HOUSING: Mortgages still slow in Internet age

Real estate crisis lengthens time to close a loan

By ZACH FOX - Staff Writer | Monday, July 14, 2008 7:13 PM PDT ∞

In a world where electronic documents whisk around the globe, securing a mortgage still requires the transfer of stacks of paper between banks and title or escrow offices.

It costs borrowers more in time and money. And the mortgage industry implosion has made lenders even more reluctant to modernize loan procedures.

The result: It takes as long to process a home loan now as it did in the precomputer era.

"Someone can walk into a car lot and get a $125,000 Mercedes and drive out with the collateral into the night," said Mark Goldman, a loan officer and real estate lecturer at San Diego State University. "Why can't we do that with housing?"

Could all the processes and procedures involved in-house be sped up?

Yes, experts say, but it would require a streamlining of procedures in the funding process.

Any quantum leaps in mortgage processing remain light-years away; San Diego County has been branded a depreciating market that makes mortgage insurers skittish and many banks have closed their doors to new real estate loans.

Meanwhile, IndyMac Bank reopened Monday in custody of federal regulators. Nervous depositors were taking out $100 million a day from the Pasadena-based bank, which held billions of dollars in high-risk home loans.

If the lending process were entirely digitized and all parties involved responded immediately, a borrower could secure a loan in as little as two days, said Dave Hopkins, a mortgage broker with Rancho Financial, a firm in Rancho Bernardo.

A computer-only loan would also cut out more than $1,000 in fees, consisting mostly of administrative costs and overnight-mail postage.

In all, typical fees for a $600,000 loan run about $10,000.

Still, Hopkins and Goldman said, some of the extra time involved in a loan is necessary because using separate entities to check for the title of the property or account the fees charged prevent conflicts of interest.

And a streamlined process could create opportunities for abuse, they said.

But analysts see an opportunity to cut out much of the time if the mortgage industry took more advantage of technology.

"Realistically, it's a very archaic process," Hopkins said. "We are so removed from the digital world."

A real estate crash that began in November 2005 and has wrought a 28 percent decline in San Diego County home prices is keeping the digital age away, brokers said.

In turn, banks are examining the ins and outs of every loan, a policy that renders moot an automated underwriting program issued by mortgage giant Fannie Mae.

After entering a borrower's information, the program spits out whether Fannie Mae will back the loan.

Instead of using the software, lenders have tacked on additional rules that require a representative of the bank to review every loan.

Then, the lender could also issue arcane stipulations that the borrower must follow, such as paying off all credit cards, or even parking tickets.

Today, closing a mortgage in 20 to 30 days is considered quick ---- in part because of the amount of assurance lenders require when loaning hundreds of thousands of dollars against a piece of property.

But experts acknowledge the process is slow, restrained by wait times for various reports and the use of snail mail rather than e-mail. The biggest choke point is awaiting the lender's decision.

For example, a borrower could submit everything needed ---- pay stubs, bank statements, proof of insurance, a vetted appraisal, full title report and a hefty down payment ---- and still wait a week to hear from the bank.

Then, the lender could demand that the borrower pay off a decade-old $100 parking ticket before approving the loan, adding an additional three to five days to the process.

"It's the golden rule, and that's 'the one with the gold makes the rules,' " Goldman said. "But you can understand where they're coming from. If you screw up one loan, you have to do hundreds of loans to make up for that one loss."

Nonetheless, Goldman and others said they believe the mortgage industry is due for change.

Contact staff writer Zach Fox at (760) 740-5412 or zfox@nctimes.com.

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