By CAROLYN LUCAS-ZENK
Despite reports about the difficulty of obtaining mortgages, some local lenders and brokers say this is not the case on Hawaii Island. They also say the time needed to close a loan is not getting longer and there are more players in the mortgage buying game, many of whom they are coaching through the obstacles that may have kept them from previously obtaining a loan.
Marcelle Loren, principal mortgage broker at Island Mortgage, said every borrower she has worked with this year and last has been approved for a loan, including borrowers with bad credit and foreclosures. She declined, however, to reveal how many borrowers she has helped.
“Despite the tidal wave of regulations that have affected the industry, mortgage lending in Hawaii has an accommodating stance, which continues to bring about mortgage credit availability to Hawaii’s homeowners,” Loren said. “Getting a mortgage now requires precise navigation and a good ship, which is expected when you are in high seas.”
In Hawaii, Loren said the situation is more “local-style,” meaning “there’s more interest in trying to accommodate borrowers’ unique needs and guiding them through the process rather than throwing up a wall.”
More often than not, this goes beyond looking for multiple options or ensuring no transaction-killing surprises. It also means educating borrowers about when is the best time, based on their situation, to pursue a mortgage. The most difficult thing for people to understand is every lender is different, especially when interpreting and applying rules and guidelines, she added.
“Lenders today are more cautious when taking risks,” said Mel Ventura, Hawaii Community Federal Credit Union vice president of credit policy and loan administration. “But in general, people who are employed, have good credit, have a down payment and meet all the other common requirements … are still getting loans.”
Though strict underwriting standards and rigorous documentation rules have taken effect since the financial crisis, APEX Mortgage LLC principal broker and owner Barbara Welsh said the mortgage process is not slowing down and loans are closing. The average time from application to closing is from 30 to 90 days. Welsh has more than 20 years in the industry and has helped more than 300 Big Island homeowners get a mortgage.
Still, there’s uncertainty in the mortgage industry, especially with forthcoming federal regulatory requirements stemming from the Dodd-Frank financial reform legislation.
Ventura said the new rules established by the Consumer Financial Protection Bureau may make it harder for some borrowers to qualify for mortgages, particularly those with less-than-perfect credit, those at the lower end of the income scale and those who have a lack of equity. He said there’s also a lot less room for lenders to adapt with a more arduous, objective evaluation process.
Ventura said the ability-to-pay rules, which go into effect next year, require greater disclosure and full documentation — a process that’s going to be more time-consuming and expensive. He explained that lenders and brokers will develop new procedures and undergo training to ensure document compliance. There could be also longer processing times, especially when considering an appraisal is typically a two-week process.
“Full interior and exterior inspections are now required usually across the board,” Loren said. “Before, sometimes no appraisal was required or just simply a drive-by. Borrowers should check to make sure all permits are closed and county inspections finalized. Acceptance of unpermitted improvements vary from lender to lender and from program to program and type of unpermitted improvement.”
Lenders are now required to verify financial information, including through third-party sources and make good-faith efforts to ensure that borrowers can afford the debt they are taking on, Ventura said. He said the new rules will also provide a safe harbor from lawsuits for certain loans, those the bureau calls “qualified mortgages.”
The government has made clear what constitutes a “qualified mortgage” and offers protection to lenders who issue loans where a borrower’s overall monthly debt-to-income ratio is not more than 43 percent. However, the debt-to-income ratio is not “a hard and fast cutoff,” Ventura said. He mentioned exceptions are being considered for community lenders that would allow more flexibility to provide mortgages with riskier terms, such as balloon payments in rural areas to underserved borrowers and exempting servicers with fewer home loans that they own or originate. Nevertheless, the borrower must have the means to pay both the principal and interest on any new mortgage over the long term.
Welsh thinks the new regulations are “an overreaction” and certain components should be changed. She said “qualified mortgages” cannot have points and fees in excess of 3 percent of the loan amount. Points and fees include fees paid to title companies, salaries paid to loan originators, amounts of insurance and taxes held in escrow, loan level price adjustments and payments by lenders to correspondent banks, credit unions and mortgage brokers in wholesale transactions. She said under this definition, many loans, particularly those made to low- and moderate-income borrowers, would not qualify and would likely lead to higher rates because of the heightened liability risks.
At a minimum, lenders must consider income or assets; employment status; the monthly payment on the covered transaction; the monthly payment on other loans; the monthly payment for mortgage-related obligations, such as property taxes; current debt obligations, alimony and child support; monthly debt-to-income ratio or residual income; and credit history. Those in the industry repeatedly warned about the restrictions on eligible income, which might have unintended consequences. For instance, income from second jobs is generally not counted, especially if it’s not documented on a W-2.
Loren said submitted tax returns must be erified as those filed with the Internal Revenue Service, a measure implemented to reduce fraud. “Where this was once done on 10 percent of applications, it is now done on a majority of them,” she said.
Ventura said the rules are important to prevent risky lending, such as the subprime loans that caused the 2008 housing market collapse. He thinks there’s less of a chance of borrowers claiming to be unsuspecting and not understanding the terms of their loan. “The situation is clear enough for everyone to understand,” he added.
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For Loren, the new rules are nothing new.
“During the 1990s and up to 2008, it was pretty easy to get mortgage money. We developed a fast mortgage culture similar to part of our population’s love for fast food. It was not uncommon to hear jokes that one just needed a pulse to get a mortgage,” she said. “Documentation requirements have gone back to the old days where it was normal business to require a full set of documents to prove an applicant’s willingness and capability of repaying the mortgage and fully reviewing the proposed security of the mortgage — the property.”