Then & Now - Lending Has Changed

By Toni Ryan, First Priority Financial

If you have you tried to get a purchase or refinance mortgage loan recently - you might have noticed a new trend: It has gotten MUCH harder. Lenders are growing increasing picky and demand more out of borrowers today than every before to secure home financing. Why? It is important to understand that the lending market has changed since the financial meltdown. Prior to the recession, there were many institutions and small banks who negotiated loans and retained them in their portfolio as investments.  What’s changed? Today almost all loans are sold to one of the top FOUR banks: Wells Fargo, Citigroup, Chase, and Bank of America - Each with specific requirements which change frequently (sometimes DAILY!).  Just like in any industry  the fewer the players, the tighter the rules.

Added to fewer options are the new regulations coupled with the high incidence of fraud. It has become more costly for most institutions to keep and service a loan.  The profit is made by packaging a loan and selling it (to one of the above banks) within10 days of that loan closing. This profit is greatly reduced when a file is held longer than 10 days due to documentation issues. Profit decreases further if the institution must keep the loan because an issue with the file cannot be resolved. 
 To avoid delays when selling the loan, companies require more documentation that is as current as possible. This requirement, which often changes as new issues arise, is the primary reason most borrowers experience frustration.  Social security numbers are verified with the government as well as the filing of two years of tax returns.  Gone are the days of just giving copies of your documents.

The second issue is the turn around time to close a loan.  Interest rates are low so lenders are busy.  The lender will prioritize a purchase loan over a refinance because there is a deadline - this means refinances always take longer.  Once all documents are gathered and verified and the appraisal has been competed, the loan file is then placed in underwriting.  This can be take 4 to 7 business days.  Often a request for more information is received with the approval which adds more time as well.  Then when all items are satisfied, documents are drawn, prepared, signed, sent back for review and then funds are sent to the escrow company. Be wary of promises of “10 days to close” - this usually means 10 days AFTER all documentation is collected upfront and all verifications are completed

While it is a difficult process, the rewards are great as we experience the lowest rates in 50 + years.  It helps to know the process so you are prepared. The investment in time is a fact in today's market and you are not alone. Connect with a knowledgeable mortgage professional to aid in the process. Then sit back, take a deep breath and BE PATIENT!