Real Estate NewsThe Changed Face of Mortgage Lending
What ever happened to the man dressed in his Sunday best, hat in hand, being
ushered over to the banker"s massive mahogany desk for the old-fashioned loan
appointment? Old movies conjure up a kind of genteel nature to this scenario:
A potential borrower explains why the bank should give him a loan, citing the
need to provide shelter for his growing family, while his freckle-faced son
excitedly peers through a bank window for positive reactions.
The bank"s executive solemnly lowers his glasses to examine the borrower"s
loan application, which indicates that this suited man sitting across from
him owns his own car, some furniture and a brand new refrigerator. He looks
up and smiles, promising the borrower that his institution will take the loan
under consideration when the loan committee meets in two weeks. The borrower
rises, offering his hand to the banker, thanking him profusely for his
consideration, assuring him that the bank would not regret having made him a
loan if it decides to do so.
Fast forward to the year 2000. Loan approvals today have little to do with
scenes such as the one just described, with qualification criteria spelled
out in black and white for the hundreds of loan products available to the
average homebuyer. Loan consultants sport khakis and Polo shirts, sometimes
taking 15-minute loan applications over the phone from their borrowers, who
oftentimes sit in their family rooms, cordless phone in hand, feeding the
consultant personal financial information. Then, with lightening-like speed,
preliminary credit checks come screaming over modem lines connected to the
loan agent"s laptop computer to give him his first hint as to whether the
borrower is in any way loan-worthy.
Where reams of bank statements, employment verifications, and years of W-2 s
were once required, lenders these days base much of their decision on whether
or not to lend money on the borrower"s recent paycheck stubs, credit
"scores," some reserves and funds to close.
Once the loan consultant has helped the borrower decide on a loan program
that best suits his needs, they work together on "packaging" the loan
electronically. It will then be zipped along to a disembodied "desktop
underwriter," who can make a decision as to whether all the criteria and
compensating factors given to them will result in an approval, a "referral,"
or a flat-out denial in their "findings." A human underwriter stands ready to
oversee the details of the eventual approval, but, unlike days of yore, no
bank committee broods over stacks of files in a conference room, giving
thumbs up or down on the fate of each potential borrower.
Or go one further, with e-commerce offering borrowers the home-office ease of
applying for a loan over the Internet. Web real estate loan sites are still
trying to find ways to compensate for the lack of human involvement, but are
discovering that many potential borrowers go to their cyber-sites to
window-shop only, giving them a barometer check on rates while they deal with
a real live mortgage loan officer. Internet lending is, however, the wave of
the future, as more and more consumers begin trust its security and discover
its ease of use.
Indeed, the nature of lending has changed much since the days of George
Bailey and his little bank in "It"s a Wonderful Life". With nearly 70% of
Americans owning their own homes, never before has there been so much
opportunity for consumers to take title to their own clods of dirt and
dwellings.
Another fine statistic created in part by the past few decades" streamlining
efforts by the mortgage industry itself, which can (thankfully) now dispense
with many of the formalities of days past. And make us realize just how far
we"ve come.