May 31, 2012

Getting A Mortgage: 2007 vs. Today

May 31, 2012

Getting A Mortgage: 2007 vs. Today

In the years leading to 2007, Countrywide had a product called Fast & Easy. Borrowers with credit scores of 720 or higher could get 80% financing up to $1m with no income or asset documentation whatsoever. Just a loan application, a credit report, and maybe a few follow up questions. But wait, it gets better. National City had the exact same “requirements” for a 10% second mortgage. So borrowers could get 90% financing by providing a few pieces of paper. The loan agent would get the title report and an appraisal. And the deals would close in 15 days.

This was Prime lending. Defined as such because there were no prepayment penalties and the rates were best-available.

Subprime was up to 100% financing with no income/asset verification for people with credit scores down to 620. Much higher rates, prepayment penalties, and sharp adjustments after 2 or 3 years.

Countrywide failed and BofA bought them. National City failed and PNC bought them. As for Subprime, which it all was anyway, here’s an epic stick figure presentation on how it ended.

As for today, deals take 25-45 days. Files are at least 3 inches thick even for “straightforward” W2 earners with non-technical tax returns who are buying single family homes. As for a more sophisticated entrepreneurial-type borrower profile who’s buying a condo or 2-4 units, the files are 6 to 10 inches thick.

“Death by a thousand cuts” is a common refrain from borrowers, especially the more sophisticated ones. Yes they’ve got clean profiles: good credit, good income, plenty of reserves left over after the close. But the cuts come from paper after paper required to document and explain every last detail of all money coming in from jobs and all other sources, money moving within/among their own accounts, and money moving out of their accounts. And this is to say nothing of verifying every dollar spent or earned on other property owned, other businesses owned partially or fully, verifying rental histories, and on.

The reason I bring all this up is because Movoto just posted this 2007 vs. today infographic on loan qualifying, which I think is a good basic primer, but just wanted to offer some color from the trenches. Also see ‘How To Get A Mortgage’ link below that lays it out simple and plain.

Prime Mortgage Requirements: Then And Now (Movoto)

How To Get A Mortgage: For New AND Experienced Borrowers