Business & Tech

Frustrated with trying to get a home loan these days?

An expert in the mortgage business helps explain the challenges of processing a loan today.

We all know what state the mortgage business is in these days. And anyone who has applied for a loan to purchase a home or even refinance, knows first hand the frustrations involved in the process.

Peachtree Corners Patch was lucky enough to run into an expert who lives right here in the neighborhood, Pat Howard, a loan originator for Fidelity Mortgage. He was generous enough to take the time to offer some expert insight into just why it's so hard to get a mortgage loan these days. If you've any questions for him, we've provided his contact information at the bottom of his article.

Why in the World is My Mortgage Approval Taking So Long?

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If you've applied for a mortgage in the last three years, you may have been in for a nasty surprise.  What was once a relatively simple transaction may have become cumbersome, frustrating, and mind numbing.

Why the difference?  The answer is multifaceted, and varies from lender, to transaction, to borrower.  Below are some reasons why, but first, a little mortgage history is in order.

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In approximately 1995, Fannie Mae and Freddie Mac instituted automated underwriting systems (AUS).  The reason made sense; the underwriting "engine" put emphasis on high credit scores, with varying risk given to small down payments.  The smaller the down payment, the higher the risk to the lender, so documentation requirements, cash reserve requirements, and income became more important with lower down payments.  The system worked well for many years, Fannie and Freddie were able to track foreclosures and draw conclusions to predict what types of loans were more likely to become delinquent.

As time went on, the underwriting criteria and documentation requirements became more lenient, and hence, the underwriting engine became more forgiving of possible weak points in a mortgage package.  Soon, a borrower with a high enough credit score could close on a loan with a 20 percent down payment, with no verification of employment, or income.  At the same time, Congress allowed for no down payment loans, and the underwriting continued to become more lenient.

Anyone that follows the news knows what happened next.  In 2006, large, billion dollar mortgage lending institutions began going bankrupt.  It became so prevalent that a website was set up to track the lenders that were going out of business.  We in the industry were at first alarmed, then panicked, then numbed by the numbers.

Fast forward to today.  In an effort to ensure loan quality, banks, lenders, and all the Federal agencies that oversee mortgage loans have become increasingly vigilant to ensure as few delinquencies as possible going forward.

Which brings us to the point of this article, why is my loan taking so long.  Here are a few reasons, and guidelines, that we lenders now adhere to.

  • "I've turned in my paperwork, just like I did 8 years ago for my other loan, now I'll just wait for closing." More than likely, your lender will be asking for more documentation to ensure they've documented everything correctly. Duplication has always been common in the lending industry, and it's only gotten worse
  • "My appraisal came in, it appraised for the sales price (or target value for a refinance). That's one less thing I have to worry about." Not true. After the appraisal is turned in to the lender, we enter the value into (yet another) software system. If the value fails, you may not be able to close, or have to switch to another investor with a higher rate. This is a quality control measure that the big servicers (Bank of America, Chase, Citi, Wells Fargo, etc.) require to ensure the home is worth what the appraiser says. While this seems counter intuitive to a lot of us – how is a computer program more reliable than an appraiser who's done the research – it's what we lenders must adhere to when we agree to sell a loan to one of the servicers
  • "Finally! My loan closed. Now I can get some sleep." Congratulations, you've closed on your home after some of the most intense scrutiny in the history of mortgage lending. But, there is a chance you'll be getting a call from your friendly mortgage lender. Remember the big servicers? Once the loan is sold, if they deem any of the loan documentation to be unacceptable, they'll ask for a post closing document to support the loan. If the lender is not successful in obtaining the documentation, the lender (your local bank or mortgage banking firm that you made application with) will have to buy the loan back. This is the worst scenario for a lender. They simply don't have the assets or reserves to buy back many loans.

While the three points above are far from a complete list, it gives you an idea where the industry is in today's aftermath of the worst chapter in U.S. mortgage banking history.

The good news:  rates are still at historical lows, most of the mortgage bankers in the industry are honest and experienced, and we all want the same thing:  a speedy mortgage process and smooth closing.

Editor's Note: Pat Howard, a Peachtree Corners resident, is a loan originator for Fidelity Mortgage in Atlanta. You may reach him at 404-639-6541. 


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