Will this season be a repeat of the disastrous delays in home-loan processing that clogged the mortgage pipeline in spring, 1986?
If you're a home buyer, don't worry too much.
"The whole system is geared to processing new loans (vs. refinancing) first," explained Bob Fouts of Fouts Financial, a San Diego mortgage brokerage.
"The lenders know that these borrowers must take out financing, so appraisals, credit reports, verifications--all the needed documentation--are sent out first for a home buyer.
"Some lenders will lock in rates for a home buyer, while they issue a flat 'no way' to their refinancing clients because they can buy a commitment (from a lender in the secondary mortgage market) for the new-home loan."
If you're refinancing at this time, you may be wondering if lenders will process your loan before the end of the year. Although you'll stand in line behind the person who's buying the house next door, your chances are better this year for a quicker funding.
In spring, 1986, lenders were unaware of the mortgage stampede that was about to take place when interest rates dipped below 10%.
"In 19 years in the business, I had never witnessed anything like it," said Ed Dick, senior vice president of Great American First Savings Bank.
"But the past year's robust real estate market has sparked the opening of many new mortgage bankers, brokers and savings and loans with mortgage departments. This has increased the supply of funding sources.
"Also, existing firms are 'staffed up' now and waiting for the business. Great American can process loans in 30 to 45 days now."
Last year at Great American, a loan application that came on May 1 didn't get an appraisal for four months.
Some lenders have been able to speed up the processing of loan applications simply because demand isn't as great as it was when rates were below 10%. Rates on most fixed-rate mortgages now average about 10 3/4%, compared to about 9% last March.
With the recent increase in interest rates for fixed-rate loans, some borrowers may be lured into an adjustable-rate loan which--on average--is offered at an initial rate of two points below a fixed-rate program. To attract borrowers, several lenders are offering their quickest turnaround on adjustables.
Great American recently began offering its "Express Loan." If the lender doesn't fund an adjustable loan in 20 business days, the borrower receives a $1,000 rebate at closing.
According to Dick, applications for adjustable loans are up to 29% of total volume, compared to 17% in the beginning of the year.
Adjustable-rate loans account for about 70% of all the loans Home Federal Savings & Loan has recently been making, compared to 40% earlier this year, said Dennis Casey, a Home Fed vice president.
How can a lender offer a 20-day funding for an adjustable, but double the processing time for a fixed-rate loan?
The answer is less paper work and a lower loan-to-value ratio. With most fixed-rate loans being sold in the secondary market, rigid documentation is required. For example, Fouts pointed to W-2 forms, tax returns, paycheck stubs and employer verification forms needed to document the borrower's income today.
"That's really four forms that tell pretty much the same thing--income. For bank deposits, sending verifications to institutions is another time-consuming step," he said.
"If a borrower can bring in his last pay stub to show income and his bank statement to show his savings, that saves two verifications that must be sent out and then returned. The credit report can be a matter of a TRW computerized report that can be accessed instantly. Some lenders accept these verifications for loans that they are planning to keep, like adjustables."
Home buyers applying for the Great American Express Loan can borrow up to 75% of the value of their home. For refinancing, the loan-to-value ratio is 70%. This compares to 80% available to borrowers taking out conforming loans that are sold in the secondary market.
Gibraltar Money Center, a 3 1/2-year-old mortgage subsidiary of Beverly Hills-based Gibraltar Savings, treats the processing of all loans the same.
"We will take just as long to process an adjustable as a fixed rate, which is currently about 30 days," said Marge Pronovost, district manager for Gibraltar Money Center in San Diego.
"Taking longer to process a fixed-rate loan doesn't make much sense to me. But then again, we're not selling off our loans (in the secondary market), so we can use our own underwriting guidelines."
But Gibraltar--which does 99% of its business in adjustables--has its own way of promoting these loans.
"We offer a 60-day lock-in on the initial adjustable rate, but don't commit on the rate of our fixed loan until the documents are drawn," Pronovost said.