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More Loan Processes Are Going Digital

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | June 2nd, 2017

Nowadays, you can get a mortgage any way you want it: You can apply online or in person. You can apply online, then jump off the internet to talk to a real, live person anytime you want. Or you can stick to the old-fashioned face-to-face application process throughout the entire transaction.

But what about the other important parts of obtaining financing -- the appraisal, the underwriting process and the loan servicing? These processes, too, are changing, but at a slower pace. Here’s a brief rundown:

-- Appraisals. Forget that appraisers sometimes seem to be slow to keep up with rising values. While that, in itself, can squash transactions in markets where house prices are rising rapidly, the real bugaboo these days is that it takes so long for them to complete their tasks.

The reason isn’t that the new regulations require them to be more thorough. Rather, it’s that there aren’t enough appraisers to keep up with the volume of work. And it’s going to get worse before it gets better.

Many appraisers are leaving the business because management companies, those controversial outfits hired by lenders to oversee the valuation process, are taking such a big slice of valuation fees that appraisers say they can’t make a living. And with the average age of appraisers approaching 60, many are either slowing down or retiring.

To remedy the situation, the Appraiser Qualifications Board, which sets education, experience and examination requirements for property appraisers, has boiled down its course load. Soon, this will allow appraisers to go out on their own in a year instead of the usual 2 1/2 years, reports William Fall of Valuation Partners in Toledo, Ohio.

Unfortunately, the new program won’t go into effect until July 2018. Until then, it’s going to cost more and take longer for appraisers to get their eyes on properties. “This is long overdue,” says Fall. “I wish it would have been July ‘08. Unfortunately, you can’t go backwards.”

-- Underwriting. Waiting for word from your lender that you’ve been approved for financing can be a suspenseful period. But forces are at work to streamline the process to give would-be homebuyers an answer more quickly.

Generally, it takes eight to 10 days to hear back from your lender. But under Fannie Mae’s new “Day 1 Certainty” program, lenders are making their decisions in a day and a half. “Thirty-six hours is a big deal,” says Andrew Bon Salle, executive vice president of single-family business at Fannie Mae.

Fannie Mae doesn’t make loans, at least not directly. But it is a key force in America’s mortgage financing system. Without it and other secondary market investors, lenders would run out of money to make loans. So to replenish their vaults and keep the spigot open, lenders sell their loans to Fannie. And to keep her happy, they follow her rules.

Under the Day 1 program, lenders don’t have to worry about being forced to repurchase loans to borrowers who default if they use Fannie Mae’s electronic validation service. With the borrower’s permission, lenders using the software can corroborate income, assets and employment, all online.

“We’re enabling a more accurate, simpler digital process,” says Bon Salle. “Lenders and borrowers benefit by moving away from the manual processes prevalent in the industry today.”

In other words, with the company’s technology updates, pay stubs, W-2s and tax returns will no longer be required. And, better yet, appraisals can be accepted upfront without the need for follow-ups.

Says Glenn Brunker, president of BOK Financial in Tulsa, Oklahoma: “This is a win-win, as the customer’s experience is improved through reduced documentation and accelerated closing dates, while we receive reps and warrants and operational efficiencies.”

-- Servicing. Another major pain-point for some borrowers is how their payments are collected and their money disbursed to the loan’s owner, the property insurer and the state and local taxing authorities. Sometimes, it just doesn’t go right. And to compound matters, the companies that manage your mortgage -- called servicers -- are not terribly responsive to your complaints.

But firms like BSI Financial Services of Irving, Texas, are using big data to service loans “cheaper, faster, with higher quality -- and with fewer mistakes,” says BSI President Gagan Sharma.

With the data his company has in its system, Sharma says he can identify small problems before they have a chance to become big ones. So, if your tax payment has been routed to the wrong agency, the system will catch the error -- probably before you do.

Equally as important, if you normally make your payment on the fifth of every month and the system hasn’t received your payment by, say, the seventh, the system will flag your account and a human will call to ask if something is wrong. Perhaps it’s lost in the mail, or maybe you’re having a bit of trouble financially. If it’s the latter, the human will ask, “How can we help?”

“With automation,” says Sharma, “we can find and address problems earlier. And that makes for a smoother process for everyone.“

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Quick Takes: Market Trends, Lack of Labor

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 26th, 2017

Much has been written about the importance of Hispanics to the housing market. But the ownership rate among Asian-Americans and Pacific Islanders is even greater, according to the most detailed breakdown ever from the Census Bureau.

The homeownership rate among this group, collectively called AAPI, is 55.6 percent -- the second-highest in the country, behind non-Hispanic whites at 71.9 percent. By contrast, the ownership rate is 47 percent for Hispanics and 41.3 percent for African-Americans.

According to a report from the Asian Real Estate Association of America (AREAA), people in the AAPI group tend to have, on average, high credit scores, incomes and levels of educations. The group is projected to grow by 1.8 million households by 2024, and will buy 33 percent more houses than non-Hispanic whites.

Until last year, the U.S. Census lumped Asian-Americans and Pacific Islanders together in the “other” category, along with Native Americans, Alaskans, Native Hawaiians and people who claimed two or more races. The addition of the AAPI category will allow for more accurate and useful demographic research in the future.

Of all the key market indicators, few are more useful for sellers than the number of times their house has been shown to would-be buyers over the preceding two weeks. If no one’s come a-calling, there’s something terribly wrong.

The number of viewings will always vary, based on market conditions, the season, price range and proximity to the center of the region’s market. For example, you can’t expect as many visitors in a slow market, but you should expect lots in places where there is little inventory to compete against.

