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.

Over One Third of Borrowers Compare the Mortgage Process to Going to the Dentist

According to the Inaugural FREEandCLEAR Mortgage Survey

FREEandCLEAR is excited to release the initial thought-provoking results from its inaugural Mortgage Survey.  The mortgage survey provides an insightful analysis of how borrowers think about, experience and understand the mortgage process.

Over one third of borrowers compared their mortgage experience to going to the dentist

The initial results of the FREEandCLEAR Mortgage Survey explore critical issues including the borrower experience, mortgage challenges and lender trust.  You can view the survey results at: https://www.freeandclear.com/community/mortgage-survey.html.

Some of the more compelling findings from the survey include:

• 34% of borrowers said their mortgage experience was most similar to going to the dentist and 41% compared their experience to a physical — the challenges of getting a mortgage remind borrowers of getting a physical, or worse, getting a cavity drilled!

• 56% of borrowers said paperwork was the most challenging part of the mortgage process — borrowers are overwhelmed by the volume of documents involved in the mortgage process

• 70% of borrowers responded with 7 or higher when asked how much they trust their mortgage lender, on a scale of 1 to 10 — lender trust remains relatively high despite the fallout from the mortgage crisis

FREEandCLEAR commissioned the third-party survey to continue to enhance our understanding of mortgage borrowers.  The better borrowers understand the mortgage process and the better lenders understand borrowers, the better the results for everyone, which is the ultimate goal of the survey and FREEandCLEAR.

The full results of the FREEandCLEAR Mortgage Survey will be revealed over the next several months.  Future releases of survey results explore important topics such as Lender Selection, Borrower Education and How to Improve the Mortgage Process.

We encourage you to review and share the results of our survey with your colleagues and friends.  We also invite you to send us your feedback as well as any ideas on how we can improve future surveys (this is only the beginning!).  Thank you for reviewing the FREEandCLEAR Mortgage Survey — we hope you find it as informative and entertaining as we do.

About FREEandCLEAR

FREEandCLEAR is a leading mortgage website that offers free tools and resources that empower people to find the mortgage that is right for them.  FREEandCLEAR was developed by a father and son team who are on a mission to help people make better decisions and save money when they get a mortgage.  Our valuable resources and mortgage rate tables put borrowers in control of the mortgage process and enable them to more easily shop for a mortgage.

In one of his first official acts following his inauguration on January 20th, President Donald Trump signed an executive order suspending the cut in the annual FHA mortgage insurance premium (MIP) announced by the Department of Housing and Urban Development (HUD) on January 9th, 2017.

The reduction in FHA mortgage insurance was the last major housing policy initiative announced by HUD under the Obama administration.  Although the announced FHA mortgage insurance cuts were well received by borrowers and community housing advocates, some questioned the timing of the policy announcement.  Many industry observers had speculated that Trump would reverse the cuts when he took office so his action did not come as a total surprise.  The timing might have caught some people off guard; however, as few expected Trump to act on this issue within hours of being sworn in as President .

The lower annual FHA MIP rates were supposed to apply to all FHA mortgages that closed on or after January 27, 2017.  Given the timing of President Trump’s executive order, no borrowers were able to benefit from the reduced FHA insurance rates.

The announced cuts reduced the ongoing FHA mortgage insurance premium by almost half for some borrowers.  For mortgages with terms longer than 15 years, the new FHA MIP was supposed to range from .55% to .60% of the loan amount but returns to existing rates of .80% to 1.05% of the loan amount, depending on loan length, loan amount and loan-to-value (LTV) ratio.  For mortgages with terms of 15 years or shorter, the new FHA MIP was supposed to range from .25% to .50% of the loan amount but returns to existing rates of .45% to .95% of the loan amount.

• FREEandCLEAR provides a thorough explanation of the FHA Home Loan Program including the current up-front and annual FHA MIP rates.  You can also use our FHA Mortgage Qualification Calculator to calculate what size FHA loan you can afford as well as your up-front and annual FHA mortgage insurance fees

If implemented, the FHA insurance cuts could have saved borrowers hundreds of dollars a month and thousands of dollars a year.  For example, for a $200,000 30 year fixed rate loan with a loan-to-value (LTV) ratio of 96.5%, the annual FHA mortgage insurance premium based on the new rate (.60% of the loan amount) would have been $1,200 or $100 per month as compared to $1,700, or $142 per month, under the current FHA mortgage insurance rate (.85% of the loan amount).

