Mortgage Broker Software

Unpredictable Lending Practices May Drag the Housing Market Down

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Even if you work with a mortgage broker before you start looking for a house and get preapproved, you may not ultimately be able to purchase the property of your dreams – and not because you cannot afford it. Just in the time it takes to find a house after getting preapproved for a loan amount, homebuyers are losing out when their mortgages fall through. Why? Because while preapproval software can give you a good idea of what you qualify for, it ultimately does not do the job of a real underwriter – and those underwriters, all too often, cannot see their way clear to signing off on the loans[1].

One mortgage broker describes the process of getting a mortgage as “a little bit of an art. It’s not black and white [and] it has to flow.” And with “major lenders…frightened out of their mind,” as David Olsen, president of Access Mortgage Research and Consulting puts it, “There’s zero tolerance for error.”

Currently, only banks that keep their own loans appear to be truly confident in their ability to get loans approved – small surprise since a lender keeping its loans will be able to say clearly one way or the other what types of loans it is willing to make. Banks holding loans can afford to be more “thoughtful” about their loans, explains Greg Garrabants, CEO of Bank of the Internet, which holds high-value, jumbo loans.

Bryan Ellis is an Atlanta-based real estate analyst and publisher of the widely read newsletter "The Bryan Ellis Real Estate Letter". With over 200,000 subscribers - including real estate investors, agents, brokers, appraisers and other real estate professionals - the Bryan Ellis Real Estate Letter is among America's largest sources of unbiased coverage of politics and public policy for the real estate industry.

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June 26 (Source: By Eric Wolff, North County Times, Escondido, Calif.) – Rapidly changing lending requirements and the mysteries of government software packages are putting a drag on the real estate market as hopeful homebuyers lose out when their mortgages fall through. That’s what happened to Escondido resident Aaron Lowry this winter.

Lowry did everything right: He and his wife spoke with a mortgage broker before they saw the first house. The broker entered their information into a government software package called Desktop Underwriter and got them a pre-approval.

The couple found a place in Vista within weeks for $335,000, right at the upper end of what they could afford. Then the deal came apart.

“When it went to the underwriter, they wouldn’t sign it,” Lowry said, still annoyed months later.

Lowry is one of many homebuyers who think they have all the attributes needed to get a mortgage but then lose their deals when underwriters reject their applications.

Lending standards became much higher in 2009, when scared lenders clamped down on mortgages, analysts said.

Standards haven’t stopped shifting and changing over the past two years, as lenders adjust their criteria on a monthly basis, often in the direction of higher standards.

Compounding matters, brokers lean heavily on software designed by government lending giants Fannie Mae and Freddie Mac to get pre-approvals, and no one fully understands exactly what those programs will approve.

“A loan is a little bit of an art. It’s not black and white; it has to flow,” said Cameron Owens, a mortgage broker at loan originator iMortgage in La Mesa.

Today’s tough lending environment stands in dramatic contrast to the boom years of 2003 to 2007, when loans were, to put it mildly, easy to get.

Lenders approved mortgages without documentation, in which borrowers claimed an income and signed their names. When the least qualified of those people began to default in 2006, the housing market collapsed, taking the national economy with it.

Amid the wreckage in 2009, lenders changed their rules to demand substantially more documentation, higher credit scores and larger down payments, and they stopped making exceptions to their requirements.

Fannie Mae, which buys most of the mortgages made by lenders, purchased loans from 2005 to 2008 that had an average credit score of 722, and 11 percent of the loans had down payments of 10 percent or less, according to its 2011 first-quarter financial filing. Loans it bought from 2009 to 2011 had a score of 762, and 5 percent had 10 percent or less down.

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