kathleenfinnegan.com
What's different about mortgage loans today than the mortgage loan of 2007 or 2008? Why do you keep reading that they are hard to close, that so many fewer people are being approved, or that borrowers have a million and one hoops to jump through to receive the prize at the end of the process-a process that has become increasingly complex, so complex that the larger picture can get lost in the details?
One of the biggest reasons is that the process is now consumed by disclosure. As a lender there are many more things we are required to disclose than we had to disclose five or six years ago. Like what you may ask?
Fees for instance. When we disclose the fees for a loan on a particular property those fees with a few minor exceptions can't change. So back in the pre Great Recession days there were horror stories of people showing up to closing only to find out that their interest rate, discount points, and total money to be brought to the closing table were different than what they had been told originally-by thousands of dollars. It is pretty tough to walk away from purchasing a home at the last minute when everyone is expecting to close and the buyer is expecting to receive the keys to their new home. A large part of financial reform had to do with fee disclosure and lenders showing the consumer one set of costs and then coming up with another set of costs at the worst possible time.
Lenders also must disclose any affiliated business relationships that they may have ownership in-such as with title companies or real estate agencies to prospective clients. This requirement sheds sunlight on good ole boys networks and the mutual back scratching that went on between lenders, real estate brokerages, title companies and appraisers back in the bad old days. In fact appraisers have been taken so far out of the mix that it is illegal for lenders to even speak with an appraiser regarding the value of a property.
For the most part, this results in a positive outcome for the consumer as it eliminates kickbacks and pressure for the consumer to use one company over another. The one area in which perhaps more work needs to be done is with the no communication between lenders and appraisers. I have been in situations in which multiple appraisals, re-inspections, or low appraisals that may have been in error and as a result have cost the consumer money and with no recourse. I think the Feds could do some tweaking in that area. But, hey, nothing is perfect and the current system eliminates collusion at least.
So there is a burden on lenders to disclose, disclose, disclose to potential borrowers. But there is also a burden on consumers to disclose. I don't know how many of you remember the loan that was called Stated Income/Stated Asset or more lovingly referred to in the real estate community as The Liar Loan because there was no disclosure of assets or income required. People could just state whatever income they made or how much they had in the way of assets. You can understand why this may have encouraged folks to be, well let's say, creative in those areas.
To say those rather important details are scrutinized with a fine tooth microscope probably wouldn't be an understatement. Not only are bank accounts examined for unsupported deposits (if you have ten thousand dollars buried in the back yard that you are planning on using for down payment you need to get it in the bank three months prior to when you want to use it as lending isn't going to allow random cash that shows up from somewhere to be used.) This is not only a result of the Dodd- Frank Financial Reform Act, but it is also part of Patriot Act Compliance. No money laundering allowed.
Your employment will be gone over fairly thoroughly as well. Dates, companies, salary, job title for the past two years please. And while there can be job gaps, explanations are required. If you just went back to work after taking a couple years off to climb the Himalayan Mountains, you will need more than two weeks on your new job before you qualify for a mortgage.
Yes, getting a loan is something like that now. I sometimes tell people that by the time I am done with them I will know everything about them including their underwear size. They laugh. Did you have a divorce in the past ten years in which you are required to pay child support? Please turn over the decree and the child support order. How about a bankruptcy-there is a good chance your bankruptcy papers will be needed. Student loans still in deferment? You will need to get in touch with your loan servicer to obtain the information regarding what those deferred payments will be. Took out a new car loan that isn't reporting on your credit report? I will have a copy of the loan agreement on that car, please. (I will add that unless you absolutely need a car, purchasing a car immediately prior to buying a home may not be the best idea-particularly one with a large payment-it will impact how much house you can buy.)
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I am not trying to discourage anyone from trying to obtain mortgage financing. Buying a home is a great thing and I think as many people who wish to buy property should. But let this serve as a bit of information - nothing is assumed anymore or taken on faith. Everyone involved in the process has to reveal their financial underwear.
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