All things considered, Virginia broker David Rathgeber’s rule of thumb is two weeks: “If no one came to see your home in the last two weeks, you are in trouble,” he says.

Typically, it means that the house has been priced poorly. “No matter what the market conditions are, homes that are priced well, and show well, will sell,” says Beth Atalay, broker-owner of Florida’s Cam Realty. “No gimmicks needed -- you don’t need to offer bonuses to selling agents, don’t need to use marketing techniques that don’t work for all. If you need your home to sell, do not overprice it!”

Rathgeber suggests taking a hard look at the houses that have sold recently in your market. If houses all around yours are selling, and you’ve had no bites in the last couple weeks, it’s time to consider a price reduction.

Otherwise, look for the answer to your woes somewhere in the MLS printout of your listing. There could be a mistake in there somewhere, so check it carefully. Does it list the wrong address, wrong directions, wrong square footage, wrong price? Check everything.

“There is no magic in selling a home,” says Rathgeber. “This is not rocket science, just attention to detail, and knowing which details need attention.”

Here’s a sobering point for anyone considering buying a brand-new house: It is highly likely it won’t be finished on time, and it possibly could contain a high number of defects.

The reason: Builders everywhere are saying that finding experienced construction workers is difficult at best.

The lack of labor is always at the top of the list of problems published by the National Association of Home Builders (NAHB). And a recent NAHB survey found that nearly 2 out of 3 builders say their biggest worry right now is labor.

The reason: Few young people want to be carpenters, plumbers or electricians, according to a poll of 18- to 25-year-olds by trade mag Builder.

The survey found that 4 out of 5 respondents know what field they want a career in, and it isn’t construction. Just 3 percent have an interest in the trades. Even if they could earn between $75,000 and $100,000 a year, 43 percent said “no dice” -- there is no amount of money that would make them give the trades a second thought.

With few desirable homes on the market in many places, it’s no secret that would-be buyers are bidding against each other, driving the selling price above what the seller originally asked.

But the lack of inventory also means houses are selling faster. In March, according to the Redfin brokerage chain, nearly 1 in every 5 houses sold went to contract within 14 days. In addition, more than 1 in 5 sold for more than the list price.

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Most Fulfilled Borrowers Went With Their Guts

The Housing Scene by by Lew Sichelman
by Lew Sichelman
The Housing Scene | May 19th, 2017

You’ve found the house you want. Now, where do you go for a mortgage?

If you’re buying a brand-spanking-new place, do you go with the builder’s in-house lender? After all, he’ll give you thousands in free upgrades. Or maybe his rate is a quarter-percent cheaper. His reason for being so magnanimous: He wants to keep your deal in-house so he can be on top of it and make sure everything goes according to Hoyle.

If you’re buying an existing house, do you go with the lender your real estate agent recommends? (Agents are supposed to recommend three lenders, actually.)

After all, your agent has just as much riding on your deal as you do. If it doesn’t close because you can’t get a mortgage or something falls through at the last minute, she doesn’t get paid. Experienced agents know who handles glitches the best and who gets loans to the settlement table with as few blips as possible.

Or do you listen to Mom and Dad’s advice? After all, they’ve probably done this a few times in their lives, so they should know what they are talking about. Shouldn’t they?

As it turns out, buyers who chose a lender because of financial incentives provided by their builders were only marginally satisfied with their experiences. That’s according to the National Borrower Satisfaction Index produced by the Stratmor Group, a Colorado-based consulting firm.

Those who listened to their realty agents were more satisfied, and those who paid heed to advice from their folks, a friend or another relative were even happier with their choices.

But the borrowers who were most fulfilled were those who made a connection of their own with their loan agent. Their antennae wiggled. They hit it off. He or she was personable, but also took the time to answer all their questions, listen to their concerns and work with them every step of the way.

In the Stratmor study, 31 percent of the huge 10,000-borrower sample chose their officer based on “loan officer interaction.” And that group reported a 95 out of 100 when asked about their overall “borrower satisfaction.”

“Their loan officers engaged with them and made them feel comfortable,” says the company’s senior partner, Garth Graham. It’s why he believes that loan officers -- also known as “humans” -- remain a central part of the loan process. And it’s why high-production officers are pretty highly paid.

That’s not a knock on online lending: Customers who chose a lender based on the company’s online tools reported a 93 satisfaction rating on Stratmor’s index. But those customers represent less than 1 percent of the sample. That tells Graham that while more borrowers are using the internet for their initial research, real people are “still critical” to the lending process.

It’s the connection between loan officers and borrowers that pays off. That’s why 78 percent of loan volume is produced by the top 40 originators -- not 40 companies, but 40 people, Graham says.

“Loan officers are still pretty darn important,” he says.

Meanwhile, a relatively high 19 percent of the sample gave “Realtor’s referral” as the primary reason for picking their lender. That group gave their deals a satisfaction score of 91 -- very good, but still substantially lower than the 95 rating of those who based their choice on their personal interactions.

Six percent of respondents said their choice was based on the lender’s reputation; that group reported a 95 satisfaction rating. The 11 percent who listened to a friend or relative were satisfied to the tune of 92 out of 100.

Of course, there are as many reasons to choose a lender as there are fingers on your hands. Those who took a lender’s offer because it could close on time gave their lenders a 94. When borrowers decided to go with the lender who had handled their previous mortgage, the satisfaction rate dipped to 87. Ditto for those who went with a lender because of a specific loan product.

Almost 4 percent went with the lender with the lowest rate, and 2 percent picked their lender because they had a previous banking relationship with the company. But their satisfaction ratings were just 90 and 88, respectively.

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