If you, or someone close to you, has recently applied for a mortgage, you know that one can get inundated with paperwork. The lenders want to know everything there is to know about you. The application forms seem to never end, and the lenders want triplicate verification of everything! I have had clients tell me that it was so much easier the last time they applied for a mortgage, ten or twenty years ago. And having heard from my children, I believe it.
But why is there so much paperwork required?
Here are the two reasons that I have been told.
- There are new guidelines put forth by the government. These guidelines require that the lenders prove, beyond a shadow of doubt, that the borrower is capable of making the mortgage payments. During the housing crisis of the mid 2000s, many people “qualified” for a mortgage that they were not capable of paying. And when these buyers were unable to keep up with the payments, they lost their homes. And not just a few, millions of families lost their homes. And now the government is trying to ensure that this will not happen again.
- Banks want to be bankers. They do not want to be in the real estate business. When those families eventually lost their homes to foreclosure, guess who ended up owning those homes? That is correct – the banks. And the banks were the ones who were forced to liquidate those millions of homes. And the banks also had to deal with an additional million plus short sales. The banks do not want to deal with foreclosures. And that is why they double and triple check everything that is on an application.
Now let me tell you some good news.
Government regulations mandated that the banks be very strict when it comes to paperwork. These more stringent requirements had a byproduct which resulted in lower interest rates, currently around 4%. Remember me telling you that ten or twenty years ago, the paperwork was a lot less? Well, ten years ago the average mortgage rate was 6.29%. And twenty years ago it was 8.12%. I would bet that if you went to a bank today and offered to pay 7% instead of the market rate of 4%, they would require a lot less paperwork. You see, with all of the verification on the application, they have reduced their risk, which they can pass along in the form of lower interest rates.
I don’t know about you, but for a sizeable reduction in the interest rate, I will fill out a lot of paperwork.
Art Reiman – Realtor – 732-598-7700