From Rodney Dangerfield to Brad Pitt:
Tight Credit Raises Lenders’ Status
When credit was flowing a few years ago, lenders were a dime a dozen. Like Rodney Dangerfield, they “got no respect” (and frequently, didn’t deserve any).
Now that credit is tight, good lenders suddenly are a borrower’s best friend.
The turnabout is due to three things:
One. Tighter underwriting standards.
At the market peak in 2006, securing a plain-vanilla, 30 year mortgage required perhaps six to eight steps. Now, it’s more like two or three dozen. Income verification, credit history, loan-to-value ratios: all the yardsticks that lenders traditionally used to qualify borrowers — and that were relaxed or simply skipped when standards were lax — are now back, with a vengeance.
How fast your loan file progresses, or whether it does at all, is largely a function of how resourceful and attentive your lender is.
That’s especially true if your credit scores are marginal and/or the home you’re trying to re-finance is “equity-challenged.”
Two. With credit markets volatile and loans more segmented, the stakes are higher.
Yes, mortgage rates are dropping like a rock, but not for everyone. If you need a jumbo loan — over $417k in most markets — forget about 4.75%; you’ll likely pay closer to 7%. That’s why enterprising lenders are structuring bigger loans into two pieces: a conforming mortgage for $417k, and a non-conforming one for the balance.
Interest rates are also bouncing around more than they ever have. A few years ago, it was typical for mortgage rates to re-set a few times a week. Now, they can re-set a few times daily. The size of your monthly mortgage payment the next few decades could very well depend on whether your lender is vigilantly watching the market . . . or is out to lunch (literally).
Three. Fewer lenders.
In case you haven’t been paying attention, the subprime lenders that almost took over a few years ago, at least in some markets, are gone. They were either failed and were acquired (Countrywide, Wachovia), or more often, simply failed (Indy Mac, Washington Mutual, etc.).
Who’s left? In the Twin Cities, mega-banks like Wells Fargo and U.S. Bank, backed by myriad federal guarantees and insurance (Fannie Mae, Freddie Mac, FHA, etc.)
While the era of cheap (free?) money now appears to be at hand, the gatekeeper is your lender. Whether you’re let in to the promised land of low(er) payments depends at least in part on how good they are at their job.