Over the last few years the mortgage industry has undergone a radical transformation. Prior to 2007, or thereabouts, the emphasis was how to streamline the process and how to expand homeownership opportunities to segments of the population that were previously underserved. It was a time of shortcuts dominated by limited documentation, electronic appraisals and an emphasis upon credit scores to manage risk. From 2008 to the present, the industry has reversed course, to say the least.
The tools mentioned above that allowed us to close loans with minimal documentation and without the traditional items used to gauge risk are still being utilized. In 2011; however, electronic appraisals are used in conjunction with a traditional appraisal. Credit scores are now used in conjunction with an underwriter’s review of debt ratios and overall credit capacity. As one underwriter mentioned to me, all files are now manually underwritten. The industry, as a whole, views an automated underwriting approval as a suggestion, not as a mandate for an approved loan.
In the long run, the changes enacted will impact our industry in a positive way – tougher criteria will result in loans that perform better over time. Most of our industry is in support of higher standards as are consumers. But, as human nature would dictate, Loan Officers, Realtors and consumers are not always as accommodating or understanding when higher standards impact closing dates and product availability.
From my observation point, those that have been impacted the hardest by the changes have been, ironically enough, those that are highly qualified to begin with. It’s understandable for a well-qualified buyer to express frustration when they learn that the changes that have been enacted impact everyone, not just those that are sitting on the marginal fringes of qualification for financing. On the other hand, the customers that are barely in position to qualify seem to be the most understanding about the rigors of the process and the diligence needed to become a qualified buyer.
All in all, this is an industry in transition. Change was inevitable given the catastrophic events following the heyday of the real estate market. My suggestion is to remain patient, to remain optimistic and to view this as an evolving process.
We will get through this – one closed transaction at a time.