New regulations and tighter underwriting since the financial crisis have slowed down the mortgage process so much that closing a loan within 15 days is something lenders can brag about.
Carrington’s wholesale unit is promising lenders to be “ready to close" qualifying loans within 15 business days of it receiving an appraisal. It’s a far cry from where the industry once imagined it was heading.
At the height of the boom in 2006, Doug Duncan, then-chief economist at the Mortgage Bankers Association, predicted that process engineering could add enough efficiency that by 2016 the industry would be able to close a loan within three days. Others at the time thought it could happen even sooner.
Efficiencies had indeed improved between 1993 and 2003 when overall loan processing times had been cut by one-third, but 2006 was a time of notoriously loose underwriting and the subsequent crash and reform that followed have since served to lengthen closing times back out.
In one regard, Carrington is setting a high bar for itself. Historically, the time it takes to close was measured against when a loan was approved, after the underwriting department had signed off, says David Lykken, managing partner at consultancy Mortgage Banking Solutions. The appraisal is usually the last document submitted before underwriting commences, he notes. So Carrington is starting the clock earlier than lenders usually do.
"This is really due to making sure we deliver a consistent process each time, starting from appraisal receipt allows us to remove any variability in timing of appraisal (especially full appraisals) with regards to scheduling, etc.," said Carrington EVP Ray Brousseau, in an e-mail.
"For certain loan programs that do not require an appraisal, the clock can start at submission to underwriting (with all the required documents.) An example may be an FHA Streamline Non-Credit Qualifying Refinance. For those requiring an appraisal – it starts after the appraisal is received, which then is submitted to underwriting. These are prior to underwriting approval," he added.
The average time between receiving an appraisal and being ready to close may be about 18 to 20 days, but depending on how lenders handle the new rules from the Consumer Financial Protection Bureau, this part of the process may take even longer, says Lykken. Interpretations of the new borrower notification rules related to valuations so far have varied.
Since those rules took effect last month, there has been "more focus on the appraisal, but I think other processes are going to be challenged, too," Lykken says.
“The overall mortgage lending process is getting longer. This is a trend that's really going to continue. There is more of an opportunity for things lengthen any time you introduce regulation. More processes require more time."
Process re-engineering is helping mitigate this somewhat but new rules keep adding to timelines, at least temporarily, says Lykken.
Carrington promises it will apply a $500 closing cost credit to the loan at closing if it takes more than 15 days.