Pipeline clogged for refinancing homeowners

HACKENSACK, N.J. - Borrowers are waiting an unusually long time to close on mortgage refinance loans because thinly staffed banks can't handle surges in volume when rates dip, mortgage experts say.

Also, lenders are giving applications closer scrutiny and requiring more documentation of income and assets to avoid repeating past mistakes. That has further crimped the pipeline, as have new appraisal rules that add a layer of red tape for many loans.

The upshot is that refinancing deals that used to take no more than a month now can take two or three, depending on the lender. The largest lenders - such as Bank of America and J.P. Morgan Chase & Co. - have been among the slowest, brokers say.

That means borrowers are continuing to pay at the higher rate for months more than they thought they would have to. And while they wait, some are even losing their "locked in" rates as the 30- and 45-day guarantees expire.

"I had seven people in May whose lock expired," said Wendy Nastasi, owner of Crossroad Finance Discount Mortgage in Pompton Plains, N.J. They eventually got the rate they wanted, but had to wait until rates dipped again, she said.

Tom Marinaro, president of Residential Home Funding, a mortgage banker in Ramsey, said that two years ago he could almost always guarantee a closing in 30 days. "Now it's 45 to 60 days," he said. Other brokers say some loans have taken three to four months to close.

Part of the problem is that many lenders that were rocked by the financial meltdown were caught short-staffed after eliminating thousands of jobs, said Keith Gumbinger, vice president of HSH Associates, a Pompton Plains publisher and mortgage rate tracker. Two-month backlogs of applications built up quickly when rates fell below 5 percent in January, prompting a surge in refinancings. The volume has slowed considerably in recent weeks as rates have inched higher, but the turnaround times remain sluggish.

"Lenders are still understaffed when a crush of business comes in," Gumbinger said. "Banks are loath to add personnel with uncertain demand."

"Lenders, appraisers and title companies don't have the capacity that they had before," said Greg McBride, senior financial analyst for Bankrate.com.

The backlogs are expected to ease somewhat as volume declines, they say. The Mortgage Bankers Association said Wednesday that the number of refinancing applications fell last week for the first time in a month. They declined nearly 11 percent but still exceeded home purchase money requests as the 30-year fixed rate average inched up to 5.36 percent from 5.31 percent the week before.

Mortgage bankers and brokers say homeowners who have loans with floating rates expect them to rise, and those who want to pay off second mortgages are still looking to refinance. But they are being warned that the process may take longer than they expect.

Marinaro, of Residential Home Funding, said today's tighter credit standards have played a big part in longer processing times.

He and other loan originators now almost always require that borrowers provide recent pay stubs, tax documents and bank statements to verify they have enough income and assets to make the payments - a departure from a couple of years ago, when "if you had good credit and a heartbeat you got a loan." The gathering of these documents takes time, Marinaro said.

"When Wall Street was fully engaged (in acquiring mortgage loans), 30 days was a good working number," Gumbinger said. "But you could make the case that that was part of the problem," he said.

Tom Kelly, a spokesman for Chase, which recently extended its standard rate-lock to 90 days from 60, said, "the bottom line is we are doing old-fashioned underwriting," and getting the staffing levels right has been an issue.

"The mortgage industry is trying to balance the need to meet the peak demand and have the appropriate staffing," he said

New federal appraisal rules that went into effect in May and aim to remove conflicts of interest that may have contributed to the real estate bubble that burst in 2007 can add several days to the time it takes to close, Nastasi said.

For loans that lenders sell to Fannie Mae or Freddie Mac, which buy up roughly half of all U.S. home loans, brokers can no longer hire appraisers. The lender must do the hiring through outside management companies.

Low appraisals have added to loan processing delays.

North Jersey homeowners often have unrealistic notions of what their house is worth. When an appraisal comes in low, a time-consuming renegotiation of loan terms is likely if the deal isn't squashed. While area home prices appear to be stabilizing, appraisers say they still classify most towns in Bergen and Passaic counties as declining markets. That makes lenders even more cautious about those areas, because if a borrower defaults, they want assurance they could get their money back in a foreclosure sale.

Brokers and loan officers say borrowers' tempers will sometimes flare if they lose their rate lock, or if the loan process is long delayed and they are in a hurry to convert home equity into cash or lower their monthly payments. Loan brokers and sales representatives who work directly with the customers say they bear the brunt, even though they may have little control over the process.

"I've had a customer say to me, 'When are you going to stop sitting on your hands?'" said Jacqui Atcheson, senior mortgage consultant for Prospect Mortgage in North Bergen.

"I never had people talk to me this way."

(c) 2009, North Jersey Media Group Inc.

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