August 19, 2019
Our brokers know about the amount of paperwork mandated for a mortgage loan application. Many buyers are being told by friends and family that the process was much less complicated when they bought their home fifteen or twenty years ago. There are two main reasons for the change: government guidelines, and the fact that banks do not want to be in the real estate business.
During the run-up to the housing crisis, many people “qualified” for mortgages that they could never pay back, leading to millions of families losing their homes, something the government wants to make sure won’t happen again. As a result of that foreclosure crisis, banks were forced to take on the responsibility of liquidating millions of foreclosed homes and negotiating millions of short sales. Just like the government, they don’t want more foreclosures. Nor do Orion’s brokers. The combination of those factors spurred the banks to tighten up their lending practices.
One way a broker could explain this to a client is this. “If you loan your friend $20 to cover Happy Hour, you expect him or her to pay you when they see you again. There’s no paperwork, and you know they’re good for the money. Loaning your friend $5,000 to buy a car is another issue, however. It’s not quite the same easy transaction. Well, try loaning them $500,000 to buy a home somewhere in the 580/680 corridors! And then try loaning that money to a stranger.” Your client should all know that all lenders, including Orion, want to make sure the property is valued correctly, the seller is the legal owner, the buyers earn what they say they earn, and so on.
But there is good news for Orion’s broker’s borrowers! The stricter paperwork means banks feel more comfortable offering low mortgage interest rates. People who bought homes fifteen 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 percent in the 1990s and 6.29 percent in the 2000s).