Speaking of banks, who hasn’t heard that bankers lending criteria has become much more rigorous since the housing bubble burst? If you haven’t applied lately for a new mortgage you might be surprised to learn just how stringent lending criteria has become – especially for home mortgages
Recently I talked to our banker, Ryan Vertigan of Torrey Pines Bank which is a Billion Dollar bank aligned with Western Alliance Bancorporation, and it is growing even in these past 3 recessionary years. We meet for lunch every other month and talk about the economy in addition to ProTec’s financial needs. This past summer Ryan relayed a story to me that summarizes how difficult obtaining a new mortgage has become.
He relayed that “Despite having 10 years of banking experience, the purchase of my first home was a difficult endeavor. I had heard of numerous horror stories since the housing crisis began related to short sales of properties, foreclosures, and mortgage loan approvals, but I felt that my industry knowledge would help me to avoid these all too common occurrences. A 7-month process and several gray hairs later, I stand corrected.
We closed escrow on the purchase of our home in July 2010, although we made the first of three offers (all accepted) in December 2009 on the same property. The home was originally listed as a short sale, which our real estate agent had warned us about due to their low success rates in closing and extended timeframes. Due to no response from the lien holder regarding the signed contract, we subsequently increased the purchase price. The second offer, which was accepted by the seller in January 2010, at least prompted the lien holder to order a BPO. However, before the BPO was completed, the lien holder foreclosed on the home in February 2010. We had waited patiently for 3 months and made no progress.
After being off the market for 4 months, the property was placed back on the market for sale as an REO in June 2010. As we still had not found any other homes that fit our criteria, we decided to make an offer again for the third time on this same property. The seller (original lien holder) accepted our offer, which was actually lower than the second offer that we had made in January 2010. I thought the worst part of the process was over, but I quickly learned that it was just getting started.
The company that I work for is predominantly a commercial bank in the San Diego area, so I was not able to obtain a conventional mortgage loan through my employer. As the lien holder was offering certain concessions (i.e. free appraisal and credit report), we submitted a mortgage loan application with them.
Obtaining a quote and a pre-approval was very quick and simple, but the length of the underwriting process was surprisingly difficult, even though our application was very straightforward. Despite offering a 20% down payment, a good debt-to-income ratio (W2 employees), and excellent FICO scores, we were forced to jump through numerous hoops due to various requirements, as our loan was eventually sold to Fannie Mae. We were required to provide endless forms of back-up documentation, and they even asked for future bank statements as of a certain date that would not occur for another 10 days. This delayed the process and made our 45-day escrow difficult to accomplish in time. Our escrow was also delayed as the HOA put a lien on the property (after the preliminary title report) because the lien holder had not paid any HOA assessments since the foreclosure.
Although we eventually closed escrow, it left me wondering how anyone (especially non-banking professionals) gets through the home buying process in a timely manner and with their sanity. It seems as though the underwriting pendulum has certainly swung in the opposite direction, and the requirements to obtain a loan are highly restrictive these days. Although the real estate industry has shown signs of stabilization, the crisis is far from over due to high unemployment and the fact that numerous properties are still working their way through the foreclosure process. Until the real estate recovery is clearly evident, I do not see the mortgage application process easing anytime soon.