Why Is There So Much Paperwork Required to Get a Mortgage?

Why is there so much paperwork mandated by the lenders for a mortgage loan application when buying a home today? It seems that they need to know everything about you and requires three separate sources to validate each and every entry on the application form.

Many buyers are being told by friends and family that the process was a hundred times easier when they bought their home ten to twenty years ago.

There are two very good reasons that the loan process is much more onerous on today’s buyer than perhaps any time in history.

1. The government has set new guidelines that now demand that the bank proves beyond any doubt that you are indeed capable of paying the mortgage.

During the run-up to the housing crisis, many people ‘qualified’ for mortgages that they could never pay back. This led to millions of families losing their home. The government wants to make sure this can’t happen again.

2. The banks don’t want to be in the real estate business.

Over the last seven years, banks were forced to take on the responsibility of liquidating millions of foreclosures and also negotiating another million plus short sales. Just like the government, they don’t want more foreclosures. For that reason, they need to double (maybe even triple) check everything on the application.

However, there is some good news in the situation.

The housing crash that mandated that banks be extremely strict on paperwork requirements also allowed you to get a mortgage interest rate around 4%.

The friends and family who bought homes ten or twenty years ago experienced a simpler mortgage application process, but also paid a higher interest rate (the average 30-year fixed rate mortgage was 8.12% in the 1990s and 6.29% in the 2000s).

If you went to the bank and offered to pay 7% instead of around 4%, they would probably bend over backward to make the process much easier.

Bottom Line

Instead of concentrating on the additional paperwork required, let’s be thankful that we are able to buy a home at historically low rates.
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Dodd-Frank Must Go. Here’s the Republican Plan to Save Community Banks, Spur Economic Growth.

Rep. Keith Rothfus / @KeithRothfus / December 06, 2016 – Original Article

With control of both the White House and Congress, Republicans finally have the opportunity to reignite the economy.

American families and workers have been waiting for eight long years for a return to healthy economic growth and opportunity, and congressional Republicans are ready to deliver.

Along with Obamacare and the Environmental Protection Agency’s regulatory excesses, the Democrat-backed Dodd-Frank financial regulatory reform stands out as a leading cause of the Obama era’s economic malaise.

At the Financial Services Committee, we have been hard at work crafting a legislative solution that will end “too big to fail” and puts in place reforms that will allow our economy to grow again.

It’s called the Financial CHOICE Act.

The Financial CHOICE Act is based on several key principles. First, we recognize that American families, as well as businesses large and small, need access to capital. Dodd-Frank’s onerous rules have choked off the loans that so many Americans rely on to make their dreams a reality.

Under Dodd-Frank, community banks are forced to spend so many resources and so much time complying with complex rules and regulations that they have less and less time and money to actually serve the people in their communities.

Since Dodd-Frank became law, we have seen the decline of more than 1,600 banks either through consolidation or closure, destroying jobs and reducing choice for Americans seeking loans.

Financial CHOICE implements a suite of regulatory reforms that will reduce pressure on community banks and other institutions that provide vital capital to millions of Americans.
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We also believe that every American, regardless of his or her circumstances, deserves a chance to achieve financial independence.

Washington should rightly protect us from fraud and deceptive practices—and there are ways that we can improve consumer and investor protection—but bureaucrats in the nation’s capital should not be in the business of micromanaging personal decisions about which financial products Americans choose.

Financial CHOICE reforms the Consumer Financial Protection Bureau so it can fulfill its intended purpose of consumer protection, not political witch hunts that reduce choice.

Of course, Dodd-Frank was cobbled together in response to a financial crisis characterized by systemic risk and bailouts. Eight years and thousands of pages of rules later, systemic risk has not been appropriately addressed and too-big-to-fail banks continue to operate with an expectation that the American taxpayer will save them in the event of a crisis.

Through Financial CHOICE, we can finally bring an end to “too big to fail” and bank bailouts. At the very least, the American people should never be on the hook to cover bank losses.

I understand why Democrats pushed Dodd-Frank and protect it so dearly. Dodd-Frank was built on the false premise that there were insufficient regulations leading up to the 2008 financial crisis.

In fact, in the decade prior, there was a marked increase in financial regulation. The problem was not insufficient regulation; the problem was misguided regulation.

After the financial crisis of 2008, Congress created the Financial Crisis Inquiry Commission to investigate the causes of the crisis. But astoundingly, Congress went forward and enacted Dodd-Frank before the commission had even issued its final report.

Thus, instead of thoughtful reforms and measured regulations, we were given a 2,300-page bill full of provisions springing from the motto of President Barack Obama’s then-chief of staff: “Never let a good crisis go to waste.”

