Roanoke Times
Copyright (c) 1995, Landmark Communications, Inc.
DATE: FRIDAY, October 21, 1994 TAG: 9410210049
SECTION: NATIONAL/INTERNATIONAL PAGE: A1 EDITION: METRO
SOURCE: KNIGHT-RIDDER/TRIBUNE
DATELINE: WASHINGTON LENGTH: Medium
Even if you pay your bills and don't pile up a lot of debt, applying for a home mortgage always has been like going through a financial inquisition.
There's the paperwork: tax forms, W-2s, pay stubs, property records. There's the prying: ``And why were you late on your Visa bill last January?'' There's the wait: up to 30 days.
Starting next year, that's going to change.
New computer technology likely to be in wide use in 1995 promises to make home mortgages a lot simpler - like getting a car loan now. It also should cut your costs.
Instead of waiting a month, you'll be able to close on your loan in five days. You might even get overnight approval. You'll need far less paper - pay stubs instead of tax forms. A computer will evaluate your credit and eliminate some of the nosy questions.
``I didn't feel as much under a microscope,'' said Doris Rogers of Santa Rosa, Calif., who in May got a high-tech, low-hassle loan from Monument Mortgage, a lender testing the new process.
Rogers is a psychotherapist. She and her husband, Jesse Boggs, a theater director, both earn part of their income from self-employment. That made them suspect to other mortgage lenders. One even asked her to produce a copy of her master's degree. Monument, based in Walnut Creek, Calif., approved their loan within a week.
``I didn't feel like we had to be apologetic about our lives, about our not having chosen to be employed by the post office for 25 years before applying for a mortgage,'' said Rogers.
Greater efficiency from computerization should yield savings that lenders can pass on by cutting ``junk fees'' or lowering interest rates. The new systems are being put online by big financial institutions like Freddie Mac and Fannie Mae and also by private lenders.
``What it means is we don't have to torture customers as much for documentation,'' said Donna VanOsten of PHH US Mortgage Corp. ``They can concentrate on day-to-day family issues that have to do with a move, instead of worrying about whether they need their W-2s from 1990.''
Like Monument, New Jersey-based PHH is one of several lenders testing a system designed by Freddie Mac, a government-chartered company that helps raise mortgage money from investors. Peter Maselli, a Freddie Mac executive, says the system will be sold to lenders in early 1995, and borrowers should notice a real difference by the end of the year.
``You will start seeing cheaper, streamlined mortgages become pretty widely available,'' said Maselli. ``We feel pretty comfortable that we can get $500 to $1,000 out of the cost of a mortgage.''
With the new systems, borrowers still fill out a loan application and provide pay stubs. After that, everything changes.
A computer will check your credit record and use statistical models to analyze your ability to pay the loan. Computers also will check the value of the home you want to buy, and any property you are selling. Eventually, computers are expected to handle much of the appraisal and title search work, cutting time and costs.
Freddie Mac's system can make a decision to approve a loan in as little as four minutes. Lenders testing the system say 40-50 percent of the loan applications get an immediate ``green light,'' and the rest are referred to loan officers for more work. About half of the referrals turn out to be minor problems.
Maselli says he believes the instant approval rate eventually will reach 75 percent.
Like credit cards, ATMs and other innovations, the computerized mortgage will make ripples that are felt in people's lives.
``This is going to have a kind of domino effect,'' said Jim Taylor of Midland Financial in Iowa.
Among the possibilities:
The psychology of buying and selling homes will change as the time frame for transactions is compressed. Both buyers and sellers will have to move more quickly to get what they want.
Buyers with good credit and enough income will gain an edge. The computer's blessing will increase their leverage. ``Clearly the biggest advantage will be felt by high-credit, quality consumers,'' said Chris Lewis of the Consumer Federation of America.
Buyers who don't receive immediate approval don't necessarily have to be losers. Because computers will be handling the routine mortgages, loan officers should have more time for the trickier cases. ``A consumer who doesn't get that green light is not unbankable,'' said Lewis.
Because computers will be looking only at dollars and cents, human biases on account of race, gender, ethnicity or other issues should be less of a factor.
Statistical models used by the new systems may enable some consumers to get a bigger loan. The reason: they give less weight to traditional guidelines for income-to-debt ratios, and focus more on a borrower's credit history. ``Freddie Mac has shown us those ratios are not as important,'' said Maurice Wilhelm of Mortgage America in Birmingham, Ala.
by CNB