The days of thin mortgage apps and lax verification are in the past -- but has the pendulum swung too far in the other direction?
Prior to the mortgage meltdown, typical mortgage applications were a hundred pages or less. But with ever-changing regulations and stricter compliance standards, the days of thin mortgage applications and lax verification requirements are in the past.
Many mortgage professionals feel the pendulum has swung too far in the opposite direction, with 500-page applications rapidly becoming the new normal.
“It’s not like one regulation is causing it. It’s the fact that it’s a never-ending litany of legislation and litigation that drives every form that we have, so god forbid we ever take a form out,” said Brian Koss, executive vice president of Mortgage Network. “Practically every form can be tracked back to a lawsuit that was filed.”
The overabundance of documentation, Koss said, creates an undue burden on both borrowers and originators.
“The customers are saying, ‘It’s so big that I didn’t read any,’ ” he said. “The (Consumer Financial Protection Bureau) is trying to simplify it – but ironically, because of the new laws, they’re making more forms for that.
“There’s an intense burden on the front of the line, and it’s coming from the people at the back of the line,” Koss said. “It’s created a lot of double- and triple-checking. It’s our only safe harbor to over-disclose. We treat all loans equally, and they’re all over-taxed with paper. You remember when someone would say to you, ‘Geez, don’t make a federal case out of it?’ Well, that’s what it’s come to – you treat every loan like a potential federal court case. You have to make sure that your documentation is in the file to prove that this person is vetted and they really could afford the loan.”
Koss said it wasn’t the spirit of the verification laws that bothered originators, but rather what he felt was the unnecessary complexity of their execution.
“We think the CFPB’s doing a lot of this with good intentions. They’re not our biggest fear,” he said. “Our biggest fears are attorneys and class action lawsuits. The way the law is written, it’s very hard to meet it perfectly, and there are enough unscrupulous lawyers out there to take advantage of that. We do think the laws are written in such a way that it makes it very, very hard to be perfect, and they kind of require perfection.”
There has to be a compromise, Koss said, between lax verification standards and onerous ones.
“There’s no doubt that there’s (middle ground). That’s why we need less, clearer-worded documentation,” he said. “That’s why (the CFPB) is making these forms that are coming to fruition in 2015. They are trying to get it right. The CFPB heard this and is trying to work toward it.”
But the biggest burden, Koss said, isn’t the government documentation, but the documentation the borrower is now required to provide.
“That’s where the borrower feels the most pain – going back and getting years’ worth of tax returns, multiple bank statements – that’s what drives them crazy the most,” he said. “But that’s the new future. They have to have real proof. You can’t have a feeling – ‘I think this guy’s gonna pay.’ You have to be able to go back and say, ‘Here’s how I proved they could afford it.’ That’s written in stone and people are going to have to work off that. Which means it’s going to take more time to produce. It’s going to be more challenging and more costly to do a loan, but the government’s okay with that.”
Many mortgage professionals feel the pendulum has swung too far in the opposite direction, with 500-page applications rapidly becoming the new normal.
“It’s not like one regulation is causing it. It’s the fact that it’s a never-ending litany of legislation and litigation that drives every form that we have, so god forbid we ever take a form out,” said Brian Koss, executive vice president of Mortgage Network. “Practically every form can be tracked back to a lawsuit that was filed.”
The overabundance of documentation, Koss said, creates an undue burden on both borrowers and originators.
“The customers are saying, ‘It’s so big that I didn’t read any,’ ” he said. “The (Consumer Financial Protection Bureau) is trying to simplify it – but ironically, because of the new laws, they’re making more forms for that.
“There’s an intense burden on the front of the line, and it’s coming from the people at the back of the line,” Koss said. “It’s created a lot of double- and triple-checking. It’s our only safe harbor to over-disclose. We treat all loans equally, and they’re all over-taxed with paper. You remember when someone would say to you, ‘Geez, don’t make a federal case out of it?’ Well, that’s what it’s come to – you treat every loan like a potential federal court case. You have to make sure that your documentation is in the file to prove that this person is vetted and they really could afford the loan.”
Koss said it wasn’t the spirit of the verification laws that bothered originators, but rather what he felt was the unnecessary complexity of their execution.
“We think the CFPB’s doing a lot of this with good intentions. They’re not our biggest fear,” he said. “Our biggest fears are attorneys and class action lawsuits. The way the law is written, it’s very hard to meet it perfectly, and there are enough unscrupulous lawyers out there to take advantage of that. We do think the laws are written in such a way that it makes it very, very hard to be perfect, and they kind of require perfection.”
There has to be a compromise, Koss said, between lax verification standards and onerous ones.
“There’s no doubt that there’s (middle ground). That’s why we need less, clearer-worded documentation,” he said. “That’s why (the CFPB) is making these forms that are coming to fruition in 2015. They are trying to get it right. The CFPB heard this and is trying to work toward it.”
But the biggest burden, Koss said, isn’t the government documentation, but the documentation the borrower is now required to provide.
“That’s where the borrower feels the most pain – going back and getting years’ worth of tax returns, multiple bank statements – that’s what drives them crazy the most,” he said. “But that’s the new future. They have to have real proof. You can’t have a feeling – ‘I think this guy’s gonna pay.’ You have to be able to go back and say, ‘Here’s how I proved they could afford it.’ That’s written in stone and people are going to have to work off that. Which means it’s going to take more time to produce. It’s going to be more challenging and more costly to do a loan, but the government’s okay with that.”
