On August 16, 1977, Elvis died…or did he? For over 40 years, various sources claimed to have spotted Elvis, alive and well. And, for the mere price of a supermarket tabloid, Elvis’ fans can see exclusive photos of the King of Rock & Roll, hanging out on his private estate in Rio.
I’m searching … but not for Elvis. What I’m looking for is something much more elusive-something that no one even claims to have spotted in many years. What I’m looking for is common sense in the mortgage lending process!
Here’s the problem. Getting mortgage financing can be a very frustrating experience. Even the most qualified buyers usually are required to provide excessive documentation in order to gain loan approval. And, why is this? Simply put, it’s because ordinary, everyday common sense is nowhere to be found in the mortgage world. Here’s a brief explanation of how things have gotten to such a point.
Around 2007, the real estate industry began to crash, along with other major segments of the U.S. economy. Foreclosures were rampant because people were losing their jobs and unable to make their mortgage payments. Compounding the problem, home values were declining at an alarming rate. Some parts of the country saw 50% reductions in home values!
Here’s where things got nasty: The huge players in the mortgage industry, particularly Fannie Mae and Freddie Mac, owned an enormous number of mortgages that they had bought from banks and other mortgage lenders. These mortgages had become a vast sea of foreclosures, and Fannie and Freddie needed a way out of the mess that they, in large part, had created. (We’ll discuss their foolish policies and ideology in a future blog post.) They began to place blame on lenders, mortgage underwriters, appraisers, etc., and imposed heavy penalties on them. And, while some people within these groups were indeed deeply involved in committing mortgage fraud, most were not. Most were simply playing by the rules that Fannie and Freddie had made prior to the crash.
So, what does the crash back then, have to do with the excessive rules and documentation requirements that frustrate today’s mortgage borrowers? The answer – Everything.
Forbes Magazine put it like this:
“So, what’s the perfect loan? Well, it’s one that (a) pays back the lender and (b) pays back the lender on time. Underwriting the perfect loan is not the goal that mortgage lenders aspire to today. The real goal is the perfect loan file.” In short, Forbes stated that the excessive documentation has nothing to do with determining the creditworthiness of the borrower, but it has everything to do with documenting the borrower’s file in order to survive post-closing audits.
Forbes was right then, and they are still right today. Providing the volume of documentation required in the mortgage process is an exercise in “over kill”, and that’s being kind. So, short of a return of common sense, what can be done to minimize the stress and frustration caused by the mortgage approval process? As a mortgage coach and lender, here are the three key steps that I advocate for everyone considering buying a home or refinancing.
- Determine Your Personal Goals – Getting a mortgage can be complex, and it’s not something that people do every day. So, it’s understandable why borrowers not only don’t have all the answers, they don’t even know all the right questions. To steal a line from MasterCard, getting a good lender is valuable, but getting a lender who will also be your coach…priceless. Find your lender/coach BEFORE you shop for a home!!
- Get a Plan – Before buying a home or refinancing, a person and their lender/coach should build a plan together. Getting the right plan involves taking a look at what’s important in life right now, and also what might be important down the road. Planning ahead before getting a mortgage is a great way to build confidence and save money (maybe a lot of money).
- Commit to Communicate – For anyone buying a home, there’s a lot going on, right! Getting utilities transferred, lining up movers, and getting the kids set up in a new school, are only a few things that require lots of attention and time. With that in mind, home buyers need and deserve timely and honest communication about their loan application. This is a huge step in avoiding unnecessary chaos.
The Bottom Line
Excessive documentation and crazy rules will continue. Do I believe that, at some point, that may change? Maybe…but we’ll probably find Elvis first. 🙂
In the meantime, I’ll continue to counter balance the stress that borrowers face, by helping them become educated, capable and confident.
Remember, if you’ll be needing a mortgage in the future, or if you know someone else who will, there’s free coaching available. Sign up at AskMrMortgage.com. It’s 100% confidential and hassle free!
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