Home owners who don't have all their docs in a row are adding to refinance delays

By Broderick Perkins
DeadlineNews.Com

REFINANCING home owners cashing in on low interest rates and equity their homes have rung up in recent years are bogging down the application process in record dollar amounts.

If you aren't prepared when you apply for a refinanced mortgage you could further delay the process and -- should rates rise -- be forced to accept a higher interest rate or lose your loan.

Brokers and lenders are suggesting longer rate locks -- at greater expense -- to protect your shot at the cheapest loan.

Refinance funding reached a record $5.9 billion, representing 58 percent of the total funding in April, according to the Mortgage Bankers Association of America. In recent weeks, refinances fell below 50 percent of total mortgage originations, as purchase loan numbers rose above 50 percent for the first time in four months. However, the sheer number of refinance applications continue to surge, the association said.

Lenders and brokers say typical refinances now take two to three weeks longer than the normal 30 days. That means the process can last up to 45 days or more.

"Even in 1998 when we were crazy busy, I could lock on 30 days and get it done. It used to be a slam dunk in 30 days. It's the lenders who are taking huge amounts of time," says Stephanie Noryko a broker with Granite Financial in Cupertino, CA.

Refi gridlock

While lenders may share some of the blame, the refi rush is also due to interest rates hovering around 7 percent since the end of December 2000, according to Freddie Mac.

Home owners are also tapping equity from home values that grew 8.1 percent nationwide last year. Some metropolitan areas enjoyed double digit value boosts as high as San Jose, CA's 26.8 percent, according to the Office of Federal Housing Enterprise Oversight.

As the longest economic expansion on record appears to be waning, more and more consumers are anxiously rushing to cash in on their home's value before it shrinks along with the economy.

Among them are consumers who waited in vain for Federal Reserve rate cuts to trickle down to mortgage rates.

"Interest rates are not going anywhere soon. There is a 2.5 percent drop in the Fed rate that has not shown up in mortgage rates," said San Jose, CA-based broker Richard Calhoun, owner of Creekside Realty.

Competition is also gumming up the works because the current loan holder has no motivation to provide the new lender with a loan payoff information sooner than the 30 days required by law.

"The backlog is allowing lenders to charge higher interest rates. Good old supply and demand at work," Calhoun said.

In many parts of the country where the market remains hot, spring home buying is adding to the crush faced by brokers and lenders.

"Lenders are making purchases a priority. Purchases can still close in 30 days, but shorter than that does not allow for any "hiccups" which always occur in refinanced loans. There are too many loan applications and not enough good originators and an undertrained work force," says Arnie von Massenhausen, a loan officer with Advantage Financial in Los Gatos, CA.

That's because lenders don't want to go through past staffing woes to meet the current demand only to face another round of layoffs.

"They made this mistake before and then had to go through a lot of training and then massive layoffs. The second reason is that it is very hard to find good talent these days and if you do you have to pay an arm and a leg to get them to leave their current job," said John DeKoven, president of Platinum Lending Corp. in San Jose.

DeKoven also says on-line, automated loan application systems, which were supposed to speed up the process, may be having an opposite effect.

"When you apply online you are filling in the information that you truly believe to be accurate, but this isn't necessarily how the lender looks at it. Some common examples of this are people who are self-employed. They put down on their applications that they make so much per year, but maybe they only did that last year. When they send in their tax returns to the lender, the lender does a two-year average and your income can drop substantially," said DeKoven.

"The same thing applies to people who work overtime. A lot of these loans that are instantly approved via the Internet or Fannie Mae's Desktop Underwriter eventually get declined. I have been in the business for 12 years now, yet with all the technology we have I have never seen things slower then they are now," he added.

Clearing the bottleneck

Consumers can help speed the refinance process by being prepared and considering a longer than normal rate lock.

"If I have to do it in 45 days, I have to deliver to the lender in 10 days and I can do it that fast if the client helps," Noryko said.

Before you actually apply for a mortgage, gather documents necessary to prove claims you'll make on the application.

The application will ask for information about your job tenure, employment stability, income, your assets, including real property, cars, bank accounts and investments, and your liabilities, including auto loans, installment loans, mortgages, credit-card debt, household expenses and others.

The lender will run a credit check on you to take a look at your credit status, but you'll have to supply additional documentation including paycheck stubs, bank account statements, tax returns, investment earnings reports, rental agreements, divorce decrees, proof of insurance, and other documentation.

The sooner the lender deems you creditworthy, the sooner you can move on to an appraisal to make sure the value of the home is commensurate with its financing for a refinance or a purchase loan.

"Bring everything to the initial meeting, fax it ahead or deliver it to the originator, however the broker or lender suggests. Do return the appraiser's phone calls and set up the appointment as soon as possible and pay for the appraisal when the inspection is done," von Massenhausen said.

Whenever possible, plan on sticking around through the loan process instead of taking vacations or otherwise leaving town.

Meanwhile, lock in the interest rate with a written confirmation.

Your lock-in period should be long enough to allow for any factors that could delay the process, including the time it will take you to provide requested materials about your financial condition as well as market conditions.

The longer the lock the more it could cost, but locking "on application" instead of "on approval" could provide an edge in a rising interest rate market. Locks made on approval don't give you a stab at rates until the loan application is approved, however, locks made on application may not be long enough in today's market. They could also cost you more or cost you the loan.

"Don't take a 30-day lock before filling out and returning an application, or chances are it won't get done and the lock will not be honored. Get a lock on approval with an appraisal and then lock it in for 15 days for the best price," said Jeffrey J. Jaye, a vice president with Monument Mortgage in San Ramon CA.

Locks typically cost 0.25 percent of the loan amount ($500 on a $200,000 loan) for each 15 day lock period, but they can range from 0.125 percent to 0.325 percent, experts say.

"Most refinances are wrapping the costs into the interest rate, but the cost between a 15 day interest rate lock and a 30 day lock is approximately 0.25 percent of the loan amount. The same additional fee is charged from 30 to 45 days. These spreads do vary between lenders, but this is a standard," said von Massenhausen.

Published Friday, May 25, 2001, 12:00 PM for Homestore.com