Mortgage Compliance: 2015 2nd Quarter Update
So, mortgage interest rates are low, mortgage lending guidelines and mortgage compliance have tightened up to the point where prime borrowers are the norm, default rates have dropped to record lows as the quality of borrowers have risen. Then you have automation, which makes submitting loans easier and more efficient. The professionalism of realtors, attorneys, and mortgage professionals are all at better standards, especially since part timers are out of the business.
Limited Mortgage Programs And Increased Mortgage Compliance
With less mortgage loan programs available and more simplified to understand, learning the mortgage lending guidelines associated with those programs should make competency that much more easy for a mortgage lending professional to say to a borrower: if you have x ad y, then you get you Z. Finally, you have the access to information that have made potential clients themselves more educated, which make the ability of a loan professional to obtain the necessary documents that much easier.
Average National Credit Scores
The average credit score nationally is 681, which would allow the average person who wanted to purchase eligible with most lenders wanting a 640 or above So with the tides pointed in the right direction for volume to be back at 2005 levels, why is this not the case?
Issues With Mortgage Compliance
The main culprit is mortgage compliance. Here are some points to consider. First, the average mortgage loan gets touched by 3-4 more people than before. A mortgage loan used to have a loan officer, a processor, an underwriter,and an appraiser, with a closer/funder at the end. Now you have a intake person or opener, a loan officer assistant who handles alot of the duties once performed, so he/she can focus on generating new business. If the mortgage loan officer does enough business, they may even have a junior mortgage loan officer to assist the process. Then you have an intake person who will open the file once it is received by the lender. This individual will ensure the minimum necessary documents are in the file, and will have to properly register it. Since the mortgage meltdown and the real estate market crash, the amount of necessary documents has gone up, as have the required disclosures sent out tot he borrower. This can add a day or two to the turn time, since every file reviewed will take that much longer to look at prior to submission to the underwriter. At this point the intake individual will submit the file to the processor, who may order a 4506T. What is this you ask? It is the order of the tax transcripts of an borrower on the loan. This form goes to the IRS, and they will send out the last two years records of income reported to the by the client, so as to ensure the borrower’s ability to pay is certified, and the info matches what he/she put on the 1003/application. Since the IRS has had massive cutbacks, this process, which used to take 1-3 days, can now take up to 3 weeks, further delaying the process.
Mortgage Underwriting Process And Mortgage Compliance
The next person who is involved is the gatekeeper of lending: the underwriter. Gone are the days of common sense underwriting. Now a mortgage loan underwriter has to pull multiple fraud detection software scans. Looking at various items such as: to see if the buyer and seller know each other, are they on title/vested on another home they did not disclose, or is the home they are buying a multiple flip? With each fraud detection, any little item deemed questionable can delay, suspend, or be cause for denial of the file. The loan officer or realtor will then have to go back to the borrower and ask for necessary documents or explanation to make the underwriter feels better about the transaction’s legitimacy.
Income Qualification And Debt To Income Ratios
Then the calculation of the income and looking at the assets is more tedious than ever before. More and more people get paid bonuses and have unreimbursed expenses on their paycheck stubs. More work side jobs, which will all require extra documentation and support from the employer to make the file look stronger and to verify the information submitted. This only adds to the turn times of a file that may only be locked for 30-45 days. Then you have assets. Deposits in the for of cash from a wedding or a birthday are common. If that cash is more than $150 for some lenders, they want to know where that money is coming from. If that money is needed to help qualify your client for the loan, then you must be ready to validate and source where that money came from. If you cannot source this money, then it might not be allowed to be used in the asset count. This presents an ever growing rift in the realities of life some people get cash all the time from family or from side jobs and money owed and cannot source the money, hence making the process more tedious and time consuming. Underwritten loans used to be contracted out to Mortgage insurance companies and could do 8-12 underwrites in a day. Now because of mortgage compliance they are all done inhouse, and the number of completed underwrites have been cut in half. If it is a retirement account, you have to verfiy where it is, source a withdrawal paper trail, and if it is a life insurance, get paper saying it is not a loan against the insurance.
Appraisal And Appraisal Review Process
Then you have the appraisal itself. With the advent of the AMC or Appraisal Management company, appraisers now are required to write so much more info in their addendums. They are doing this will getting paid less money at the same time. Less and less appraisers are doing more work. They are driving further distances and being required to do more legwork with no contact with the realtor or loan officer as stipulated by Fannie Mae/Freddie Mac. The reviewer, who is basically making 25-40% of the total fee charged to the borrower, for sitting at a desk to review someone else’s work, has to overlook and sign off on the value and comps used.. This adds another day and another fee to the transaction, but does not compensate the person who is still taking the risk(appraiser). More work again in the industry for less margin.
Quality Control And Clear To Close
Finally you have pre-audit fraud checks at the end of closing by different systems like MERS, fraud guard, Lexus Nexus, which are designed to make sure the borrower did not buy another house, add on new debt, re-verification that they are still employed. These last second processes cn catch something, because no one is perfect, and people need move and lie their lives. Someone might take on a car loan at 0% when they should not because hey, they need a new car and the terms are favorable. Forget the fact they now hurt their chances to qualify even after the loan is approved, and wont know this will be caught on a re-credit check prior to closing.
Mortgage Lender Overlays
Overlays: What does this mean? Well Fannie Mae and Freddie Mac has a set of rules and standards on lending that we all abide by when we(banks) lend on houses that they will insure and guarantee. Banks, for their own compliance(subject of article), feel the need to add or remove their own set of rules, and it is always on the side of caution. Fannie Mae says: you can do this, bank A:no we still want this in order to do that. This grey area of lending and interpretation rather than following it by the book makes lenders conservative on programs that would otherwise assist in taking inventory off the market. Fannie Mae chooses not to mandate the change, but rather allow for discretion, than it is almost a guarantee that discretion will air on the side of caution.
Title In The Mortgage Process
Finally, as a title rep, we have seen the number of pages involved in a closing almost double in ten years. The average FHA number of pages for closing a refinance is between 120-150. That is a book’s worth of repetitive documents like 7 escrow agreements for taxes, 7-10 for notification they have an FHA mortgage and have to pay it back, and 7-10 HUD addendum stating thy signed a HUD with the fees associated.
About The Author: Ron Granado
Like to offer a special thanks to Mr. Ron Granado of Plymouth Title Guaranty Corporation. Ron Granado is the author of this article and a guest writer for Gustan Cho Associates. Ron Granado always goes out of his way to help not only the public but also real estate professionals such as attorneys, real estate brokers, mortgage loan officers, and other title companies answer questions they may have. Ron Granado also takes valueable time off his schedule to write financial articles such as this blog on Mortgage Compliance to help professionals in the real estate and mortgage industries hear his opinions and the latest market news.