Could getting a home mortgage under today’s post-housing-bust regulations and procedures be even remotely comparable to going to the dentist to get drilled? Or is it anything like having your annual physical, where every body part may be subject to inspection and prodding?
At a time of super-strict underwriting standards, record-high credit-score requirements and hard-wired debt-to-income cutoffs, has the process of applying and qualifying gone a little over the top?
Many applicants and borrowers apparently think so. Two new national surveys found that significant numbers of borrowers believe the current mortgage process is a major hassle.
The surveys were conducted for Freeandclear.com, a mortgage website, and Nerdwallet, which offers personal finance and mortgage information.
Nerdwallet polled 2,241 people who had applied for mortgages. The survey was conducted online in mid-January by the Harris Poll. Forty-two percent said they had found the mortgage experience “stressful,” and 32 percent found it “complicated.” Forty-nine percent said they had regrets about how they handled the process. Some applicants, especially millennials and Gen X-ers, felt they hadn’t ended up with as low an interest rate as they expected.
One of every six said their applications had been rejected. Fifty-two percent of those who were denied said they had been told their debt-to-income ratios didn’t meet current standards, and 39 percent had been told their credit reports or scores weren’t good enough for the loan program they sought. Thirty-one percent of those turned down said they were “surprised” at the lender’s decision.
Not everybody was bowled over by the process, however. Forty-one percent of those surveyed found it “manageable.”
In the Freeandclear survey, borrowers were asked to choose from a set of alternatives that would most closely describe the mortgage process. Forty-one percent said it was most similar to an annual physical. Thirty-four percent said it was like going to the dentist. Twenty-two percent characterized it more favorably, as akin to doing “business with a friend.”
In an analysis accompanying the survey, Freeandclear said that with 75 percent of borrowers comparing the process to either a physical or a dental visit, it’s evident that most people put getting a mortgage in the “unpleasant but necessary” category.
Fifty-six percent of respondents found excessive paperwork to be the most overwhelming aspect. “Although all the mortgage documents are intended to serve a specific purpose, usually legal or regulatory, the sheer amount of paperwork creates significant difficulties” for many consumers, Freeandclear said in its analysis of the survey results. The second-most-troubling issue for consumers: strict qualification requirements for loans, which “have definitely tightened since the mortgage crisis and . . . appear to pose a challenge for many borrowers,” according to Freeandclear.
What to make of consumer sentiments like these? There’s no question that federal and state regulations, mandatory disclosures and penalties governing mortgage lending have become far more stringent in the wake of the financial crisis — and for good reasons. Between roughly 2004 and 2006, at the height of the boom, getting a mortgage too often wasn’t much of a hassle at all. As the saying went, all you needed was to be able to fog a mirror: No down payment necessary. No minimum credit requirements. No verification of income, taxes, assets.
But no-hassle mortgage lending produced hundreds of billions of dollars in losses for lenders, and millions of Americans lost their homes to foreclosure. More than a decade later, many families still have not recovered.
Lenders generally agree that tougher standards and procedures are needed to avoid a repeat. I asked Steve Stamets, a loan officer with Mortgage Link, a Maryland-based lender, about the survey results.
“I get it,” he said. The process “is a pain. But is it the right thing to do? Yes. If you were lending me $300,000, wouldn’t you want to know as much as possible about me?”
David Stevens, president and chief executive of the Mortgage Bankers Association, told me the biggest problem with the system today is that some of the regulations for lenders amount to an overcorrection and are far too inflexible, especially for highly qualified applicants with large down payments and stellar credit scores.
“You can create rules that eliminate risk entirely,” he said, “but nobody’s going to get a loan, either.”
Ken Harney’s email address is firstname.lastname@example.org.