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   ARTICLE   |   From Scotsman Guide Residential Edition   |   October 2005

The Lighter Side of Lending: Technological Matters

New advances have made the mortgage industry more complicated in the past 50 years

I read about how technology has improved borrower experience when financing a home. Yeah, right the only thing technology has done is put our customers through the same hell a little faster. If you think we’re technologically advanced, just remember it took 50 years for us to get from written employment verifications to accepting telephone verifications.

When it comes to technology, you can be sure of one thing: It will cost twice what you are quoted, and it will take an additional 12 months to get it to work. When you are finished, you will discover that all you have done is “electronified” what you used to put on paper. We still don’t trust a soul and will spend hours chasing down minor facts that are less meaningful considering the loan programs available.

We knock ourselves out providing quick loan approvals and then spend the rest of our time apologizing: “Sorry, we can’t sign today because we don’t have the documents.”

How come? We’ve got quick docs, right docs, fast docs, city docs, desert docs and mountain docs working overtime. Every part of the country is covered. We’ve come all this way only to discover that technology can’t produce final loan documents until hours before closing.

Why are we wringing our hands over gift letters when we offer 100-percent financing to nearly everyone? If Uncle Norm is gifting the closing costs so the kids can buy a home with no down payment, why are we suspicious of him? Is it really going to matter if the kids default and lose the house? Unless you want to call and yell at him, leave Uncle Norm alone.

Bank statements and tax returns are other things that make us look dumb. Printing, copying and mailing these reminds me of the 1950s. What we are saying to our customers when we demand these is, “I think you’re lying to me.” Why can’t we just use the bank and Internal Revenue Service Web sites, read the data in real time, make up our minds and move on?

I don’t know what self-employed borrowers did to investors, but it must have been awful. They should organize and demand equal treatment. You can tell a self-employed borrower’s file by its weight. Just looking at the documentation tells you that our industry thinks self-employed people lie more than employed people. Why can’t we just find their financial data on the Internet, read it and approve the loan?

If stated income is OK in some cases, why isn’t it OK in most? We can simply add a sentence to the mortgage: “If you lied about your income, you will be considered in default. We can take your home away from you and fine you $85,000.”

Anyone can see their own merged credit report online, so why can’t lenders do the same? Why are we printing and stuffing them in loan files? How about providing live access to the reports during underwriting? People can print out a copy at their own expense. Someone must have figured out that credit reports change almost daily. Keeping them in permanent loan files is like saving your calendar in hopes that the year may come back.

My best idea: Why not prepare all of the final loan documents at application? Sure, there will be changes. but it’s easier to change something than to start from the beginning. Besides, it will keep many of your customers from shopping around. Just say, “You’ve already signed your final papers, it’s too late.” It will surely cut down the wait time.

I’m willing to bet that someday we’ll be using a few of these ideas. Technology should bring us one-hour approval and two-day closings — except for Federal Housing Administration and Department of Veterans Affairs loans. We’d have to get all the mandatory disclosures and warnings on one compact disc so borrowers could certify they’ve watched it.

You may find this hard to believe, but 50 years ago nearly all lenders made mortgage loans using three ingredients: a complete loan application; a good credit report (without scores); and a believable property appraisal. I’m willing to bet my best recipe for blueberry crunch cake that delinquency and foreclosure rates are about the same today.


 


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