As a consumer with good credit and a 10-year history of paying his mortgage on time, Ed McLaughlin expected that his record would put him in good stead with his bank.
But when he approached his lender, Charlotte, N.C.-based Bank of America, about refinancing his existing mortgage or qualifying for a new loan, McLaughlin felt like a brand-new customer just off the street.
“They said new banking laws required that I jump through all the hoops, which I thought was a little odd because my record with Bank of America had been good,” said McLaughlin. “All the new paperwork, all the new guidelines they were now required to administer. All that was going to complicate it.”
McLaughlin wasn’t being singled out—he was simply finding out firsthand how the residential mortgage industry has changed since the housing meltdown. After a period when too many lenders focused just on getting people into homes—and not on whether they could afford them—the pendulum has swung back in the other direction.
The number of mortgage products offered to consumers has shrunk, while the amount of income documentation required of borrowers has increased.
“It’s going back to how things were done 10 years ago,” said Jim Bennison, a senior vice president with Raleigh-based Genworth Mortgage Insurance.
The new landscape can be particularly jarring for borrowers used to the recent go-go years, when some lenders required little proof of a borrower’s income and liabilities and enticed them with a range of exotic loans with variable interest rates.
The underwriting standards for borrowers are now being dictated almost entirely by three government entities that have come to dominate the mortgage market: the Federal Housing Administration, Fannie Mae and Freddie Mac.
A bank today is highly unlikely to issue a mortgage that won’t be guaranteed by one of these three. A few years ago, a buyer might have found the house of her dreams and then worried about how to finance it. Now, getting pre-qualified for a loan should be one of the first steps.
“People need to call a mortgage professional earlier in the process than they think,” said Todd Barbour, vice president of Meridian Residential, a mortgage company in Cary, NC. “The very moment you think, ‘I might want to buy a house,’ someone like me should be the next phone call.” Given how severe the housing downturn has been, Barbour said, many people assume they won’t be able to get a loan. That’s a mistake, he said, because there are good loans available for qualified buyers and interest rates are at historic lows.
One of Barbour’s clients recently purchased a home for $285,000 in Wake Forest, NC. The couple got a 30-year mortgage with an interest rate of less than 5%. “It went crazy smooth for us,” Lauri Moore said. “It was literally a miracle how smooth it went.” The Moores had great credit and made a 20% down payment, something not all buyers are in a position to do.
Read more HERE at RIS Media.