Mortgage Rates Spurring Refinance, but Some Banks are Underwriting Too Slow

By: Rosemary Rugnetta | August 20, 2010 at 9:05 am

August 20th 2010  – Applications for mortgage refinancing are beginning to pour into lenders as mortgage rates continue to be at record lows. With the current mortgage rates at 4.00% for a 30 year fixed, 3.50% for a 15 year fixed and 3.25% for a 5/1 ARM, home owners are now taking the plunge to refinance. Many have been just watching the market to see what was going to happen and are now making their move. Since rates have reached historical lows not seen since the 1950s, the refinance door has opened up for everyone. Even those who already enjoy low rate mortgages are eager to apply for a refinance. Mortgage rates may be spurring refinance, but some banks are underwriting too slow to get loans closed.

Consumers, no doubt, are becoming frustrated with the amount of time it is taking to close their refinancing deal. As mortgage guidelines have changed and have become more complicated than several years ago, the process has become longer. In the past, automatic underwriting systems told exactly what was necessary to approve a loan. As the rules have changed, processors and underwriters must thoroughly examine the financial history of an applicant. Every credit glitch, every dollar deposited, every bad check and every overdraft must be explained. Documentation that must be received and verified can take a very long time. Any issue found delays the refinance mortgage from closing within a reasonable amount of time.

The appraisal rules have also changed the way a refinance is processed. Lenders must now use a third party system called the appraisal management system. With fewer appraisers working within an assigned market area, completed appraisals have fallen behind. A final underwriting cannot be done without the appraisal. In some cases, the appraisal takes so long to receive, that the credit, income and assets all have to be re-verified before underwriting the loan. This alone can take several days or weeks to accomplish.

With the volume of refinances increasing, lenders do not have the staff to produce the usual work flow. The problem has overloaded the available staff with an abundance of mortgage applications to be processed. This same problem occurred during the housing boom when mortgage volume was at its last high. At that time, lenders were willing to hire more staff in order to close loans more quickly. With today’s fluctuating market and unpredictable rates, lenders are not so willing to take on more staff to eliminate the overflow. If they are hiring, processors and underwriters need to become familiar with the new mortgage guidelines. To add to the problem, there is a shortage of FHA certified underwriters due to the lack of FHA business during the housing boom.

Having mortgage rates come down is what everyone has been waiting for. With approvals based on tighter standards, the usual work flow is no longer there. What we have gotten used to as normal closing time is not the norm and may never return. Although low mortgage rates are spurring refinance and some banks are underwriting too slow, borrowers can be prepared by having their paperwork ready and their credit in order prior to filling out an application. With lots of extra patience and cooperation, the refinance will finally be approved.