We are now 12 years removed from the recession that crashed a huge party in our country, spurring regulators and policy-makers to implement stiff new checks-and-balances. I was asked by a friend the other day: “are we better off now?”
I would say yes, in many ways we certainly are. I cannot speak for the highest levels of this industry. If you read “The Big Short,” the one entity that really had the ability to stop the crisis was the ratings agencies who were rating very risky loans as if they were top-tier. Whether it was because they were goaded to do so or because they were just sloppy, it could have prevented some of the country’s largest investment firms from investing in what they may have thought were solid investments — or at least hedged better against them, knowing the amount of risk that was really associated with them.
I cannot speak for those folks. Here on the ground, things have certainly tightened up. Our version of those ratings agencies, in some ways, are the appraisers and underwriters. The appraisal system is riddled with checks and balances right now. Almost every appraisal now goes through a national review and is graded based on data of recent sales and on recent appraisals in the area and on each house they are appraising for. The criteria are pretty simple too.
An appraiser wants to value your house based typically on three houses that have sold in the same neighborhood in the last six months with the same number of bedrooms, bathrooms and square footage. If they don’t have those, they can stretch it a little.
This has forced some of the larger appraisal management companies, out of fear for getting a low score on their record, to put out appraisals that might be lower than actual value. It has also done a decent job of keeping others in check from handing out unreasonable values. Here at Assurance, we have three solid appraisers on a rotation that nearly guarantees a reasonable appraisal on every deal.
Values on houses have gone up quickly here in Atlanta over the last 12 years. It wasn’t because people were willing to buy houses for way more than they were worth, and banks were willing to lend them the money to do it. It’s because of the solid market principals of supply and demand. Our city keeps growing and our homebuilders cannot keep up. So more people are fighting for fewer houses, which is driving up prices. That isn’t going to change much anytime soon.
How we underwrite loans changed a whole lot after the crash too. And for several years you heard borrowers complaining about lenders “wanting everything including my DNA,” or “my first-born child.” It was kind of a wild time as banks and underwriters were trying to wrap their arms around the bevy of new regulations. They were doing it with a fear that if they did it wrong, they would have their licenses to make loans pulled. So there was some redundancy for sure.
For example, to figure out a person’s income, lenders were required to get two years of tax returns, two years of W2s, paystubs showing year-to-date totals, and if that wasn’t enough, written confirmation from someone in their company’s HR department. That’s a lot of redundant information just to find one salary.
Today, here at Assurance, because technology has progressed and because we are allowed to trust it more, some clients’ incomes are verified digitally during the application process. And some can actually get approved in seconds after submitting an application.
Another huge improvement here is that we just started allowing borrowers to e-sign most of their closing documents. So instead of having to hand-sign 40 minutes-worth of documents at the closing, it’s more like 10 minutes-worth. I had my first closing on a home purchase last week and we were done in 25 minutes — and it was only that long because the buyer and seller kept talking about the neighborhood. Once we were done, we all just sat there and kept talking, like we didn’t know what to do. It was fantastic.
So the lending industry, for some banks anyway, has become more streamlined and sensible. That’s great because it gives lenders a better opportunity to make the experience more about the home-buying or money-saving than about the process of approval.
Geoff Smith is a mortgage banker with
Assurance Financial focusing on residential home loans for refinances and home purchases.
Personal: NMLS#104587, Business: NMLS#70876
*The views and opinions expressed in this column do not necessarily reflect the views of Assurance Financial Group