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 anything like having your annual physical, where every body part potentially is subject to inspection and prodding?
Has the process of applying and qualifying at a time of super-strict underwriting standards, record-high credit score requirements and hard-wired debt-to-income cut-offs gone a little over the top?
Many applicants and borrowers who’ve been through it apparently think so. Two new national surveys of consumer perceptions found that significant numbers of borrowers believe the current mortgage process is a major hassle.
The surveys were conducted for two consumer websites — FREEandCLEAR.com, a mortgage site, and NerdWallet.com, which offers personal finance and mortgage information. NerdWallet polled 2,241 adult borrowers, 1,341 of whom had applied for a mortgage and 1,431 of whom already owned a home. The survey was conducted online in mid-January by the Harris Poll. Of those sampled, 42 percent said they found the mortgage process “stressful,” 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 for one reason or another: 52 percent because their debt-to-income ratios didn’t meet current standards; 39 percent because 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 among 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, said FREEandCLEAR in its analysis of the survey results. The second most troubling issue for consumers: current strict qualification requirements for loans, which “have definitely tightened since the mortgage crisis and the tougher guidelines appear to pose a challenge for many borrowers,” according to FREEandCLEAR.
What to make of consumer sentiments like these? There’s no question that in the wake of the financial crisis, federal and state regulations, mandatory disclosures and penalties governing mortgage lending have become far more stringent — 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 in the U.S. produced hundreds of billions of dollars in losses for lenders and millions of Americans lost their homes to foreclosure. Many families still have not recovered, more than a decade later.
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 CEO 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.”
Kenneth R. Harney of the Washington Post Writers Group is a past member of the Federal Reserve Board’s Consumer Advisory Council and is currently on the board of directors of the National Association of Real Estate Editors. Reach him at KenHarney@earthlink.net.