The annual FHA MIP reduction for certain loans under the FHA Streamline and Simple Refinance programs was also reversed.

The suspension of the FHA insurance cuts was positioned as a way to allow newly appointed HUD secretary Dr. Ben Carson to make his own decision on this policy matter so it is possible that we could see more changes to the FHA Mortgage Program and MIP fees in the future. 

 
As always, FREEandCLEAR keeps you apprised of any housing policy changes and offers free tools and resources to evaluate how HUD decisions affect borrowers.

HUD announced that it is lowering the annual mortgage insurance premium (MIP) on FHA loans that close on or after January 27, 2017.  Lowering the annual FHA MIP reduces the ongoing monthly cost for borrowers with FHA mortgages and makes the FHA program more competitive with other low down payment mortgage options such as the HomeReady Mortgage Program.

The new FHA MIP rates represent a significant reduction relative to the prior rates, enabling borrowers to reduce their total monthly housing expense which makes owning a home more affordable.  

The annual FHA MIP rate depends on loan term, mortgage amount and loan-to-value (LTV) ratio with the new FHA MIP ranging from .55% to .60% of the loan amount for mortgages with terms longer than 15 years.  This compares to prior FHA MIP rates of .80% to 1.05% of the loan amount for for mortgages with terms longer than 15 years.

For example, for a $250,000 30 year fixed rate loan with a loan-to-value (LTV) ratio of 96.5%, the annual FHA MIP based on the new rate (.60% of the loan amount) is $1,500 or $125 per month.  This compares to $2,125, or $177 per month, under the previous FHA MIP rate (.85% of the loan amount).

For mortgages with terms of 15 years or less, the new annual FHA MIP ranges from .25% to .50% of the loan amount as compared to the prior FHA MIP rate of .45% to .95% of the loan amount.

• FREEandCLEAR provides a comprehensive overview of the FHA Mortgage Program including the updated FHA Mortgage Insurance Premium rates.  You can also use our FHA Mortgage Qualification Calculator to determine the upfront and annual FHA MIP fees for any loan based on the new MIP rates.

The annual FHA MIP is also reduced for certain loans under the FHA Streamline and Simple Refinance programs.

Although the upfront FHA MIP fee remains unchanged at 1.75% of the loan amount for most mortgages, the reduction in the ongoing annual MIP is a significant boost for prospective home buyers who lack the funds to make a significant down payment.  Combined with the increase in FHA loan limits for 2017, the lower annual FHA MIP should make home ownership more attainable for more people.

The timing of the HUD announcement created a stir as this is likely the last major housing policy announcement before the new administration takes over.  It will be interesting to see if HUD secretary nominee Dr. Ben Carson accepts the new rates or implements his own changes to the FHA Mortgage Program and MIP fees.  

FREEandCLEAR will keep you abreast of any developments and provide the tools and resources to understand how FHA policy changes impact mortgage borrowers.

2017 brings higher loan limits across the board for conforming, FHA and VA mortgages.  This is the first year since 2006 that the standard loan limits increased for these mortgage programs.  The higher loan limits reflect a recovering housing market and modest home price appreciation over the past several years.  After eight long years, the housing market appears to have finally dug itself out of its deep hole.

The higher loan limits should expand the number of borrowers who can access conforming, FHA and VA mortgages which is beneficial as home prices continue their gradual rise across the country.  

FREEandCLEAR offers a number of resources that enable you to check updated 2017 loan limits including Conforming, FHA and VA Loan Limit Calculators.  Below, we summarize the loan limit changes for each of these mortgage programs and highlight the FREEandCLEAR tools you can use to determine the 2017 loan limit for your county.

2017 Conforming Loan Limits

In the contiguous United States and Puerto Rico, the general conforming loan limit for a single unit property increases from $417,000 to $424,100 in 2017.  The 2017 conforming loan limit for a single unit property in a high cost area increases to $636,150.  The conforming loan limit for a four unit unit property ranges from a standard limit of $815,000 to $1,223,475 in high cost areas.

