It has been almost nine years since the darkest hour of the real estate crisis.  While the real estate and mortgage markets have improved significantly since 2008, many borrowers remain scarred from devastating events of that era.  Even if the the market collapse did not affect you directly, you probably know someone who experienced the traumatic impact of a foreclosure, short sale and bankruptcy.  Although no single party was responsible for the real estate implosion — banks, regulators and borrowers all share the blame — mortgage lenders attracted the most ire from borrowers and the general public.  

In light of the intense anger and frustration that was, and continues to be in some cases, directed at lenders, we wanted to use the FREEandCLEAR Mortgage Survey to understand how much borrowers trust mortgage lenders today.  How much faith do borrowers put in their lender? Or in other words, how much have the deep scars of the real estate crisis healed?

When asked how much do you trust your lender on a scale of 1 to 10, with 10 being the highest level of trust, a whopping 70% of survey respondents selected 7 or higher.  Additionally, the four highest rating options garnered the top four responses with a trust rating of 8 coming in on top with 21% of responses and the highest rating of 10 coming in second with 20% of responses. A lender trust rating of 9 out of 10 came in third, garnering 16% of responses.  

Borrowers trust mortgage lenders more than you would expect

We have to admit that these results surprised us as many borrowers continue to deal with the aftermath of the real estate collapse.  Although the deepest point of the crisis occurred almost a decade ago, borrowers continue to be impacted by the residual effects of impaired credit scores, toxic mortgages and to a lesser degree negative equity in their homes.

The unexpected FREEandCLEAR Mortgage Survey findings that show borrowers with a high level of trust in their lenders could be attributable to several factors.  First, prompted by new government regulations or on their own volition, a lot of lenders have cleaned up their act.  Some of the worst lenders and individual offenders involved in the mortgage market collapse have left the industry so there are fewer bad actors to mis-trust.  Additionally, many of the mortgage programs such as negatively amortizing option ARMs that produced so much borrower wreckage have been eliminated from the marketplace.  While both lenders and borrowers express dissatisfaction with increased mortgage regulations, there is little doubt that these reforms stabilized the mortgage market and in turn potentially helped restore borrowers’ trust in lenders.   

A second possible explanation for the positive responses to this question could be personal bias or blind spots.  Borrowers may not trust the mortgage industry on the whole or lenders in general but they trust their lender.  Put differently, your mortgage lender is shady but I trust mine.  After all, who wants to admit that they made a poor decision when they selected their lender?

Whatever the reason or rationale, borrowers trusting mortgage lenders is a positive development.  Getting a mortgage and buying a home remains the largest financial commitment for most borrowers so working with a lender that you trust to guide you through an overwhelming and sometimes confusing process is crucial.  Although mortgage lenders have a significant opportunity for improvement in both perception and practice, the findings of the FREEandCLEAR Mortgage Survey show that in the eyes of borrowers, the industry has come a long way since its darkest days, which we all can agree is a good thing. 

We will continue to provide a detailed analysis of each survey question on our blog in the coming weeks and you can review the full results from the FREEandCLEAR Mortgage Survey to better understand how borrowers think about and experience the mortgage process.

One of the key findings of the FREEandCLEAR Mortgage Survey is that borrowers find the mortgage process challenging, if not overwhelming.  One of the primary objectives of our survey is to identify the most challenging components of the mortgage process and better understand the source of borrowers’ frustrations.   Knowing what part of the mortgage process borrowers find most challenging should hopefully enable lenders and regulators to take steps to improve the mortgage process.

When asked to choose the most challenging part of the mortgage process, 56% of borrowers selected paperwork, more than four times the second place response of borrower qualification.  The response to this question reflects a common theme in the FREEandCLEAR Mortgage Survey: borrowers are overwhelmed and confused by the volume of documents involved in the mortgage process.

Borrowers think getting a mortgage requires too much paperwork

Over the course of the mortgage process borrowers are typically required to review over 50 separate documents comprising hundreds of pages.   Borrowers are often under pressure, such as during the mortgage closing process, and usually do not have time to fully comprehend the documents they are asked to review.  In many cases, overwhelmed by the volume of paperwork and in a rush to close their loan, borrowers sign whatever documents are put in front of them without understanding the meaning or purpose of the document.

Given the dynamic of not understanding a large number of documents that you have been asked to sign in a rushed time frame, it is no surprise that borrowers selected Paperwork as the most challenging part of the mortgage process.

The question then becomes what can be done to address this challenge?  Although all mortgage documents are intended to serve a specific purpose, usually legal or regulatory, the tremendous volume of paperwork clearly creates challenges for borrowers.  In many cases mortgage documents are designed to protect borrowers but as evidenced by the results of our survey, sometimes too much information, or documentation in this case, can be overwhelming.

The implementation of TRID in 2015 streamlined certain documents but significantly more paperwork has been introduced to the mortgage process in the aftermath of the real estate crisis.  Additionally, neither lenders nor government regulators are inclined to eliminate any documents that are intended to protect borrowers.

Digital and mobile lending platforms may streamline certain parts of the mortgage process but they do not reduce the number of documents that borrowers are required to review. Plus, under current laws, digital signatures are not usually permitted for mortgages.

