Extra regulations slow down home sales

Anyone wanting to buy a home needs to understand it may take more time than it did in the past. They can’t just go into a bank and get a loan, although that was pretty much the case a couple of years ago when the “no income, no assets” loans were the order of the day.

“It’s not like buying a car,” said Mary Winchester, former mortgage loan originator at First Western Bank and First Interstate Bank in Custer.

A couple of years ago, it may have taken only two weeks to process a home loan, but now that has stretched to six to eight weeks because of all the paperwork required.

In Winchester’s 15 years in the business, she’s been through her share of cycles of changes. “It gets out of control and then it comes back,” she notes. Only time will tell if we have gone too far the other way, she says, although it seems so right now.

She recently had a loan take three months to get processed because the borrowers had to consolidate their debts to qualify.

“It used to be that if a person’s credit score was good, it could close in two weeks, but  now a lot more documentation is required,” Winchester said.

Paperwork changes every time regulations change, and the regulations changed about two years ago in response to the mortgage loan crisis.

These days, borrowers have to verify more things to a lender. Previously, Winchester said borrowers needed only to bring in their W2 and a pay stub to verify their income. Compare that to today, when borrowers are required to bring a tax return, W2 and 30 days of pay stubs along with a signed form allowing the lender to get a transcript of their tax return.

It’s the backlash from fraud throughout the industry, Winchester said. “It got pretty loose. I think greed in the lending industry got in there, but now they are paying the price with foreclosure,” she said.

Other changes in the lending process are that now the lender is required to wait three days before charging fees to the borrowers, except for a credit report.

“Probably the biggest change is that if a borrower’s circumstances change, the lender is required to wait three days for the borrower to review the lender’s fees. 

After the lender discloses its fees, the borrower has 10 days to notify the lender if they want to proceed. The lender doesn’t order the title, survey or inspection until after that, but has to wait until the borrower notifies the lender before proceeding.

The government decided that borrowers need time to shop around and compare fees and interest rates, she said. 

All this adds up to a lot more work for a lender, Winchester said. The ratio of debt to income has been tightened. For instance, Fannie Mae and Freddie Mac loans have been lowered from 52 to 45 percent total debt ratio, which would include all loans, such as car loans, credit card debt and a house payment.

It’s becoming more and more difficult to purchase a home, Winchester said, because people are carrying so much debt.

“People who don’t fit into the guidelines need to work on reducing their debt and bringing their credit score up,” she said.

The tighter regulations are slowing the number of borrowers, as more borrowers are denied, Winchester said. Lenders have to work harder for borrowers to make it work.

Not as many houses are being sold, which Winchester attributes to the loss of jobs, the domino effect when people can’t sell their homes in other states to purchase ones here, or people delaying retirement.

Some people will struggle even if they have a good credit score, Winchester noted, because a lot can happen over the course of a loan.

All this is very stressful for the lender, Winchester said, with the average conventional loan taking approximately 30 percent more paperwork than before. Adding to the stress is that most borrowers don’t understand the loan process. Most just want to know what the interest rate is and what their payment will be.

But they need to understand it’s a commitment for 30 years, Winchester said. “The lender has given them that money and expects them to pay it back, so they verify everything carefully.”

Winchester believes the changes have been beneficial, although they make it more difficult to buy a home. She said there are organizations out there to provide help to those who need it.

She highly recommends that buyers go to homebuyers educational classes offered through NeighborWorks and Consumer Credit Counseling of the Black Hills to learn what the process entails, what type of mortgages are available, how to budget, maintenance costs and the responsibilities of home ownership. Classes are either free or a minimal fee for the book. Classes typically last a total of about eight hours.

The perks, other than those above, are that these organizations help borrowers qualify for loans and they get a discount on the interest rate.

“It’s very, very good education for a lifetime of use,” Winchester said.

She suggests that borrowers comparison shop with more than one lender to get the best rate. She said consumers shouldn’t be afraid to ask if there is any negotiating of fees. 

“They need to ask a lot of questions and understand what specific loan product they are getting into,” she added. “If you think you can come in and get a loan by next week, it’s not that easy. It’s a long-term commitment.”

Not everyone should own a home, Winchester said, but that’s what they were trying to do. “Not everyone is ready,” she said. “It’s a privilege to own a home. It takes a lot of hard work.”

She knows some people have heard that banks are not giving out loans, but that isn’t true, she said. “Money is available and lenders are working to get people qualified,” she said. “Borrowers need to go to a lender to find out what they need to work on.”