Mountains of new paperwork
Published: August 29,2010
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“Trees are dying,” said a loan originator at a small Jackson bank while pointing to a stack of home loan applications, each three inches thick. They used to be one-fourth of an inch, she said.
The mountains of new paperwork required because of federal loan regulations enacted in January are frequently leaving buyers and sellers stuck with packed-up moving trucks and no place to go. Closings are commonly delayed due to bogged-down underwriters and last-minute disclosures. Sometimes loans fail altogether.
The National Association of Realtors reported last week that home sales plummeted in July to their lowest in more than a decade. Sales of previously owned homes fell 27.2 percent from June to a seasonally adjusted annual rate of 3.83 million.
Home buyers, loan originators, lenders, closing attorneys and Realtors are frustrated as they still try to adapt to the new RESPA (Real Estate Settlement Procedures Act) guidelines.
But all parties agree on a few things: Communication, preparation and education are key.
The days of the “quickie loan” are gone, and buyers and sellers would be wise to plan on four to six weeks for a closing.
Betsy Alexander, owner of Lanier Sykes Bogen Realty in Greenville, said it’s unfair when buyers look to Realtors to straighten out their loan problems.
“I’ve had to become a lender, an insurance agent, an underwriter, a lawyer. Heck, I’m just a Realtor,” Alexander said. “Now we’re constantly asking for extensions. Somebody always drops the ball, and then the finger pointing starts. It is left to me as the Realtor to explain what happened to everybody – and I have nothing to do with the appraiser, lender or underwriter.”
Alexander recently had some first-time homebuyers in Leland find themselves moving in with their parents for several extra days when the seller’s house-to-be in a different city didn’t make its closing date. The buyers had given notice and had to get out of their apartment.
Banks are now reticent to give buyers pre-approvals for loans, Alexander said.
RESPA rules regarding good faith estimates (GFEs) require brand new GFEs to be issued if “changed circumstances” arise, which can slow down the process by three to seven days. The late arrival of appraisals or the forgetfulness of a buyer in providing a pay stub can also cause timing issues. Additionally, changes to the HUD-1 form make it more difficult to tell which party is paying for specific fees.
“With all the additional RESPA requirements, sometimes the first time I see the HUD-1 is when I sit down at the closing. That scares me. I like to have time to look at it and make sure everybody is paying for what they agreed to pay for,” she said.
Alexander advises parties to pick realistic closing dates. Don’t believe someone who says they can get you an FHA loan in two weeks just because they want your business, she said.
A Jackson loan originator who requested her name not be used said one new requirement that produces delays is the need for written explanation from any party that has pulled a buyer’s credit report within 90 days. If a buyer changes insurance companies, for example, the company must provide a written reason to the bank, she said.
W2 forms, pay stubs and verification of employment have always been required, she said, but now copies of tax returns from the past two years must be obtained from the IRS, which can take five days. Also, two months of bank statements must be provided, and Internet statements won’t work, she said.
By the time she finishes a loan application, “I have your shoe size, a note from your mother and your blood type,” she said.
She advises customers to keep track of their personal financial documents.
Linda Graham of Graham & Associates in Jackson said her clients have experienced more delays in closings than fall-throughs.
“If the bank asks you for something, you need to provide it. Don’t wait till the last minute,” Graham said. “I think good preparation makes a difference.”
A lot of the delays come with short sales, Graham said, because they have to go through extra layers of management to get approved. In a short sale, the seller owes more money on a house than the house is worth. The Realtor contacts the bank to negotiate a sale and the amount of loss the lender will take to avoid a foreclosure.
Ridgeland closing attorney Robert Harrison said, “It is not surprising for us to see a contract have to get extended at the closing table just because the party didn’t meet its closing date. Lenders are extra busy just trying to get their closing packages for us.”
Another factor slowing down home loans is an increase in the amount of refinancing applications due to home owners taking advantage of low interest rates.
The lender doesn’t pick and choose priorities, Harrison said. He or she will go with the application that is complete first. If it’s a choice between an application for refinancing with an appraisal waived or a new loan application requiring an appraisal and with underwriting issues, the refinance will get done first, he said.
While low interest rates might be good for those interested in refinancing, they aren’t necessarily doing first-time and veteran home buyers much good, as stricter lending standards are keeping some people out of the market.
Loan applicants who bought a house three years ago and made their payments regularly may assume a contract on a new home but then get rejected for a loan, Harrison said.
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