Simpler Documents for Complicated Process

FEB 12, 2013 5:22pm ET

WE’RE HEARING…that the mortgage supply chain still needs more accountability and there is a more effective, simpler and even-handed way to provide it.

“I think it’s time for the regulators to move away from trying to find ways to get borrowers out of obligations and on to ways to help borrowers simplify the borrowing process,” Steve Calk, chairman and CEO of The Federal Savings Bank, tells us.

Lenders should be accountable, too, but that accountability should not be one-sided or extreme, he says. “Originators should not be being forced to buy back loans because the middle initial before the borrower’s last name wasn’t dotted, that’s inappropriate,” Calk says.

Rather, he suggests, regulators like the Consumer Financial Protection Bureau, should “create the simplest, most automated most auditable process” they can and then reduce their new rulemaking role in order to concentrate on enforcement.

“I’m really concerned that the more complex the process becomes, the more it dissuades the American public from investing in their first home,” he says.

Calk says there is frustration on behalf of consumers as well as the lending and securities industries because of this, and while regulators have shown interest in simplification as a goal, complexity has nevertheless persisted.

He says he finds borrowers are “completely baffled by not only the entire application process but the length of the application and the time it takes to get a simple, conforming A-paper loan approved and closed.”

Calk raises the question: “Why isn’t the loan application a one-page document with supporting documentation provided by the borrower? And why isn’t the mortgage and note a one-page document with a giant…warning…that says, ‘You have borrowed this money. If you do not pay it back you will lose your home and all your collateral, your home and your appreciation, etc.? At the end of the day, everything else is just fluff.”

Borrower as well as lender accountability is key, Calk stresses.

“Americans and society need to understand that borrowing money is a privilege, just like any indebtedness is,” he says. “Whoever lends you that money expects to be repaid, and there are people who their retirement checks are coming from those mortgage-backed securities and there are benefits paid from those mortgage-backed securities.”

Calk says lenders should still be “extremely sensitive” to borrowers’ situations, “especially when talking about active duty military putting themselves in harm’s way” for the country. But generally borrowers should take their responsibility to repay seriously. And a simple, prominent disclosure might go a long way toward making sure they do that.

Bonnie Sinnock is managing editor of National Mortgage News and editor of Origination News. She has been covering the mortgage industry since 1995.