. These property records are proof to the contrary ; I do not believe that call occurred, but if it did then they have clearly misrepresented it to me. 

During my several conversations with various representatives of PenFed after this, it became abundantly clear that the underwriting and loan processing teams that was reviewing the Condominium Associations documents were simply unfamiliar with these types of documents or with the terms used within them. This team, up to and including PenFeds underwriting manager, demonstrably lacked the knowledge and training necessary to read and understand these documents or the XXXX XXXX requirements that they were ostensibly implementing. It was evident in some cases that that they simply had not read the documents that they were relying on at all, but rather had skimmed them at best. Perhaps most egregiously, we learned after PenFed had already decided to deny this loan that it had evaluated these documents according XXXX XXXX requirements which have been suspended since XX/XX/XXXX. PenFeds representative expressed surprise to hear this, and requested time to verify that the current requirements, which I emailed to them, were accurate. 

We applied to PenFed with the understanding that it was an experienced and competent mortgage lender. Instead, we have found that they were operating under out-of-date XXXX XXXX  requirements and without properly trained loan processors. PenFed has made no justification for this decision or for the timing of this decision, and has repeatedly conceded that they could have made it much earlier than they did. I provided the reserve study, which appears to be at the heart of this dispute, to Pen Fed two weeks before they looked at it, along with other condo financial documents. They ignored it until they got the questionnaire, and then apparently rushed a review of the entire package in less than a day. Had they performed their review and flagged this concern on XX/XX/XXXX, we almost certainly could have arranged alternative financing. At the very least, notifying us before we had incurred significant expenses, given our landlord notice that we wouldnt be renewing our lease, etc., would have allowed us to mitigate the fallout. I have repeatedly been asked for an explanation for this delay and repeatedly been rebuffed. 

PenFeds most recent letter to me continues to assert The 2022 Reserve Study and 2022 Budget indicated that the Condo Project does not meet XXXX XXXX requirement for it to maintain a minimum annual budgeted replacement reserve allocation of 10 %. This is demonstrably untrue, and they had admitted is untrue ; why they are reverting to this position is baffling to me. This letter further attempts to rewrite history, asserting for the first time after dozens of calls and emails that PenFed did review the documents I uploaded only a week after I uploaded them ( although, if this is true, they flagged no concerns to me at that time ). PenFeds had a duty to perform an honest, good faith review of these documents. Instead, it waited until the last minute to perform a negligent review, and it now rests its decision on information that both PenFed and any reasonable person would understand to be false.