Going through the underwriting process can be draining and frustrating but at least it will be over in less than a month, right? Well that used to be the case; not so much over the past 2months. Underwriting times across the nation have been extended at a minimum 2weeks to in some cases 2-3 months beyond the typical underwriting time of 30days. So if you are financing a purchase that needs to close on time read on and avoid some of the common problems identified below.
Underwriting is taking how long? What gives?
Over the past 5yrs the large national banks Chase, Wells Fargo and Bank of America have carved out a greater market share of the overall mortgage origination market. The national banks 5years ago used comprise approximately 25% of the origination market; today they control more than 85%. Why that is an important statistic in the conversation of underwriting times? One word: bottleneck. The big three are just not equipped to handle the market share they command. I have received recent anecdotal evidence from clients who have given up on waiting their turn to start the process much less finish the process with the big three. Some are being given estimated call back times after providing initial information that are 60 to 90days into the future. Just last year one such customer worked with one of the big three for 5months just to be denied. Talk about extended times. Unfortunately these are not isolated examples but rather characteristic of the market. I’m happy to say she started the process with us and closed in less than 45days.
But the question to why underwriting times are so extended lies in the fact that the origination market has been hit by a perfect storm over the past 2yrs+. Interest rates are incredibly low driving demand, the industry has seen an exodus of personnel either though work force reductions or voluntary exit, underwriting requirements have become increasingly more difficult and to top it off government regulation has increased significantly with ever changing forms and additional protocols being added continuously. All of this combined has led to extended underwriting times and bottlenecks.
What is a good turnaround time for underwriting on my mortgage?
There is some good news. Not all deals take 3,4,5 months. It really does depend who you work with rather than your level of credit worthiness. Remember the client that was denied after 5months? She had mid-fico score of 731, pretty good in any book! When chosing a mortgage lender consider their level of competency, their resources in as much product offering as well as technology but most important of all, in my estimation, their integrity. If you work with a good originator, closing on a home loan in less than 35 calendar days should not be problem. HomeStart Capital is averaging 27 - 28 days from signed application to close. But consider yourself a great judge of character if you do close in less than 35days because the national average for purchase closings is closer to 45 to 50days+.
What can you do about it?
My first word of advice would be to use a small-to-medium mortgage broker and/or mortgage banker (by the way many credit unions' mortgage departments operate as a mortgage broker/banker). Why? The answer is simple here, they focus on one thing; originating mortgages and they handle manageable workloads. Smaller operations can quickly add hands on deck or stretch their human resources at the margin. In addition, typically they will not bite off more than they can chew. Their number one goal is not just to close a unit but rather count on you to refer their services.
Second get involved and meet your loan officer. Remember the good ole days when you actually sat down with the loan officer? At this meeting you discussed your goals, looked over your documentation, asked questions of each other, identified any deficiencies, and set a plan of attack. These meetings still happen every day in our office but sadly the industry has moved away from this practice due to the commoditization of mortgage loans. Although a mortgage loan is a commodity, you are not. Therefore, just as your finger print is unique; your financial profile is unique and is something that requires an in depth understanding. Not spending time upfront on this can lead to red flags during the underwriting process causing delays or worse; result in denial. During this process it’s important to discuss any concerns you may have regarding any past financial or credit decisions that might have an adverse effect. As I tell all of my clients. “Confess all your financial sins to me now, it’s okay. I’m bound by my profession to keep them between us or at least those on a need to know basis only”.
Typical reasons for underwriting delays
- Bad appraisals
- Collateral reviews
- Declining market values
- Expired documentation
- Unsourced deposits
- Disputed items on credit report
- Additional credit inquiries / increase in credit lines or new credit lines
- Inadequeate insurance
- Amendments to sales contracts
- Undeclared Real estate
- Amended Tax returns (not identified at time of submission)