You know the history spiel, how loose lending requirements and automated underwriting led to the housing crisis in 2008.
At ATS Secured, however, we think there’s more to the story.
Take a step back and look at the bigger picture of the entire mortgage process. Zoom out. Squint. What do you see?
The Overall Structure Of the Mortgage Industry Is Broken
It is not secure, cohesive or even user-friendly.
Too Many Different Versions of the Loan File
In the current structure, each entity in the process (e.g., the lender, title company, appraiser, and so on), have a separate version of the closing documents. This “silo mentality” can and does lead to duplication of efforts, errors, and can also allow fraud to occur.
This broken, convoluted process enabled loose lending requirements to continue without check, full-tilt into the housing crisis.
Tight Mortgage Lending And Regulations
New regulations are now flooding the industry and the lending requirements “pendulum” has swung too far towards severity, according to Julian Castro, the Secretary of the Department of Housing (HUD).
When these tight restrictions and high standards are combined with the still-broken mortgage process, where information is kept to its respective silos, getting loans approved are almost impossible. Even for homebuyers who deserve them.
Mortgage Process Is Difficult
Recently, Bloomberg View author Barry Ritholtz published a blog post entitled, “It Shouldn’t Hurt This Much to get a Mortgage.” In it, he stated, “the process was surreal. Indeed, it was such a bizarre experience that I started hunting for explanations from people in the industry about why mortgage lending has gone astray.”
We recently interviewed a homebuyer, Josh Smith, at different stages throughout the mortgage process. One of the problems he encountered was weak communication, where no one informed him that his $3,000 dollar good faith deposit check wasn’t recognized on the estimated closing costs. This was understandably nerve-wracking for Smith. “I’m just waiting to hear back. I don’t know if the lenders have received my funds yet, I don’t know where they’re at in the actual loan process.”
Changing the Mortgage Process
Loosening or restricting lender requirements is only part of the solution. In order to fix the overarching problem, the entire process needs to change. In the post about Josh Smith’s home buying experience, I used a soccer analogy to explain how this could be accomplished.
The Missing Loan Collaboration
Imagine if the players on a soccer team never passed the ball to each other. That team would not win any games. The mortgage industry is playing a losing game because they don’t pass the proverbial “ball”, or documentation, to each other.
In many ways, this isn’t the fault of the mortgage industry “players”, just that circumstances have led us here. However, the players need to take charge of the circumstances and pass the “ball”, working off of one set of documents in a secure vault online.
A Better Mortgage Method
Through this user-friendly, protected and communicative process, a happy medium could be realized. It would help to soothe lenders’ worry about complying with strict regulations, because files would be completed much faster and more accurately. At the same time, the current restrictive lending requirements could be loosened to more reasonable standards, so those that deserve loans could get them approved.
Buying a home shouldn’t hurt so much. It can be restructured with technology solutions, making it less of an obstacle course and more of a smooth, paved road.
Want to make your mortgage process easier and more accurate? Contact ATS Secured today.