This misguided law opened the door to heavy-handed, one-size-fits-all regulations that are crushing our economy. Republicans have a better way forward, and we plan on making it a reality in the 115th Congress.

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Government Regulation TRID causes loan production expenses surge to $7,747 per loan

Housingwire – March 17, 2016 – Brena Swanson – Original Article

The net gain on each loan originated by independent mortgage banks and mortgage bank subsidiaries plummeted 60% in the fourth quarter of 2015 due to the implementation of the Consumer Financial Protection Bureau’s TILA-RESPA Integrated Disclosures rule in October.

Net gains only reached $493 on each loan they originated in the fourth quarter, down from a whopping $1,238 per loan in the third quarter of 2015, the Mortgage Bankers Association reported in its Quarterly Mortgage Bankers Performance Report.

“Production profits dropped by over 60% in the fourth quarter of 2015 compared to the third quarter,” said Marina Walsh, MBA’s vice president of industry analysis. “With the Know Before You Owe rule going into effect last October 3rd and declining production volume compared to the third quarter of 2015, mortgage bankers saw their total loan production expenses climb to $7,747 per loan, from $7,080 per loan in the third quarter.”

Walsh added, “The fourth quarter marked the second highest level of production expenses per loan since the inception of our report in the third quarter of 2008.”

Total loan production expenses – commissions, compensation, occupancy, equipment, and other production expenses and corporate allocations – surged to $7,747 per loan in the fourth quarter of 2015, jumping from $7,080 in the third quarter of 2015.

Furthermore, personnel expenses averaged $5,131 per loan in the fourth quarter of 2015, up from $4,674 per loan in the third quarter.

However, Walsh said, “The average production volume per company was nearly double the first quarter of 2014, when production expenses reached a study-high of $8,025 per loan. The increase in total production expenses per loan in the fourth quarter of 2015 cannot be explained solely by volume fluctuations.”

Average production volume tumbled to $538 million per company in the fourth quarter of 2015, down from $614 million per company in the third quarter of 2015. To put this in perspective, in the first quarter of 2014 when per-loan production expenses were at a study-high, the average production volume was $274 million per company. Also, since the inception of the Performance Report in the third quarter of 2008, production volume per company has averaged $332 million.

The volume by count per company also fell, averaging 2,265 loans in the fourth quarter of 2015, down from 2,609 loans in the third quarter of 2015.

In comparison, in the first quarter of 2014 when per-loan production expenses were at a study-high, the average volume by count was 1,238 loans per company. Since the inception of the Performance Report in the third quarter of 2008, the quarterly production count has averaged 1,491 loans.

Other key elements that contributed to the making of the net gain number include:

Total production revenue (fee income, secondary marking income and warehouse spread) stayed flat at 362 basis points in the fourth quarter of 2015, compared to the third quarter.

The “net cost to originate” shot up to $6,163 per loan in the fourth quarter of 2015, up from $5,549 in the third quarter.

The “net cost to originate” includes all production operating expenses and commissions, minus all fee income, but excludes secondary marketing gains, capitalized servicing, servicing released premiums, and warehouse interest spread.

Productivity slightly decreased to 2.4 loans originated per production employee per month in the fourth quarter of 2015, down from 2.5 in the third quarter.

Including all business lines, 72% of the firms in the study posted pre-tax net financial profits in the fourth quarter of 2015, down from 86% in the third quarter of 2015.

In addition, the average pre-tax production profit was 22 basis points (bps) in the fourth quarter, compared to an average net production profit of 55 bps in the third quarter of 2015. Since the inception of the Performance Report in the third quarter of 2008, net production income has averaged 53 bps.

The purchase share of total originations, by dollar volume, was 66% in the fourth quarter of 2015, down from 70% in the third quarter of 2015. For the mortgage industry as a whole, MBA estimates the purchase share at 53% in the fourth quarter of 2015. The jumbo share of total first mortgage originations by dollar volume was 9.34% in the fourth quarter compared to 9.09% in the third quarter.

The average loan balance for first mortgages increased to $238,481 in the fourth quarter of 2015, up from $238,246 in the third quarter.

Repeated evidence shows the impact of TRID was real, whether the reports were anecdotal or statistical.

Back in October, Walsh talked to HousingWire on what is the exact cost of compliance on mortgage originations?

To answer the question, the she was able to compare the fourth quarter of 2012 to the first quarter of 2015 since the quarters share similar volume periods.

The chart shows there is a difference of nearly $1,600 between the two quarters.

Walsh noted that there has to be an explanation behind this although it’s not a cut and dry answer.

Ultimately, Walsh said, “It has become more expensive to be a originator. There has to be a reason. Either you’re processing, underwriting and closing costs are going up or your sales costs are going up.”

Buying a home is now easier than it has been in years.

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