Wednesday, October 6, 2010

MORTGAGE &FINANCE: The lenders clamp down, Borrowers can expect lots of paperwork, lots of questions

What good are ultralow mortgage rates if you can’t plow through the blizzard of paperwork required to get a loan?

Falling prices and mortgage rates in the mid 4-percent range have made home ownership more affordable for many house hunters. But backlogs in the mortgage process, tighter lending requirements, and appraisals that don’t support the proposed sale prices are some of the obstacles making it difficult for many buyers to close a deal.

It’s not impossible — just more difficult. Patience and paperwork, lenders and economists advise, will help get the frustrated buyer through the process. Be prepared to produce an array of documents, though, often multiple times.

“We are living in a fully documented world at this point,’’ said Michael Fratantoni, vice president of research economics at the Washington-based Mortgage Bankers Association. “It is burdensome right now, but I think it is necessary.’’

Lenders, appraisers, and underwriters are all more conservative in response to the freewheeling days of 2005 and 2006, when many mortgages were doled out without any proof of assets or income.

Here are some things to think about when applying for a loan:

Rate lock
It is taking much longer to close a mortgage — 60 days or more — because of an influx of loan applications, said Cameron Findlay, chief economist for the online mortgage exchange Because of the risk the longer approval period could cost you a good interest rate, Findlay recommends talking to lenders so you clearly understand their policies and getting a commitment letter in writing. Consider asking for a 45-day lock at the same rate as what the lender offers on a 30-day lock.

“Borrowers should make sure expectations regarding the processing of their loan are clearly identified so they don’t risk losing their locked interest rate,’’ Findlay said.

Whether it’s for a purchase loan or refinancing, a low appraisal can kill a deal. And the risk of that happening is greater now since the subprime mortgage meltdown and the housing market crash. Appraisers are being pushed to be more conservative, prices are soft, and comparative properties hard to come by, said Stephen Sousa, executive vice president of the Massachusetts Board of Real Estate Appraisers.

Presented with a low appraisal, buyers can try to renegotiate the purchase or consider putting more money down at closing. “If they really disagree with the appraisal that is done, they can work with the lender to have a second appraisal,’’ Sousa said.

Condo guidelines
Purchasing or refinancing a condominium has become more complicated over the past year because lenders have determined that multi-unit buildings are more risky than single-family homes. Borrowers will have to make larger down payments to get lower mortgage rates.

And increasingly, the whole building matters, not just the condo unit you want to buy.

Mortgage lender Amy Tierce, manager of Fairway Independent Mortgage Corp. in Needham, said borrowers should make sure the condo association puts at least 10 percent of its annual budget into reserve and has more insurance coverage than in the past.

A new building or a newly converted condo gets special attention: Lenders will want to know how many of the units are owner-occupied, versus investor-owned.

“If the lender is not making sure that it all works, you can end up with problems in the end,’’ Tierce said. “It is shocking that it happens all the time.’’

Lenders want full documentation of assets and income, including tax forms and, often, explanations of large deposits in your bank accounts.

Lisa Johnson, vice president at Coldwell Banker Andover, said she has a couple who want to use wedding gifts as their down payment. “They needed to provide the guest list, copies of the canceled checks, and affidavits’’ from donors, she said. “It was shaky up to the last minute.’’

Credit history
Pay bills on time. Check your credit score before you begin the process. Lenders are scrutinizing mortgagers more carefully, so even applying for a credit card during an approval process can put lenders on edge. Avoid big expenses, even furniture for the house, until the process is over.

Debt levels
Borrowers need to have less debt, relative to income, to qualify for a loan.

Many homeowners used to be able to qualify for low rates with monthly debts — including housing costs, child costs, and credit card loans — that took up about 55 percent of their income. Now, this number now has been reduced to about 41 percent, said Keith Gumbinger, vice president of, an online publisher of mortgage information.

“Your income won’t buy you as much mortgage as it used to,’’ he said. The good news is that home prices in many areas are lower and will counteract the effect of tighter guidelines.

Jumbo rates
The lowest rates are for so-called conforming loans, those under $417,000, which meet guidelines instituted by the mortgage giants Fannie Mae and Freddie Mac. However, even rates for larger loans, known as conforming jumbos or jumbo loans, are at record lows.

Jonathan White, the president of Blue Door Mortgage in Wellesley, said conforming jumbos, which are between $417,000 and $523,750 in most areas of the state, are only about one-quarter of a percent higher than conforming rates. And jumbo rates have dropped significantly over the past year, falling to a little above 5 percent, he said.

Jenifer B. McKim Boston Globe September 26, 2010

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