In a word, “Government.”
Governments make rules. Rules are made to be followed, not to be broken. When you have rules, you need people to check to ensure they are followed.
Now, it is quite clear that when Congress passed new laws, and various regulatory bodies like HUD and the Federal Reserve Board passed new regulations to put those laws into effect, no one allocated money to pay for their enforcement. It’s as if they passed speed limit laws but didn’t set aside cash to hire police. The expanding roster of guidelines has created a more complicated process and given rise to added fees—and this means the consumer pays for it all in the end. Let me illustrate…
More hands in the process
At this point, everyone is basically relying on the lenders to make sure all rules are followed. Lenders have indeed added people to their payroll, and passed the cost on to borrowers by way of slightly higher prices.
In the old days, mortgage brokers like myself would submit a file to a lender, it would get logged in, be assigned a loan number, and immediately wind up on an underwriter’s desk. In a day or two, maybe three, it would get underwritten and maybe I would be asked for something more. But a day after that, it went to the document drawer. When the docs were signed by the borrowers, the file would go to a loan funder. That process involved four people and typically took less than a week.
[Infographic: Why the Home Loan Mod Program is Failing]
Today, every file that goes to a lender is touched by as many as ten people—and not all of them appear to be beneficial to the process. There is a “set-up” person who creates a file in the system, even though we did it when we registered it online. It goes to a compliance person who assures that the Good Faith Estimate and Truth-in-Lending forms are in order—the compliance person doesn’t actually look at the rate or fees proposed or anything else that’s important. There are four date boxes on the GFE and they make sure the dates are filled in correctly. I could say I was charging 10 points on a loan and they wouldn’t notice, so long as the dates are right.
I know that doesn’t add up to ten people, but we get e-mails from other people giving us progress reports or asking for more information. Also, they are typically the lowest-paid people in the office. It’s silly to pretend that they understand the GFE law, but they can see if the right dates are in the boxes.
The underwriters all now have assistants and I’m not sure what they do as I don’t see them, but they are there. The document drawing function is about the same but now the funders seem to have assistants as well, and it seems as if they re-underwrite the file. We had a loan ready to fund and they had 13 extra conditions that we needed to get prior to funding.
In almost every case, they are checking for insignificant items, not important things like the appraisal, income and asset documentation, or credit. They check everything except the big things.
Next: A labyrinth of rules »