If Quickie Mortgages are the Goal, Whose Goal Is It?
The latest trend in mortgage financing and closings is speed. Apply now, get approved in a few minutes and sure, we can skip a lot of paperwork.
There’s nothing wrong with speed. Nobody wants to be stuck in a two-hour traffic jam if the same trip can be accomplished in 20 minutes. I get it. And frankly—having suffered through innumerable financings, refinancings, sales, and purchases—speed is a trend I can embrace.
Truth is, real estate used to be a lot quicker. My first purchase agreement ran two pages. My latest transaction involved something like 165 pages of closing paperwork, much of it possibly in Babylonian—it’s hard to know because the type was so small.
“There’s simply no reason for lending and closing procedures to be as time consuming and irritating for consumers as they sometimes are,” said Rick Sharga, executive vice president at Ten-X.com, an online real estate marketplace. “The extensive paperwork demands that have become so common should become much less of an issue as technology automates them more and more.”
Mortgage Pre-Approval in Minutes
For example, I can go online and instantly complete a mortgage application. Moments later, the lender will get back to me with an estimate of my borrowing ability. This is possible because behind the scenes, the lender has quickly checked financial information such as my credit report and bank statements.
I very much like the new system because as a borrower, I haven’t been forced to assemble six cartons of tax forms, bank statements, payroll stubs and retirement account data. The time it takes to gather all of this stuff is eliminated with the new technologies. If I don’t happen to have all of the pages from my December bank statement—including that blank one—it doesn’t matter, because the lender has directly accessed my account and obtained the information it needs.
It’s not just borrowers who benefit from the new technologies. It’s also lenders. In the example of the online loan application, I never spoke with a loan officer. There was a lot less for an underwriter to do because computers had done the initial work. No less important, lenders no doubt love the idea of automated applications because by getting data directly from various sources, there’s no possibility of the borrowers altering the paperwork or committing other forms of fraud.
However, while the mortgage application process is becoming more streamlined, the overall real estate calendar is rarely shorter: EllieMae reports that in March, the typical loan took 43 days to close. Real estate transactions—as opposed to mortgage applications and real estate closings—are not necessarily geared toward quickie operations. For instance:
- If you buy a house, you’ll likely want a professional home inspection. It takes time to schedule an inspection, and then more time for the inspector to write up the results and get them back to you.
- If you’re getting financing, you’ll also need an appraisal in most cases, though one can see how automated valuation models (AVMs) will increasingly substitute for human appraisers. It takes time to schedule appraisers—especially because in some areas, there are few of them—and it takes more time for appraisers to write up their reports.
- The closing agent will need time to prepare the necessary paperwork but—again—in the future, one can imagine a system where contract details, financial arrangements and other aspects of the sale are automatically combined to produce the settlement forms.
- If you have a mortgage, you literally can’t have an instant closing. The reason is that the government requires certain time frames for mortgage materials. For instance, borrowers must receive a Loan Estimate (LE) form within three business days of application; the Closing Disclosure (CD) must be provided at least three days before settlement. If a new CD is required, it “can be provided no later than seven business days before consummation,” according to the Consumer Financial Protection Bureau.
- Having a few delays in the mortgage process is actually a good thing. Buyers and sellers need time to pack, move and find replacement properties. For this reason, a quick closing is often undesirable.
So sure, count me in as a fan of the new technologies. I have the same goal as lenders and closing agents: I want fewer transaction hassles. I look forward to saving a few forests the next time I apply for a mortgage, and I love the idea that the hunt for missing paperwork will be a thing of the past.
Peter Miller is a contributing writer for Ten-X and Auction.com as well as a nationally syndicated newspaper columnist. He is the author of the 2016 edition of The Common-Sense Mortgage.