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Mortgage Paper Madness
Is there really such a thing as a 500-page mortgage application? I recently read about such paperwork and wonder if it's true or just a rumor.
During the past year there has been a lot of discussion claiming that it's become tougher to get a mortgage application than in the past. One bit of supporting evidence comes from David Stevens, the CEO of the Mortgage Bankers Association, who told CNNMoney that the "average" mortgage application now runs 500 pages, up from 100 just a few years ago.
For many borrowers, the thought of a 500-page mortgage application surely seems intimidating, but then the same can be said for applications with a mere 100 pages. In any case, do such paperwork dreadnoughts really exist?
In a strange way, the answer is yes and no, depending on whether you're a borrower or a lender.
Certainly it is true that at the height of the mortgage ramp-up, some mortgage applications could be stiletto thin – “no doc” loan applications, for example, contained just about no information other than a credit report and property appraisal.
Unfortunately, the trade-off for less paperwork was a massive number of foreclosures, which led to bank losses and lower home values.
Today, all “qualified mortgages” are required to have fully-documented loan applications, thus it is certainly true that a 2014 mortgage application is likely to have more paperwork than an application from 2006.
However, the benefit of such additional paperwork is obvious: In November, foreclosure levels were at an 8-year low, according to RealtyTrac.
Can there really be 500-page loan applications? From the borrower perspective, the answer is mostly no, especially for those who get their income from employment alone.
Where the paperwork begins to add up is with more complicated applications. Borrowers with rental units, for example, must provide leases, and leases can run 15 or 20 pages long. Bank account statements can run 15 or 20 pages per month, and lenders will want paperwork for at least two months. A residential appraisal can be another 20 pages. Retirement account paperwork adds to the load.
However, things really get complex at closing. At a recent settlement, we encountered 165 pages of documentation, including a good-faith estimate, a notice of right to cancel, a “certification” addendum to the HUD-1, truth-in-lending statements, IRS forms, an affiliated business disclosure, a compliance agreement, warehousing instructions and even a USA Patriot Act form.
Looking at a closing file that’s more than an inch thick, savvy borrowers will notice that much of actual paperwork from the consumer remains fairly minimal. The loan application itself is just five pages long – plus four pages of instructions.
The bulk comes from complete copies of various documents as well as the numerous forms lenders must create so the loan can potentially be sold to investors.
Can a loan application really run 500 pages? For borrowers with complex finances and big incomes, the answer is, no doubt, yes.
The good news is that much of the paperwork must be created and completed by the lender and not the borrower, so it’s not usually the borrower who must turn in 500 pages of documentation, it's the lender.
Peter G. Miller is the author of The Common-Sense Mortgage and a veteran real estate columnist. Have a question? Please write to email@example.com.View Foreclosure Article Archives
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