The second and third ranked responses to this question, mortgage qualification and understanding your mortgage rate / closing costs, are also noteworthy and both selections registered more than 10% of survey respondents.  Borrower qualification requirements have certainly tightened since the real estate collapse and the more stringent guidelines appear to present a challenge for many borrowers.  Additionally, 12% of respondents found understanding their interest rate and closing costs to be the most challenging part of the mortgage process, perhaps due to the complexity of the APR and other figures used by lenders.  Understanding your mortgage rate and closing costs is fundamental to the mortgage process so this result is cause for concern.

While there are no easy answers to address these mortgage challenges, lenders and regulators would be well served to work together to implement solutions that make mortgage documentation, qualification and fundamentals more manageable and understandable for borrowers.

We will continue to provide a detailed analysis of each survey question on our blog in the coming weeks and you can review the full results from the FREEandCLEAR Mortgage Survey to better understand how borrowers think about and experience the mortgage process.

One of the main goals of the FREEandCLEAR Mortgage Survey is to understand what borrowers think about the mortgage process.  With over four decades of mortgage industry experience, our hypothesis prior to conducting the survey was that borrowers find the mortgage process challenging, confusing and perhaps even overwhelming.

When asked to compare the mortgage process to a range of pleasant to not-so-pleasant options, a combined 75% of survey respondents said their mortgage experience was most similar to an annual physical or going to the dentist, reflecting borrowers’ discomfort with the process .

The results of this question reveal that most borrowers put the mortgage process in the “unpleasant but necessary” category.  People usually do not look forward to their annual physical and most people certainly do not enjoy going to the dentist but we all should do these things regularly despite how uncomfortable they are.  

Borrowers do not enjoy the mortgage process

I think we can take some comfort that the annual physical choice came in slightly ahead of going to the dentist but both options reinforce that getting a mortgage is not something people enjoy or look forward to.  Survey respondents pointed to mountains of paperwork, challenging qualification requirements and confusing terminology as reasons for their dissatisfaction with the mortgage process.  

On a more positive note, 22% of borrowers indicated that the mortgage process was most similar to doing business with a good friend which is what both borrowers and lenders hope for.  Not surprisingly, only 3% of respondents compared the mortgage process to a nice meal while 1% of respondents enjoyed the process enough to compare it to a spa day — wouldn’t that be nice!!!  Unfortunately the stresses, challenges and complexities of getting a mortgage remind significantly more people of getting their annual check-up, or worse, getting a cavity drilled.

Based on the survey results, streamlining paperwork and enhancing borrower education are steps the industry could take to to improve the mortgage experience for borrowers.  With more lenders embracing technology solution as well as the continued evolution of regulations, the opportunity exists to make the mortgage process much more borrower-friendly in the future.   We hope that in version 2.0 of the FREEandCLEAR Mortgage Survey, when borrowers are asked to compare their mortgage experience, “doing business with a friend” becomes the top response.  While dentists are great for oral hygiene, when it comes to mortgages I think we would all rather work with a friend.

We will continue to provide a detailed analysis of each survey question on our blog in the coming weeks and you can review the full results from the FREEandCLEAR Mortgage Survey to better understand how borrowers think about and experience the mortgage process.

Federal Reserve Announces Rate Hike

In a highly anticipated move, the Federal Reserve announced that it increased the target range for the federal funds rate by .250% to .750% to 1.000%.  The Fed highlighted a strong labor market and increased household spending in explaining the rake hike.  Most industry observers expected a rate increase to come out of the March meeting after the Fed indicated in January that it could be “appropriate to raise the federal funds rate again fairly soon” depending on how inflation and the labor market performed.  Last week’s robust jobs report all but guaranteed the Fed’s decision to raise rates.  In a related announcement, the Fed also increased the primary credit rate (discount rate) by 0.250% to 1.500%.  We provide a link to the full Federal Reserve announcement.

Mortgage rates are relatively unchanged in response to the Fed’s announcement as rates had already spiked .125% to .375% last week in reaction to the strong jobs figures.  Most lenders had already factored the rate hike into their mortgage rate pricing coming into the week as rates touched new highs for 2017.  The interest rate for a 30 year fixed rate mortgage jumped .250% to 4.125% while the interest rate for a 15 year mortgage also increased .250% to 3.250%.  The interest rate on a 5/1 adjustable rate mortgage (ARM) edged .125% higher to 3.000%. 

Although VA and FHA mortgage rates continue to be attractive for home buyers seeking low down payment options, they were not exempt from the rising interest rate tide.  VA mortgage rates increased .250% to 3.625% while FHA rates climbed higher to 3.750%.  Jumbo mortgage rates and non-owner occupied rate also increased to 4.250% and 4.375%, respectively.

After drifting lower for most of 2017, mortgage rates have rebounded as the economic momentum appears to be building.  Although interest rates are impossible to predict, the Fed’s decision to raise rates along with its more aggressive commentary signal that mortgage rates will continue to rise over the course of 2017, potentially at an accelerated pace.  Prospective borrowers looking to buy a home or refinance may be able to lock in a lower interest rate by acting sooner rather than later, before mortgage rates go up again.

Because interest rates are unpredictable we continue to actively monitor mortgage rates for changes.  Borrowers should check the FREEandCLEAR mortgage rate tables regularly to review customized, updated mortgage rates for lenders in their area.  Our rate tables are free to use and require no personal information.