Five Reasons Why it Takes Forever to get a Mortgage

Just a list of a few things that are slowing up mortgage lending:

The first-time homebuyer tax credit:  The first-time homebuyer tax credit has been extended because it is a good thing.  It is getting all kinds of families into homeownership.  It is a classic demand-side strategy. After years of supply-side economics, isn’t it interesting to see how well demand-side policies can work? The homebuyer credit isn’t the only successful demand-side strategy.  Everyone was pretty happy with the cash-for-clunkers program, too.  Regardless, the homebuyer tax credit does come with some paperwork.  While it is bringing a lot of buyers to the table, banks are having to work through their applications on the credit.  A banker I spoke to today said this was the number one thing holding closings up.

Low appraisals:  Lenders can provide borrowers with conditional loan approvals, but until an appraisal comes in, there’s no loan.  Right now, all kinds of deals are falling apart when appraisals come in to low to justify loan-to-value requirements.  The News and Observer has a good story on this situation in North Carolina.  Some sellers are so hungry that they are willing to adjust the sales price downward in order to satisfy buyer’s financing.

Third-party rules on appraisals.  New rules stipulate that lenders cannot choose appraisers.  Since May 1st, the Home Valuation Code of Conduct (HVCC) has stipulated lenders to submit an appraisal request to an appraisal broker.  The brokers don’t have much incentive to hurry things along.  Two weeks is a pretty fast turnaround time right now on an appraisal.

Tough underwriting: After years of stated-income lending, things have changed.  Where lenders were once ready to look the other way, now they want every possible uncertainty cleared up.  I have talked to borrowers who are being asked to keep submitting paystubs as they are paid, throughout the 30 to 50 day underwriting process.  Providing your two most recent paystubs when you apply for a loan isn’t enough: now you have to submit another paystub after the appraisal comes back.

Thin capital reserves:  A lot of banks are thin on cash. It is especially tough right now at small banks, where lending is dependent upon a healthy demand for mortgages by the secondary market.  Right away, that takes small banks out of non-conforming lending almost entirely.  I know a Bank in North Carolina that has ceased to originate any loans.  It is acting solely as a mortgage broker for GMAC.  In other words, the small-town bank is increasingly becoming a thing of the past.  Now, it is the small-town mortgage broker, working with the out-of-state correspondent lender. The upshot of this, aside from the loss of one more bit of integrity, is that these banks have outsourced underwriting and now have little ability to influence the schedule for your loan. You’d have more ability to work through a problem if you were online – at least then, there’s a “livechat.”