In Alaska, Hawaii, Guam and the U.S. Virgin Islands, the general 2017 conforming loan limit for a single unit property is $636,150 while the loan limit in high cost areas is $954,225.  The 2017 conforming loan limit for a four unit unit property ranges from a standard limit of $1,223,475 to $1,835,200 in high cost areas.

FREEandCLEAR Resources

• Conforming Loan Limit Calculator
• The Difference Between Conforming and Non-Conforming Mortgages

2017 FHA Loan Limits

In the contiguous United States and Puerto Rico, the basic standard FHA loan limit for a single unit property increases from $271,050 to $275,665 in 2017.  The 2017 FHA loan limit for a single unit property in a high cost area increases to $636,150.  The FHA loan limit for a four unit unit property ranges from a basic standard limit of $530,150 to $1,223,475 in high cost areas.

In Alaska, Hawaii, Guam and the U.S. Virgin Islands, the general 2017 FHA loan limits range from $636,150 for a single unit property to $1,835,200 for a four unit property.

FREEandCLEAR Resources

• FHA Loan Limit Calculator
• FHA Mortgage Qualification Calculator
• FHA Mortgage Program Overview

2017 VA Loan Limits

In the contiguous United States and Puerto Rico, the 2017 basic standard VA loan limit is $424,100 and the high cost area VA loan limit is $636,150.  In Alaska, Hawaii, Guam and the U.S. Virgin Islands, the 2017 VA loan limits range from a basic standard limit of $636,150 to $954,225 in high cost areas.

FREEandCLEAR Resources

• VA Loan Limit Calculator
• VA Mortgage Qualification Calculator
• VA Mortgage Program Overview

As always, all the resources on FREEandCLEAR are free to use.  We encourage you to use our tools to understand how the 2017 loan limits apply to you and share your feedback.  We always welcome input on how to improve FREEandCLEAR for our users.

Fannie Mae recently incorporated the use of trended credit data as another input in the mortgage qualification process. In short, Fannie Mae is a government-sponsored enterprise (GSE) that develops mortgage programs and underwriting policies.  Fannie Mae also provides capital to lenders by buying mortgages from them.  Although the policies and practices used by Fannie Mae do not apply to all borrowers, lenders or loans, they have meaningful impact on borrower qualification guidelines across the mortgage industry.  Because of Fannie Mae’s status within the industry, the use of trended credit data is a development all mortgage industry participants should monitor and understand.

What is Trended Credit Data?

A traditional credit report contains information on a borrower’s current debt account balances, credit usage and availability and on-time payment history.  By comparison, trended credit report data contains monthly information on how a borrower has managed their credit and paid their bills over the prior twenty-four months.  For example, trended credit data shows if borrowers have made the minimum payment, paid more than the minimum payment or consistently paid off their credit card balances on a monthly basis over the prior two years.  

How Is Trended Credit Data Used?

Trended credit data provides lenders with additional and more granular information that they can use as an additional input to determine if an applicant qualifies for a mortgage.  For example, research shows that borrowers who consistently pay more than the minimum required monthly payment or who regularly pay-off their credit card bills are significantly less likely to default on their home loan.  With these borrowers, trended credit data provides more relevant information to inform the lender decision-making process than a standard credit report which only offers a snapshot of a borrower’s credit profile at a given point in time and may not give the borrower proper credit for effectively managing their finances.  

What About Your Credit Score?

It is important to highlight that trended credit data does not replace a borrower’s credit score and your credit score remains an integral factor in determining the mortgage rate you pay on your loan.  Trended credit data that demonstrates an applicant’s ability to consistently repay debt over time, however, may enable more applicants with lower credit scores to qualify for a mortgage.  The use of trended credit data in the mortgage process should also motivate borrowers to consistently make more than the minimum payment on their credit card accounts, which has the added benefit of saving them money on interest expense.

What Borrowers Should Do

Because trended credit report data was implemented relatively recently, applicants should ask lenders if it will be used in the mortgage qualification process and understand if using trended credit data helps or hurts their ability to qualify for a mortgage.

It will also be interesting to see if trended credit data is adopted as a borrower qualification factor more widely across the mortgage industry.  In the meantime, borrowers should continue to proactively manage their credit profile by making sound financial decisions such as paying down their credit card bills and other recurring debt over time.

FREEandCLEAR provides a comprehensive overview of your credit score and the mortgage process, including the use of trended credit data, that borrowers should review before applying for a home loan.