The Boston market may finally be starting to recover, but some formerly underwater borrowers are still finding it tough to get out from under bad loans.
For Dorchester couple Paul Yates and John Feeney, attempting to get a refi on their Dorchester triple-decker turned into a five-month ordeal – one that’s still not over.
Yates and Feeney bought near the height of the market. Their neighborhood was hit hard by foreclosures and their house was quickly go underwater. It was only this summer that they were finally in a position to refinance.
“Everyone walked away from their three-families and we didn’t,” said Yates, an executive at a nonprofit drug rehabilitation program.
Yates and Feeney, a technician with the Massachusetts Water Resources Authority, had excellent credit and sufficient income, but because theirs was a multifamily property with a privately-held loan, their refinance options were limited. Last July, they approached Wells Fargo and applied for refinancing through a $360,000 Federal Housing Administration (FHA) loan.
Despite repeated assurances from the lender that their loan was on track – including issuing a commitment letter in August – the bank left the couple in limbo for another three and half months, repeatedly offering and withdrawing closing dates, before the couple broke off negotiations.
“They pulled our credit three times; they called our employers five different times to verify our employment, which is humiliating,” Yates said. “[My employer] was like, ‘What are you doing, applying for every loan in town?’”
Although Yates’ and Feeney’s ordeal was unusually lengthy, the process illustrates some of the hurdles borrowers are still confronting as they attempt to finally take advantage of low rates.
Bank of America’s unilateral withdrawal from mortgage servicing has led to considerable consolidation within the industry, with Wells Fargo the biggest beneficiary.
In 2004, Wells Fargo originated approximately one in 10 American mortgages. By last fall, during the time Feeney and Yates were applying, it was originating about one in three. According to the latest Mortgage Bankers Association rankings, Wells was the largest servicer of commercial and multifamily mortgages in the country in 2012.
But the past several years of low home values, and even lower rates, have meant servicing is not as profitable as it once was. At the same time, federal and state regulators are pressing servicers to offer more loan modifications, a complex and time-consuming process. Staffing levels haven’t kept up with the new demands, as even the servicers themselves seem to admit.
In an email provided to Banker & Tradesman by Yates, the couple’s loan officer blamed staff shortages for difficulties accepting their loan.
“What it comes down to is we are GROSSLY understaffed in our FHA department. And your loan is one of many in the same situation,” wrote Jason Fitzgerald, a mortgages consultant with Wells.
Jim Hines, a spokesman for Wells Fargo, said the bank has added 7,000 operations staff to deal with increased volume over the past year.
"Our goal is to make the application and approval process as seamless as possible for our customers…..Regrettably, Mr. Yates and Mr. Feeney’s experience was related to some of the challenges we were facing as a result of this unprecedented volume," said Hines.
Independent mortgage lenders say they’re having a much easier time bringing loans to completion than Yates’ and Feeney’s experience; most loans close in 45 to 90 days. But lenders say they’ve only been able to hit those marks by carefully pre-screening clients and preparing them for a lengthy and complex underwriting process.
“We’re starting to see improvements. That being said, it’s still rules over risk. Doesn’t matter how good a loan it is, it matters if it fits under the rules. And even if it does, sometimes [loan buyers] are still pushing back,” said Chip Poli, president and CEO of Poli Mortgage Group in Norwood.
Fannie, Freddie Dominate
Brian Koss, executive vice president of Mortgage Network in Danvers, said he is seeing that caution as well. A case like Yates’ and Feeney’s, where the appraisal comes in over value, will be red-flagged in the automated valuation models used by Fannie Mae and Freddie Mac to screen loans before purchasing them from the secondary market. With the GSEs and FHA holding a near-monopoly over the secondary market, lenders won’t dare approve a loan that doesn’t pass Fannie and Freddie’s muster, even if a borrower appears otherwise qualified.
“With the new system, as soon as the appraiser hits the button to send [his evaluation], Fannie and Freddie are collecting the data day one,” Koss said.
That leaves loan officers with less opportunity to use their experience and judgment to offer a loan if they feel a client is a good risk.
“Used to be if someone was out of work for a few months and went back to work you could get them a loan. Now, you have to wait six months before they’ll look at it,” said Poli.
In the meantime, Yates and Feeney are looking at their options. They’ve asked Wells to refund their $742 in application fees and submitted a formal complaint about their situation to the Consumer Financial Protection Board.
Email: csullivan@thewarrengroup.com
