Home Loans in the New Age

The world has changed, and so has the way you obtain your financing. Technology is always at the cutting edge, especially when there is money involved. The mortgage marketplace has certainly seen its share of innovation.

Prior to 1970 when Fannie Mae and Freddie Mac were created, the only way for someone to get a mortgage was through a big bank. The reason was simple. The big banks were the only ones with the capital to lend to someone for 15 or 30 years. This is the loan our parents got. They went into a bank, provided minimal documentation, and either got the loan, or didn’t. They were at the mercy of the bank, and the rate they received was what the bank wanted to charge them.

With the creation of Fannie and Freddie, a “lender” no longer needed to have the funds to lend to someone for the duration of their loan. Once the new mortgage recorded, the loan was sold, and the bank’s money was replenished. The beauty of the system is that it made more money available. As a result, mortgage rates today are significantly lower that what they were in 1970. One other huge change is volatility in rates. Rates now change daily. And sometimes, depending on what’s happening in the stock and bond markets, rates can change multiple times in one day. Think of mortgage rates like a stock price. If you’ve ever watched the financial channels while the market is open, a stock price rarely stays the same from one hour to the next, and certainly not from day-to-day.

Since loans are now sold to a third party, it’s not just the guy sitting behind the desk at the bank who says yes or no to your loan application. If a lender is looking to sell your loan, they must underwrite it based on the rules established by those buying them. That’s why the paperwork requirements of getting a mortgage today are significantly greater than when your parents got a mortgage.

The impact technology has in today’s mortgage world is best seen in how documentation flows from the borrower to the underwriter. Since underwriting guidelines today require the borrower to provide copious amounts of paperwork, the notion of dropping a packet off at the lender is from a bygone era. Documentation is no longer compiled in a folder and presented to an underwriter. The entire process has become digitized. Underwriters no longer have stacks of files on their desks.

With technology, we have become accustomed to speed. Who hates waiting for a webpage to load these days? The same is true for those trying to close your loan. If an underwriter needs clarification on something, or requests additional documentation, having you the borrower “put it in the mail” is no longer is acceptable.

If you want to take advantage of the best rates possible, and close your loan on time, be prepared to have the ability to scan and email documentation. Can one still do things “old-style”? Yes, but don’t have a reasonable expectation that things will move along quickly. Technology has been good for the mortgage industry, but it has placed a higher burden on you the consumer.

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