By Isaac Bonnell
Buying a house may never be the same again.
This has nothing to do with the drop in home prices or record-low interest rates, but rather with the process of getting a loan and closing the deal in the first place. What once took an average of 30 days could take as much as 45 to 60 days now that new federal regulations have taken effect — and that has local mortgage brokers worried.
“It’s definitely been an eye-opening experience to watch the drastic amount of change that has occurred in the last 12 months,” said Bill Havland, who co-owns Neighborhood Mortgage with his wife, Anny. “It’s not the industry I started in. It is certainly not the industry anyone started in.”
To understand how the industry has changed, it’s important to first know what it was. As with most other real estate-related businesses, loan origination was going gangbusters during the housing bubble, and independent brokers, not bankers, were seeing most of that business.
And the process of getting a loan and closing a deal was fairly smooth: When a customer applied for a loan, brokers could begin working on it right away to try to secure the best loan possible. Then the broker would order an appraisal of the property to ensure that it was a sound investment.
Throughout all of this, speed is important for both the customer and the broker. After all, time is money.
“We were known for closing loans quickly if we needed to,” said Anny Havland. “We could take an application and that person could technically sign and close the next day if we needed it to. We had the capability to do that. But with the new regulations now, it’s impossible. That is not an option any longer — not even in two weeks.”
Two items are now slowing down the process of buying a home: the Mortgage Disclosure Improvement Act (MDIA) and the Home Valuation Code of Conduct (HVCC). The MDIA took effect July 30 and states that homebuyers must have seven business days to review loan documents before signing the final paperwork to close the transaction.
The HVCC took effect May 1 and drastically limited the relationship between mortgage brokers and appraisers. Typically, brokers would develop a list of preferred appraisers in the area and order the appraisal directly. Now, all appraisals are handled through an appraisal management company to ensure that brokers can’t influence the process.
While that is an admirable goal, many brokers are concerned that the process now takes too long and adds a financial burden to customers — who now have to pay about $400 upfront for the appraisal.
“We’ve seen appraisals take as long as three weeks from the time it’s ordered to the time that we receive the report back,” Bill said.
“We used to get them in two days,” Anny added.
In a time-sensitive industry, extending the process has caused problems for everyone in the process, from Realtors to lenders to consumers.
“If you took a poll on the street of how many people would like to close a loan in 15 to 30 days or 45 to 60 days, I think you’d have a staggering number of people voting for a quicker process.
While the HVCC and the MDIA may have good intentions — preventing any outside influence on home appraisals and making sure homebuyers have enough time to understand the details of a loan — their combined effect is seen by many in the industry as overregulation.
It’s an understandable response after seeing the kind of predatory lending that led to the housing crisis, but every industry is going to have “bad seeds” and many of them have already left the mortgage industry, Bill said. So new regulations are making it harder for the “good seeds” to continue doing business.
The last two years have already seen a mass exodus of jobs from all sectors related to home buying, especially Realtors and mortgage brokers. And with these new rules, Bill said he expects more people to make a career change.
“I would bet that there are going to be a lot more people saying ‘I’m done with this industry,’ because these regulations make it harder to do business,” Bill said. “When we opened [in 2004], I would venture to say that there was at least double the number of offices here in town as there are right now.”
Mark Cross, owner of Security First Mortgage, has seen a similar trend.
“Most people hung in for about a year and then went and got regular jobs with a steady paycheck,” Cross said. “In this state, we lost 50 to 75 percent of our loan originators.”
Change is nothing new to Cross, who started his own mortgage company in 1986 and has ridden several ups and downs in the real estate market. Being a mortgage broker in the 1980s wasn’t a very well known job, he said, and it certainly wasn’t an easy time to enter the industry.
“When I first started we had 19 percent interest rates and high unemployment — and foreclosures were more common,” Cross said. “That was a tough economy to go through. I went the first 10 years of my business and never saw rates go below 7.5 percent.”
In the early 1990s, the Pacific Northwest was just beginning to see a slight boom in real estate. By the turn of the century, many were already speculating about a “housing bubble.” The following years were some of the most profitable years in real estate, but that eventually led us into the mortgage meltdown of 2007.
As with any disaster — natural or man-made — there is a tendency to overreact in the aftermath. Such has been the case with the mortgage industry, Cross said.
“They’ve regulated us almost out of existence. The disclosures and the paperwork are mind-boggling,” Cross said. “When are we going to get through the overreaction? It’s not going to happen quickly. It will take at least as long as it took to get into this mess, which was a couple years.”
The good news
While mortgage brokers are adjusting to new regulations, one question repeatedly comes up: Will the industry ever be the same?
“I don’t think so,” Anny said. “I think Wall Street has learned its lesson and lenders have learned their lesson, but I don’t think it will ever be the same. I hope it’s never the same because I think [lenders] were saying ‘yes’ to too many things. They were saying ‘yes’ to people who didn’t even have jobs.”
The good news is that banks still have lots of money to lend, Bill said. Financial markets have stabilized and many people can still qualify for a home loan — and capitalize on a unique buyer’s market. Despite the new lengthy timeline for buying a home, it is still a good time to buy, Bill said.
“You couple low interest rates with purchase prices that are more reasonable, add to that the $8,000 tax credit and it’s a ripe-for-the-picking time for first-time homebuyers,” he said.