Extra time to close and more required documentation is the new normal in mortgages. Streamline mortgages, Fast and Easy mortgages and Super Simple mortgages are gone, if not forever, for a very long time.  The days of limited documentation is all but history. After it was realized how much the mortgage meltdown was going to hurt the US and world economies the Federal Government, State Governments, the people and even some members of the mortgage industry demanded higher quality mortgages.  To accomplish this, the mortgage industry looked at their guidelines from the past.

 

Income is now checked with pay stubs, W-2s and tax returns.  Copies of the last two years tax returns are also obtained directly for the IRS to compare them to what was given to the mortgage company by the borrower.  Employment is checked and verified for a full two years and most mortgage companies do a second verbal employment verification days before closing.

 

Liquid assets, or as I call it cash, are verified.  Bank statements for the most recent two months are obtained.  If the first page of the bank statement says page 1 of 6 and the underwriter only receives the first 5 pages, it will not be accepted.  Any large deposits must be explained and sourced and if there is any NSF (non sufficient funds) there need to be a good written explanation. Reserves which are cash left over after closing is looked at closely.  Many home buyers use their retirement accounts such as a 401k for reserves.  If they do, the underwriter will require "terms and conditions for withdrawal" to verify that they can access this money without being terminated.  If the borrower has mortgage insurance most mortgage insurance companies require two months of reserves.

 

Debt as always is still proven with a tri-merge credit report.  What's different now is any other credit inquiries that shows up on the credit report must have a written explanation.  A second "soft pull" credit report is also pulled days before closing to make sure no new debt has been obtained.

 

I haven't even discussed all of the new required disclosures and required re-disclosures.  The days of closings a loan in three weeks or less from start to finish are all but gone.  I'm sure there will be some exceptions but extra time to close and more required documentation is the new normal in mortgages.

 

Shay Campbell is a licensed mortgage originator located in Raleigh, NC.

 
This post has been included in North Carolina Real Estate News

6 Comments on THE NEW NORMAL IN MORTGAGES

NOV
07
2010

So true!
11:17am • #1
315,007 Points 2 Featured Posts Attended Rain Camp Called Shot Master

Sadly, many real estate agentsstill have not embraced this new mortgage world.  They would rather complain when conditions must be met for an approval.  Some still cant understand when a loan can't close in 3 weeks rather then setting a realistic closing date from the very beginning.  They question why you need tax returns or the source of a large deposit.  Many agents are still trying in vain to find that 2-3 week streamlined closing that no longer exists.  Most of the ones who continue to fight rather than to adapt to the reality will find themselves in another position before too long.
11:27am • #2
741,859 Points 18 Featured Posts Outside Blog Called Shot Master

Shay,

Even worse for the agent is to have an old-school client who is outraged at the hoops to jump through.
11:57am • #3
NOV
18
2010
1 Featured Post Called Shot Master

I understand the lenders being very careful because they are now being watched so closely but its sad that we have gone from 1 extreme to another.  Now everybody suffers.
8:49pm • #4
DEC
30
2010
4 Featured Posts Called Shot Master

I completely agree, no ones seems to understand how much more is involved these days with all the verifications required. However, I do think the better job we do informing people of the changes the better it will get.
4:13pm • #5
JAN
18
2011

While some of the guidelines at the major commercial banks have indeed changed, alot of them are the same, they're just being enforced now.  Whereas lenders would allow certain documents to be completed as stipulations to be turned in before close, they are now requiring those as part of upfront underwriting packages. Credit is being checked more thoroughly, and decisions are being made by fewer people, all which result in a slow down of approvals and in the overall number of loans being made.

Most of this is done by design though. Banks get rated for the loans they make, which affects the reserves they need to maintain, which affects how much money they can actually lend.  The more bad loans on the books the less they can lend.  Therefore, make better loans and continue to lend and draw a profit.  There is less incentive to just crank the loans out, even to borrowers willing to pay five points. And history has shown those loans are the first to default anyway, so whatever profit is seen on the front end is erased in the legal battles trying to take the property back.

The strict guidelines will likely be enfored for years to come.  Buyers are going to have to get used to it, and more importantly, prepare for it so they can complete their purchases without being delayed by a longer bank closing or request for some obscure documentation.
3:44pm • #6


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Shay Campbell, Raleigh, NC

Raleigh, NC

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Address: 5922-A Six Forks Rd., Raleigh, NC, 27609

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