Slowing down the mortgage process
TEXT OF INTERVIEW
TESS VIGELAND: A lot of things in this world are better when they’re faster, the internet, visits from the in-laws. But faster isn’t always better. Especially when you’re making one of the most important financial decisions of your life: Buying a home.
As of this weekend a new set of rules is in effect that’s supposed to slow down the often-frantic pace of home loan signing. It’s also supposed to help make sure you know the real price of things before you buy. Imagine that.
Elizabeth Razzi has written a couple of bibles on home buying and I asked if this means those so-called good faith estimates will be based on more than faith.
Elizabeth Razzi: Well in the past, the good estimate was pretty much the good faith guess.
Vigeland: Right.
Razzi: It really bore very, very little semblance to what you would finally see at the closing table. Because there were no repercussions if things changed.
Vigeland: This is the form that tells you everything from what your loan is going to cost to what you’re paying for your loan servicer to do faxing for you. It’s everything, it’s title fees, its’ all that sort of thing, right?
Razzi: Yeah, it’s an estimate of all those expenses, the title fees as you said, there’s a laundry list. And that includes some things that are derided and rightfully so, like faxing fees and paper handling fees and that sort of thing. They are all supposed to be on the good faith estimate, but often they would change.
Now, within three days of applying for a mortgage, you’re supposed to get a good faith estimate of those costs. Closing can only be seven days after the lender has given you those disclosures, so you can’t get rushed. You can’t get your document and “Alright, here’s your disclosure and closing’s at three o’clock. See you then.” That’s not going to be happening.
Vigeland: So how far will this go to help alleviate the problem that we heard so often over the last year or two, where people simply said, “I didn’t understand my mortgage. I didn’t know what was going to happen with my payments”? Will this get so it is abundantly clear to everyone what is happening over the years with their mortgage?
Razzi: Not by itself. There’s a big rush in Washington right now to be the consumer protector. But there are many layers of things happening here. There’s another effort underway to make the disclosures much more simple. There’s talk about making a sort of a standard loan, you know, government certified, plain vanilla loan. That’s all still in the works.
But on the other hand, you can disclose all day long and some people are just not going to pay attention to it.
Vigeland: Let me ask you about another issue that’s come up. That is, there’s a new appraisal system that is underway to find out exactly how much your house is worth and whether the bank is going to bank roll your loan. And I’ve read that this new appraisal system is also putting a delay on things. Do you know about that?
Razzi: This is a big, big issue. And it’s not really clear who to believe. The idea is that an appraiser should be a step removed from the transaction. During the boom years, I heard a lot of appraiser complain that they were getting pressured from lenders to make sure that they came in with values that were high enough to support the deal. And these new rules are designed to eliminate that influence.
So the people who used to like the old way are really squawking loudly about it. It requires a third party to assign the appraisal job, you know, call up an appraiser and say, “I want you to do this job across town.” Real estate agents are complaining loudly that a lot of appraisals are based on the wrong houses. You know, that one neighborhood is not necessarily like the neighborhood that’s very close by geographically. Or that they rely too much on foreclosures. And it’s hard to tell how much of that is just resistance and how much is really a breakdown in the new system.
Vigeland: What is the best way for a consumer to try to keep track of all these changes that are going on in the home buying and selling area? It really is dizzying and if you’re expecting it to be the way it used to be, it’s really not anymore.
Razzi: It’s not at all. It’s tough for us who write about this for a living to keep track of all of the changes that have come and how the changes react with each other. The best way a buyer or a seller can deal with this is to really know your finances. It’s not a time for anything sloppy, “Oh I forgot to keep up on that account” or “I forgot about that credit card account.” Dot all the i’s and cross the t’s, get your credit scores, all that “brush your teeth” advice. You have to do that now.
And really keep track of the people who are working for you, the real estate agents, the appraisers, the home inspectors. It’s a really important time to get somebody who’s really on their game. And that’s all about you can do right now.
Vigeland: Elizabeth Razzi is the author of “The Fearless Home Buyer” and “The Fearless Home Seller.” Thanks so much for joining us again.
Razzi: You’re welcome.
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